Episode 348 – Strategic Pricing For Buying Competitor's Accounts
Today we’re talking with return guest Derek from Lynchburg Organic Cleaning.
Derek has the opportunity to buy another cleaning company in his area. The other company wants to sell outright, including vehicles, equipment, accounts, website, etc. Derek doesn’t necessarily need equipment, vehicles or a website but is interested in gaining the accounts of this company.
He’s taken a look at the logistics of pricing and has noticed that this company prices 20-30% lower than he now offers. Without contracts in place, how much should Derek charge each account and how does he make this transition as seamless as possible to avoid losing clients?
The first step is to start with the next month, six month, year, etc. goals of his company. Derek’s current goal is to stop cleaning so that he can focus on his business more. Immediately I know that this acquisition would make him have to clean more and move him farther away from his goal.
The second step is to look at the pricing. Since these customers are underpriced in comparison to Derek’s current rates, it’s going to cost him to bring on these new customers. For each client he receives, he doesn’t want to pay more than three months of gross profit. For example, if a client brings in $200 of gross profit per month and it costs $100 a month to clean for them, you want to pay no more than $200-$300 for that client.
It’s also important in acquisitions not to focus on contracts or the lack of. You can’t force somebody into paying you to clean their house. Even with a contract, any of these clients could leave tomorrow.
As cleaning company owners, we tend to think that buying somebody else’s customers is easier than getting our own. But, if you have the right systems in place you’ll find the total opposite. In my opinion, the smart move here is to tighten up the systems that bring in new clients so Derek knows he’s taking on clients that he wants. If he can create a system that brings in 20 leads, 10 bids and 5 sales per month he doesn’t need to buy this company’s clients. Better yet, his system will continue to work monthly while this acquisition is only good short term.
The more success you find in your cleaning company the more often you’ll find that by saying no to good opportunities you say yes to greater opportunities.
Best advice you’ve received either personally or professionally?
Take care of your employees, they come before clients.
What’s the biggest mistake you’ve made in the cleaning business we can all learn from?
Outside of underbidding, not being able to grow and learn.
What is your favorite book?
Never Split The Difference: Negotiating As If Your Life Depended On It by Chris Voz