June 23, 2015
Annual PrePays for Discount
Every pest control companies struggles during the off season. Bills and expenses pile up, while sales diminish.
A good solution to this cash flow crunch is to offer pre-payment for services. Basically you’ll offer to let them pre-pay during the months of January or February, establishing a pre-paid credit to be used during the rest of the year. For any payment received, give them a discount of, say, 10 percent.
There are two common methods to manage their credit: 1) Your offer is that if they advance pay with some fraction of their annual average volume, you’ll discount every future invoice this year by the agreed discount amount, even if they go above their annual average. This auto-discount tends to encourage their expanded use of your services. So, your loss of the discounted dollars is replaced by the extra volume. Plus, it is easy to apply the discount at the time any invoice is created. When using this “Advanced Discount” service, it is important that everyone in the office know who is to receive the special discount so no invoices slip by without the earned discount. You’ll find that this is not as hard as it sounds. Some software lets you set a Customer Status for the “Advance Discount” such that a flag shows up in red on the customer’s record. At the year end, or when the offer expires, you merely change the status back to “Current” or whatever you call normal customers.
Another approach, is to give your customer additional discount dollars at the time you create the credit. So, lets say your offer is for a 10% with a minimum of $500 of advance pay. They pay you $500, but you put in a credit for $550. If they pay you a $1000 advance, you put in a credit of $1,100. With this approach, you still deposit the actual payment amount, but increase the credit manually to be the higher number. A nice thing about this method, is that it can be date range independent. Basically they are giving you advance money to use whenever their needs arise. Again, this approach tends encourage additional uses of your services since they are already paid for. And with this approach the remaining credit dollars are always accurate. Note, though, that these ‘Advance Pay Dollars’ do run out, But just not on a schedule.
Both of these approaches work well to bolster your cash flow during the off season, and help preclude your having to resort to various financial instruments to manage your cash flow. Cash flow loans often come at a cost of greater than 10% and have an emotional cost that is often frustrating and/or degrading in its own way. Don’t go to bank, go to your customers.
How get the word out about your cool new ‘Advance Pay’ program? We suggest a highly targeted mailing to your customers who have a consistent annual volume at or above your contribution requirement. Perhaps you’ll offer some percentage off for $500 volume customers, and a different percentage for the larger customers. Regardless, your software should easily let you find those customers who average $500 per year and use at least three types of your services. Those are your prime prospects for your ‘Advance Pay’ offer. Send it as an email offer to your email customers, and concurrently as a post card to those customers who don’t have email. But send it BOTH ways. You will find excellent responders in each category. Make a goal of 25 responders for your first year. If you set it up well, your count will grow each year.
Don’t forget that as your count of ‘Advance Pay’ customers increases, you cash flow during the busy season will drop by the amount of the advance payments. But, this is our intent… we are getting their money a few months early so we don’t have to borrow money from a bank or other institution at a potentially onerous cost.
Many customers will be delighted to be ‘Advance Pay’ users and will be better and more frequent users of your services. Everybody wins.