Buying a Client List the Smart Way

by Stephen at Grooming Business in a Box® www.groomingbusinessinabox.com

The biggest obstacle to buying a pet grooming clientele list is the unknown. How do you know if the clientele will remain your clients should you buy their contact information and service records. Are the records current? Will the list owner allow you to review and analyze the content of list before purchasing it? How much is the client list worth?

These are pertinent questions before purchasing a client list. In this article we show you the financially important homework the buyer should do as it applies to pet care operations.

Most groomers selling their businesses include a list of clients along with other assets such as furniture, fixtures, equipment, trade names, business goodwill and possibly vehicles. On occasion mobile groomers, or groomers operating from their homes and not selling their property, limit their sales to client lists only. For the purposes of this article it makes no difference. Our focus here is simply to show you how to do basic and advanced reviews and measures of grooming client lists, to make you a very smart buyer.

Every client list tells a different story. Their content and value can be overstated, understated or barely stated with almost no detail. Without an appropriately presented client list how will you ever duplicate or exceed the income potential from the client list as its owner did?  You probably won’t. You must do your due diligence to study a client list before making the purchase. You are making a significant investment in an asset that can produce profit or an unseen loss.

Sharpen your skills to evaluate client lists. We’ve done this with hundreds of clientele lists, now you can too.

ACCESS TO THE LIST FOR SALE

Would you buy a client list sight unseen? You may see the establishment that comes with the purchase of a commercial location, but what about the hundreds or even thousands of details that lie in record-keeping and client records? The heart of a grooming business opportunity are those records. We recommend you act like a miner spending hours mining through the data following our guidelines. A grooming clientele must fit you as the owner/groomer and your vision for the business or you risk your investment and a poor match.

Getting access to the clientele list should not be a problem if you provide reasonable surety to the list owner that the privacy of the content is being kept confidential and subject only to your analysis. You never copy names and contact information into your review notes. We suggest you conduct the homework on-site in the presence of the list owner. You should consider signing a confidentiality agreement before reviewing records upon request, but have your attorney review it before signing.

If there are more than 300 client records you may need to schedule multiple on-site visits. If you are thinking about the hours involved we assure you every moment you spend on this homework prescription will pay off. Don’t regret the hours. You are protecting an investment in your future, and acting with business acumen sometimes lacking the pet grooming industry.

If client records are computerized use  software reporting features to print records for your review. Never take them off-site. Review them with the owner present. Let them see your review notes. They may be a great negotiating tool. If you cannot print computer records you will need to review them on the computer monitor. Typically a confidentiality agreement will state what you can and cannot do with records during your pre-purchase review.

We strongly suggest you view client records in alphabetical order by last name. It’s easier to keep track of where you left off. If the list owner uses a manual system with paper filecards, all the better since they are usually sorted by last name.

Never photocopy records and never make backups or copies of software records even if offered until you are their owner.

PROFILING THE CLIENTELE

If another’s clientele is to suit your business goals you must profile them to ensure compatibility and adaptability:

  • Origin profile
  • Grooming services profile
  • Appointment frequency profile

Verbal definitions of a list should be taken with the proverbial grain of salt. List owners often resort to generalities when describing their clienteles. Generalities lead to accidental or intentional misrepresentation. Due diligence is detail-oriented work, don’t rush it. You may hear sellers describe their clientele as upscale, mostly retirees, middle class, once-a-year types, short clips mostly, wonderful people, etc. Probably true, but that is not our destination. Listen politely. Smart buyers make their own determination working with detail, not generalities. We need proof.

Origin Profile

As you peruse the record for each and every client you should easily be able to note one indicator of present origin, their zip code. Don’t write down addresses violating the privacy of the list owner. Explain to the list owner you are conducting a marketing profile and only need zip codes. In a rural setting there may only be one or two zip codes involved, but in the suburbs and cities you may discover ten or more. Every  businessperson that grooms wants to know where their clients originate. It helps them to know where past advertising has worked and where to consider placing future advertising.

If you are fortunate the list owner may have asked and recorded where each client was originally derived. In our opinion it makes a list more valuable. It also allows you to thank anyone making new referrals once you own list. Knowledge of the present clientele allows us to spend more wisely when marketing new customers. At the end of your review period you should have a list of all zip codes involved, and how many clients are presently located in each zip code. Study those zip code regions to get a profile of your clientele. Maybe you are getting commuters passing by on their way to work, or are you just drawing local neighborhoods. Yes, every client list tells a different story you need to know.

Grooming Services Profile

As you review every record note the type of animals groomed, dogs, dogs only, dogs and cats, big dogs, purebred dogs, etc. By the end of your review you can tally and calculate percentages, such as 100% dogs only business or 20% cats and 80% dogs. Your financial projections will be more accurate knowing this profile information.

It is important to examine records for other  service-related characteristics:

  • Bath-only services
  • Full-groom services

How much of the business is complete groom pets versus bath-only? By the way, don’t underestimate the value of bath-only pets. If you don’t know why, we suggest you read materials by Grooming Business in a Box proving that “the gravy in pet grooming financially is bath-only pets, not full-groom pets.” Of course you will groom both, but bath-only services done by well paid, highly-skilled pet bathers, not commissioned or salaried groomers, can boost profit margins by as much as 50% without sacrificing any quality or safety.

You may discover a hidden potential market for more add-on services where the present owner has not offered them.

Type of full-groom demand must be carefully evaluated. It can vary greatly from business to business. Is the demand greatest for short clips, even shavedowns? What about breed specific grooming? Sometimes you will discover the business works with various local breeders explaining why there is a strong demand for breed standard grooming. If so, ask yourself if that characteristic is aligned with your grooming goals and present skills. You are probably seeing where we are going. Enhance our suggestions with your a list of service-related characteristics.

Make a list of the characteristics you plan to review. Check off characteristics that apply during your examination. Having done this hundreds of times we assure you we made some unexpected discoveries. Some changed the way we wrote our business plans for the present clientele. By the way, did you notice in the last sentence the word, “present.” The present demand is by far the most important review you will make of a client list for sale. It opens the door to the elusive factor, “What is a list worth?” It is vital to study appointment frequency data.

Appointment Frequency Profile

For over 20 years as consultants we have taught the critical nature of the most important factor in pet grooming marketing, appointment frequency. It takes time (and time is money in a service business) to develop even one new customer. Our business grew rapidly with little advertising and it did so because we exhaustively managed the appointment frequency of our clientele and today that system is detailed in our book, From Problems t Profits: The Madson Management System. We were not pushy sellers. It was an easy sell actually. We helped our clients to keep their pets looking their best year round. That’s an attitude, not a hard sell.

Appointment frequency is the key to meet and exceed client goals more quickly. We have proven this fact with thousands of consultation clients. Consider this common scenario. Two groomers separately start new businesses with no customers. One year later one groomer has 125 regular clients, and the other 125 regular clients. Assume they charge identical grooming fees, and both groom the same pets and same grooming services demand. Ironically, the financial records indicate one of groomers sold $25,000 more in grooming service sales while doing the same pets and charging the same prices. How is that possible?

The answer is “managing appointment frequency.” The clients of the groomer better managing appointment frequency have their pets groomed more frequently. That’s magic. Madeline Ogle, author of From Problems to Profits did extensive studies of appointment frequency with her clientele creating alternative scheduling options besides “standing appointments” designed to escalate appointment frequency to record levels in the industry. Many have duplicated her success after reading her management book and implementing visionary appointment scheduling options.

When reviewing a client list for sale you have a wondrous opportunity to study the present appointment frequency of the clients you are considering to purchase. Remember you are not only buying a client list that is presently generating say $100,000 a year in sales of grooming services, but their appointment frequency characteristics. You will understand the importance better as we proceed. Here’s the genius at work and you can easily implement it.

For every client record you review note:

  • Last appointment date
  • Number of appointments in the last year

You do not, and should not, note the pet owner names associated with the data. Assure the list owner you are not doing so.

Once completed get out your sword to cut the number of “clients” you were likely told you were buying from the list owner.

Do you really want to buy clients that have not had their pets groomed in the last year by this business? Of course not. I would take their names and contact information if I buy the list and send them a marketing letter hoping to get them to return. But I would never lose sight of the fact they are not supporting the present financial figures for sales of grooming services. You must draw the line between what clients you want to buy, and those you accept as a project to retrieve and return at your expense. You should spend very little for departed clients. Instead maintain the viewpoint you buy “regulars.” Period.

How do you define “regulars?” It is up to you to decide. As consultants we define regulars as those pet owners who have purchased grooming services at least four times in the preceding 12 months.

Reviews of appointment frequency take time, but in our opinion it is the most important aspect of the sale of a client list.  Eliminate the clients that have not been in at least four times in the last 12 months. How many did you remove? Twenty percent? We have experienced 80% or more! Suddenly you realize you are not buying 500 clients spending money with the business in the last year, and instead the figure is 300 clients. The list owner said 500!

Once you pare down the count you are ready to go the next step to further define the appointment frequency.

In the book From Problems to Profits, Maddie assigned every client a client rating of “A,” “B,” “C” or “D” defining their appointment scheduling habits. “A” and “B” clients were members of her genius appointment scheduling program that maximized annual appointments from members. “C” clients chose not to join, and “D” clients had not returned for over 6 months and could not be reached to verify why. Often “D” pet owners had moved or their pets had passed and they not replaced them yet. She knew the following from studying her records:

A Clients: averaged 8 appointments a year

B Clients: averaged 8 appointments a year

C Clients: averaged 4 appointments a year

By the way if asked how many clients her business had she would never include the count of D clients. Beware, thousands of grooming business owners do, especially when selling their client lists.

Our recommendation is that you only buy clients that presently have their pets groomed at least four times in the last year, and then breakdown those regulars into A/B and C clients, true regulars. Using your review notes you can finalize the count. It may or may not help you to negotiate a lower price for a client list for sale, but we always recommend clarity when buying a clientele. At least you can start your ownership from a realistic basis and better project your financial prospects with accurate client base and appointment frequency figures.

During your examination of the client records use a notepad. Draw 3 columns on a sheet of paper. The first column is A/B. The second is C, and the third, D. As you review each client record for appointment frequency put a check in the column that best identifies the record. When done, tally the check marks. In our past example where we pared down a list of 500 clients to 300, you might discover that 200 are A/B types and have their pets groomed 5 to 8 times a year, and the 100 are C types and come in four times a year, but no more. The more A/B clients the more valuable the list.

If your count of regulars being sold to you is much less than you were told, be patient, don’t chastise the list owner. Obviously you are not being taken with intent. No matter how many are on the list they are generating gross sales reported on the business’ most recent tax filings. No matter how many clients the dollar potential they generate is expressed on those official filings. I would never buy a list if I cannot review the data of business tax filings to verify the gross business income being reported, and related to the client list.

Now it is time to make sense of the seller’s reported gross business income Truly this is an important step. You spent a great deal of time study the records and only by doing so you can best know if the selling price for the list is high, average or low.

Financial Verification

The following example is fictional yet representative of our common working with the sale of grooming businesses as consultants.

A list seller claims their business has 4,000 clients generating $150,000 a year in gross revenue from sales of grooming services. Does that sound right to you? Groomers not working the numbers often don’t flinch. Our eyes go wide. “Not again.”

Look at what is being said by business numbers and learn to work them. If 4,000 regulars spend $150,000 a year on grooming services, that’s $37.50 per grooming service (also the average service fee). It also means their clientele is only spending $37.50 a year on grooming. In other words, every client is having their pet(s) groomed at best once a year. Something is wrong. Sometimes our math states just twice a year. There is probably something wrong with the numbers. Fortunately the review of the client records we recommend can get to the bottom of problem.

You need to know how to do this initial calculation. Divide the seller’s stated number of clients into the current total annual sales of grooming services in dollars (for example $150,000 / 4,000 = $37.50).

Hopefully the seller has presented you with 4,000 records to back their claim. At the same time the seller should present you with official tax filings backing the $150,000 claim for gross sales of grooming services.

I never look at sellers as trying to pull the wool over my eyes, and expect they do indeed have the number of clients they say in their records. I thank the seller for allowing me to review their records. Now I am ready to share my analysis and provide more accurate numbers.

First, I share my definition of a regular client I would buy as having been served four or more times in the past 12 months. I inform them that after reviewing their 4,000 client records I determined that there are approximately 667 “regular” clients. The average regular has their pet groomed 6 times a year spending about $37.50 per groom, or $225 total a year. By multiplying 667 regulars times $225 the result is approximately $150,000 gross sales a year, and that then ties into the tax filings they presented me. Is that cool or what?

My estimation may not be pinpoint precise but it is far more accurate. It doesn’t change the fact that the present clientele, whatever their numbers, generate about $150,000 a year in gross sales of grooming services. Instead of flying through “blue sky” thinking I am getting 4,000 regulars I have done myself a great favor as a businessperson. My financial sales projections are going to be far more accurate than working with a number like 4,000 clients. Be prepared. Most client lists need to be pared down as we have shown you. It behooves you to take whatever hours it takes to narrow the client list down to an accurate number of regulars, and to verify your estimated number of regulars with the gross reported sales on tax filings.

Heads up! Sometimes you may experience another anomaly. You may discover a large number of regulars proven by the service records, and find the reported annual sales of gross income is oddly low. Did some of the sales, especially cash sales, not get reported? That lowers the value of a list when value is based on officially reported annual sales on tax filings.

Other Factors When Buying a List

Exercise caution when buying a client list. If you are planning to make significant changes to the business operation will those changes reduce the numbers of regulars remaining under your new ownership? For example, if you are buying a commercial shop with 500 clients and planning to move the business one mile or more away from the present location, studies show you can lose 20% or more of your clientele. Perhaps you are no longer convenient for their commute. Adapting a mobile client base to a commercial shop often results in severe losses of clientele. It might be wiser to maintain some mobile services while still operating a stationary location.

Write a letter of introduction to the existing clientele you buy. State your vision to maintain their satisfaction. Spruce up the image and facility. We strongly encourage you to include a survey with your letter. Ask them what new services would they like you to offer. If you find a strong commonality among suggestions do a study to see if it is realistic. The clientele will appreciate your concern to maintain their bond with the business you bought.

CLIENT LIST VALUE

There are no strict rules when valuing the price of a client list. It is likely the list will be included with the sale of other business assets previously mentioned. First look at the selling price of the business and a list of all assets included in the sale. Then review the most current tax filings for the business. What was the last stated annual gross revenue for the sale of grooming services on official business tax filings? What was the “net operating income” after deducting operating expenses. For sole proprietorships this information is on the IRS form Schedule C. Assume there is no real estate (land or structures), vehicles or retail inventory being sold, just the business opportunity. Well-established businesses are likely to have more goodwill value and that strengthens asking prices. In times of economic hardship grooming business opportunities may sell for one or two times the latest annual value for net operating income, and top businesses get about one times annual gross income reported, not “net.” Many legal and accounting experts are not grooming industry experts. It is good to get their opinions, and you can get a certified appraisal. Don’t expect them to have been trained to do the client list evaluation stated here.

Without analyzed client and operational records can you rely on yourself to duplicate the present business performance? Not likely. Top-selling businesses have exemplary client and financial records. Businesses selling for less may have poor records. Realize every seller is different. You want confidence! Buyers or sellers can apply what we have shared to create more buyer  confidence by making client records more accurate and in sync with financial records.  ♦

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