Motivating customers to prepay

January 9, 2015 -  By

Owning and managing a seasonal business has its challenges. Even the most profitable and thriving business can be out of business if it doesn’t properly manage cash flow.

In other words, if there’s not gas in the tank, the engine’s not running. I experienced this first hand with my company, Noon Turf Care. A few years ago we had a late start to our season when an early spring snowstorm hit, and we were shut down for more than a week. Needless to say, the money still went out to cover wages, vendors and early spring marketing expenses, but there was no revenue being billed and thus no money coming in. We had to scramble to tighten up cash flow by extending our credit line.

I vividly remember a few sleepless nights before our weekly payroll was due. As I look back on it today, it was a pretty frightening experience but one that allowed me to learn a valuable lesson: Cash is king and cash flow is one of the key fundamentals to finance.

The lawn care segment is fortunate to have a couple of the large first movers in the industry, during its inception, pioneer the prepay concept. When I entered the industry, I was in awe of some of the larger lawn care companies that hundreds of thousands (and in some cases, millions) of dollars sitting in their bank accounts, as their customers would take advantage of their discounted seasonal lawn care program price. Their customers would send a check in November for services that would be performed as many as 14 months later.

In essence, savvy lawn care companies leverage their large customer bases as banks to provide working capital for the following season.

Say what you want about the large, national company that dominates the lawn care industry—it’s done a phenomenal job training consumers to pay in advance, thus making it possible for large and small lawn care companies to survive in a seasonal business. Many lawn care consumers (especially in seasonal markets) are trained and conditioned to promptly pay their lawn care bill for the entire season when they receive their prepayment program and letter in the mail to receive savings of up to 10 percent. My company projects 40 percent of our clients to prepay this winter, which equates to nearly $3.2 million.

Prepay benefits

The benefits of incentivizing your customers to pay in advance for your services in the fall and early winter months for the following season are:

1. Creating and cash flow for winter and early spring operating expenses.
2. Higher client retention. Locking them in early significantly decreases likelihood of them cancelling throughout the course of the following season or them being taken by a competitor prior to the start of the next season.
3. A decrease in administrative expenses as employees spend less time tracking and receiving billing calls and questions, which means you can reduce your administrative headcount.
4. A decrease in receivables.
5. A large decrease in client bad debt write-off, as it’s always a better conversation with a customer when their money is in your account versus theirs.

So how do we get our customers to prepay for our services? This is the challenging part and one that requires your company and team members to be disciplined and consistent.

Techniques include creating an effective prepay letter and setting up a mailing schedule.

When you create your prepay letter, be sure to include a description of services, general timing of when services will be performed, program pricing, supplemental services and the total amount saved by prepaying. For those with seasonal businesses, I recommend sending out two or three prepay letters starting in November and ending in late February. To properly condition clients to prepay, be consistent about when and how you mail the notices every year. I recommend stating in bold print what the offer is and the date the discount ends. Fleeting discounted rates add urgency to your prepay letters and ultimately create a consistent call to action.

For example:
Letter 1:  Mailed in early November with a prepay discount of 10 percent. Expires Dec. 1.
Letter 2:  Mailed in early December with a prepay discount of 7 percent. Expires Jan. 1.
Letter 3: Mailed in early January with a prepay discount of 5 percent, which you can afford to have an extended expiration date of March 1 (since it’s your last letter of the year).

Other persuasive techniques to communicate to clients the benefits of prepaying include the following:

Price increases: Offering an exemption from your company’s annual price increase also may encourage your clients to prepay by stating on the letter if they prepay they’ll be exempt from your company’s annual price increase.

Scarcity and exclusivity: Include a message of scarcity and exclusivity by communicating to your customers that there’s a finite amount of clients your company can service in a timely manner come spring time. Telling them that prepaying for services will guarantee them a slot on their lawn technician’s route also adds the urgency needed to motivate them to prepay. It’s important to let them know there’s a short window in the early spring for their preemergent application to be applied. It will reinforce their belief that prepaying will help guarantee them prompt and timely service.

Going green: By incentivizing customers to prepay for your services, you eliminate the need for paper statements, which is environmentally friendly. Although it might not seem to be very effective, by nature people will inherently want to do the right thing for the environment especially when it saves them time and money.

Time and hassle: A final technique that can be helpful to increase the volume of prepayments is letting your clients know the amount of time and hassle they’ll alleviate for themselves by prepaying. You make one payment for the year and then you have the peace of mind by having all of your lawn care needs fulfilled. This eliminates constant check writing, credit card payments and invoices you need for which are typically small-ticket items in terms of price.

This article is tagged with , , and posted in Business, January 2015

About the Author:

Chris Noon is CEO of Noon Turf Care in Marlborough, Mass., and owner of Green Light Consulting Services.

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