Depending on your lawn or landscape company’s location, how seasonal the business is will vary but no matter where you’re located being able to secure recurring revenue over 12 months is always ideal.
It may sound like a no-brainer to implement budget billing for your landscape company to improve cash flow, but planning and certain considerations should be taken first.
Pros of Budget Billing
For High Prairie Landscape Group, LLC, based in Edwardsville, Kansas, they have been using budget billing for their garden care contracts since 2013. Owner and CEO Robyn Schmitz says it offers them consistent cash flow and ease of predictability with financial and production-related projections.
“Due to landscape maintenance services being seasonal in nature, leveled monthly payments can provide both the client and company cash flow relief,” says David Arnold, managing partner of Two Twelve Advisors, based in Ferndale, Washington. “In the peak season, the client benefits from a fixed-rate payment schedule. In the slow season, the company benefits from a fixed-rate payment schedule.
Aside from improved cash flow, budget billing also can allow a business to keep their staff on year-round. Schmitz says they haven’t laid off any employees in several years and it has increased retention, morale and stability.
During the slower months, her staff transitions to season-appropriate work such as holiday lighting, winter watering, structural pruning, assisting the construction division and participating in training and education.
Arnold stresses that keeping employees on year-round is influenced by services provided during the seasons. He says staffing needs should directly represent work that needs to be performed.
“In some cases, specific services can be pushed to a slower season to reduce the burden of the busy season,” he says. “An example is pruning. Some types of pruning can be done in the dormant season rather than late fall, therefore extending your normal season, delaying the slow season.”
Cons of Budget Billing
While budget billing can be a good idea on paper, it hasn’t necessarily worked for every company. In the case of Paragon Landscape Inc., based in Harlan, Indiana, they have offered budget billing to clients for 10 years, but over the past two years, no clients have used the option.
President Trent Schrock says they thought people would want to pay the same amount every month for their annual services. Instead, they only had 5 to 10 percent of their service clients opt-in for budget billing.
“People seem to prefer paying for their larger services, such as spring clean-up and mulching, as they occur, and their regular services such as mowing and pruning on a monthly basis,” Schrock says. “When I think about it, this makes sense to me. This is how I buy. I don’t want to pay for an April service in November, so I prefer to pay for things as I buy them.”
Schrock says another issue they had with implementing budget billing was their accounting software made the process difficult.
“The result was a complicated spreadsheet that required a lot of hand entry and was vulnerable to mistakes on our end,” Schrock says. “We have a great office staff, but the extra time required for this one option wasn’t worth the amount of effort required.”
Another con of budget billing is the case where a client wants to cancel before the end of the 12-month contract. Schmitz says they include in their contract that reconciliation has to occur for the actual hours and services provided.
“As a business owner, you have to understand that you may perform work early in the year that you won’t begin to see profits on until later in the year,” Schmitz says. “This means you have to plan accordingly.”
Arnold agrees that whether or not you have fixed-rate payment schedules, companies still need to exercise financial discipline to ensure their cash is managed appropriately.
How to Implement Budget Billing
If you want to leverage the cash flow benefits of budget billing, Arnold says a fixed-rate payment schedule should be standard, not optional for clients. High Prairie only offers packages centered around budget billing for their garden care division. Schmitz says the key is educating your clients.
“Customers are not reluctant to sign a 12-month contract when they are educated about how that contract works,” Schmitz says. “When a landscape professional educates their client on how the services will be allocated, how the billing will occur, and how it benefits the consumer, there are no issues.”
Most clients appreciate the ability to budget the payments consistently across 12 months. Arnold discourages increasing service prices to encourage customers to buy a 12-month package. It’s more important the client understands the benefits to both parties.
Schrock says companies should make sure their accounting software can intuitively handle whatever options you’re offering your clients. He also advises considering offering other payment options as well.
“A lot of our clients actually prefer to pay their services a year ahead,” Schrock says. “This is simple in our books, easier on our staff, helps our cash flow, and many clients like it. It’s worth the 2-3 percent discount we offer for them to pay their year in advance.”
Arnold agrees that pre-payment discounts can be another tool to assist with cash flow. However, he says financial discipline is required for pre-payment discounts to be effective.
“If the monies are used for unintended purchases and not as cash flow relief, one may find themselves in a worse position,” Arnold says.
Also, don’t forget to ask your clients what they prefer.
“One suggested we bill electronically with a payment option,” Schrock says. “When we began offering this payment method, about 20 percent of our service clients instantly switched to this option. It’s easier for them to click a button and pay online than writing a check. It was a great suggestion and guided us into a good option that was a perfect fit for many of our clients.”
