It’s natural to want to grow your business organically, but there can be times when you are presented with an opportunity to purchase another local landscape company’s clients.
This can occur when the other owner is transitioning away from a certain customer base or if some circumstances make it too challenging for that company to keep all of their clientele.
“In my experience, the seller is usually the one making the initial contact,” says Ken Hochkeppel, principal consultant with Enterprise Analysis. “And typically, there’s something amiss, like a serious illness, or they lost some key employees, or they’re having financial trouble or maybe they’re upside down on the jobs. To be selected as the one the seller approaches, you need to be visible, maintain a positive reputation in your market and be an active leader in the industry.”
Jack Jostes, president and CEO of Ramblin Jackson Inc., adds you can become more visible through in-person networking at NALP events like ELEVATE and getting involved with your state association.
Pros and Cons of Buying Accounts
The most obvious benefit to buying accounts is the boost in revenue. Depending on the client list, it can also help with your route density if the new customers can fit with your existing fleet and staff. Jostes says buying accounts saves you from all the marketing required to acquire that customer.
“One of the pros of buying accounts from somebody else is that they already have a customer in your target market,” Jostes says. “They are used to paying for professional services. Chances are they’re not getting their lawn mowed by the kid down the street if they’re already hiring a local professional landscape company.”
Hochkeppel says one of the possible drawbacks to purchasing just customer accounts is that you may have difficulty integrating the new business, as unlike an acquisition, you are not receiving staff, trucks and equipment. This could become a struggle to find reliable labor to take on this new influx of properties.
Jostes says another risk with buying another landscape company’s accounts is those customers may have a lower standard of quality and possibly a lower price point. Alternatively, they could have a higher standard of quality and frequency of communication than you are accustomed to providing.
“If there’s a gap in the service that’s being delivered, you’re going to have an unhappy customer and that could lead to bad reviews for you,” Jostes says. “If you’re paying someone for that account and then they quit. You have bad word of mouth and you paid a lot for a customer that isn’t paying you anymore.”
Factors to Consider
Because there is the risk of these new clients terminating the contract once you’ve acquired them, it’s critical to vet these accounts before purchasing.
Jostes suggests asking questions like ‘How often are you mowing?’ ‘How many man hours are you assigning that account?’ and ‘What is the price point you’re charging the customer?’. Doing your homework will give you a better idea of if these are clients you want to take on. He adds that in some cases, if the pricing gap is too wide, it’s much harder to retain those accounts. It’s best to buy accounts from companies that have similar values to your own.
“First, do your due diligence, review contracts, estimates & job costs,” Hochkeppel says. “Know the man hours, crew size and equipment being used. If possible, observe their crew service the accounts. Then estimate the jobs as you normally would with your own estimating system and compare.”
Some other questions to ask include:
- Why are they selling?
- Can we fit this work into our existing book of business?
- Will the work complement our existing book, both in quality and location?
- Where are we regarding earned revenue versus invoiced revenue?
- Are any of the contracts “non-transferrable?”
Another consideration to look at is what services these customers have bought to determine their potential enhancement and upsell value.
“I would pay more for a client that I could upsell more to,” Jostes says. “Maybe my company does pest control. Maybe I do mosquito and tick control. Maybe I do sprinkler repair and sprinkler turn-ons. If I have more services to offer, then that new customer would be worth more to me.”
To determine if the asking price for the accounts is too high, consider your current marketing and customer acquisition costs.
“You need to look at the lifetime value of an account that you acquire,” Jostes says. “If you retain an account for, let’s just use round numbers, $10,000 a year for five years, it has a $50,000 lifetime value. Then you could look at your profit margin on that and decide how much of my gross profit would I be willing to pay in marketing to acquire that customer?”
Jostes recommends knowing the amount you’re willing to spend before entering into a conversation about purchasing another company’s clients.
Retaining Customers Post-Purchase
The tricky part of buying accounts from another business is ensuring those customers stay with your company to make the purchase worthwhile.
Jostes highly recommends sending a warm introduction from the previous company’s owner and account manager to your new customers. He suggests doing this with a recorded video that can be sent out versus a cold email from your company or, even worse, just having your crew show up at their property one day with no explanation.
“I would send a video via email and/or text message, email and phone call, and send something print like a postcard,” Jostes says. “That’s how I would do it. I would do it really thoroughly so that way the customers have multiple touch points.”
Hochkeppel agrees you should message this transition jointly, preferably in person and with a written announcement both parties agree to. He says retaining these customers mainly comes down to doing quality work, providing what’s in the contract and building strong client relationships with good communication.
Providing easy billing is another way to help with customer retention after a transaction. Jostes says if the price is higher with your company, you can ease customers into that change by charging the same rate as the old company for the first six months.
Request feedback from these new clients early on and touch base with them a few months down the road to see how satisfied they are with your services. By staying in contact with these new accounts, you can remedy issues before a cancelation occurs. Because these purchases are risky, Hochkeppel suggests paying for the contracts over time.
“The duration might depend on the timing of the acquisition,” Hochkeppel says. “You’d like to get through two contract renewals. So, payment would be made in three installments over the two years based on the contracts that renewed. The second method would be to place the funds in an escrow account held by an attorney.”
