This might be the lowest feeling in the world:
You’re at the bottom of a hard-earned month. You spent countless hours working… but how come you have no money?
Cash flow is a major problem that plagues every service business – whether you’re seasonal like lawn care, or you suffer from “client-base ups and downs” as in the cleaning industry.
Before we talk about how to FIX your cash flow problems forever… let’s talk about what else your clients are paying for:
- Cable TV or Netflix
- Financing cars or houses
- Electricity, Water, Gas, Phone, Internet…
See the trend?
99% of people are perfectly happy to pay subscriptions for goods and services. In fact, your clients might even prefer to pay you a flat monthly fee.
Here is why you should seriously consider using Contracts in your business:
“Why Should I use Contracts?”
Contracts allow you to smooth out your cash flow, and make the monthly bill feel “lighter” for your clients.
Let’s look at two companies:
Company A charges monthly, per visit. They only charge on the months they have to come out.
Company B has an annual contract that bills every month, regardless of the number of visits.
Here is a chart for what a “irrigation winterization and spring re-opening” program would look like for both companies:
The price per visit and the irrigation open/close is arbitrary and doesn’t reflect what you should charge.
The principle is important here: people only buy services when they need them the most. For example, if you’re trying to sell residential lawn care in the middle of winter… well, good luck.
This is where annual contracts give you the upper hand. Despite being more expensive over the course of a year than Company A, Company B appears, in the peak of selling season, to be a less expensive option.
Because you’ve thought through your pricing structure to protect your business from cash flow gaps, you actually end up making more money. If your competitors haven’t thought this through, they’re going to blindly present themselves as a $100 per month service.
You can remove headaches from the billing process by invoicing clients the same amount every month. In Service Autopilot, you can do this with a contract.
When you create a contract, you typically charge a set amount every month. This lets you know what your income will be in a way that’s more consistent than billing per cut or visit. This also means you can easily see your client’s annual value.
If you sell a client a package for Annual Lawn Maintenance, your monthly income won’t change when you get rained out in May, or when you’re sitting around with nothing to do in December.
Contracts stabilize your cash flow and protect your business from fickle weather patterns.
How to Rapidly Build Contracts that will Smooth Out Your Cash Flow
Pull up the client you want to set up flat rate monthly billing for and locate the “Contracts” box on the lower right.
- Click “Add a Contract.”
- Give the Contract a Name (like “Home Cleaning – 2017”)
- Give it a start and end date, usually this is 1/1 through 12/31. These dates are informative, they do not turn off the contract or confine billing to certain dates. They are only for your reference.
- Create a Line Item for the Contract Invoices. Something like “Home Cleaning [month]” works really well. Service Autopilot will automatically fill in “[month]” with the name of the month on each invoice.
- Set the Default Service. This is the service the Contract income will count toward for reporting. You can use the main service in your contract (e.g. “Mowing” or “Window washing”), or set up a service called “Contract Labor” and track all of your income from Contracts under one umbrella.
- Fill in the billing amount for each month. If all months will be the same, you can fill in January and click “AutoFill” and the system will copy that value all the way through. Any month left at $0 will NOT generate an invoice. This is helpful for 10-pay situations or invoicing bimonthly.
- Add the services included in the contract at the bottom. Go to Actions > Add Contract Item. Repeat for each service.
Once you’ve created the contract, it will generate an invoice for every month that you entered a dollar amount for. This happens on the billing date each month.
Advanced Tricks to Steady Your Cash Flow
Two Billing Dates: Set up half of your contracts to bill on the last day of the month and the other half on the 15th. This will keep your income more evenly distributed.
Your business will have fewer stressful days caused by mid-month bills and unexpected problems (emergency repairs, anybody?).
As your client base grows, it may be worthwhile to consider subdividing the contract dates further, adding billing on the 8th and 20th.
Bill One Month in Advance: Get your payments ahead of schedule. Use the option to bill a month in advance, so you can get paid for July’s work… in June.
If your client cancels or misses a payment, you’re still in the green. Wouldn’t you rather issue an occasional refund, instead of constantly hunting down unpaid invoices?
How to Convince Your Clients to Sign up for Contracts
To convince a residential client, point out the ease of one monthly rate that gets their yard taken care of. Really lean into the fact that there are no complicated invoices to decipher or hidden charges. You charge them $XYZ per month, no ifs, ands, or buts.
This is a good value for them because it divides the cost of the busiest months in more manageable chunks by including slower months. It all evens out and everybody wins. Sell flat rate billing in your marketing materials, so leads are prepared for your pitch.
Contracts are good for commercial clients for the same reason they’re good for you: cash flow.
Rather than random, higher than expected invoices in the summer and little to no invoicing in the winter, we agree upon a rate for lawn maintenance throughout the year.
It means no surprises. And no budget crunches. Point out that a consistent bill is healthier for cash flow than an ever-changing one (which is what a per-visit bill is going to do).
A Final Thought on Contracts
Flat Rate Monthly Billing can repair cash flow valleys in your business. Instead of falling down, and having to climb back up the mountain every month, you get a smooth, easy hike.
This smoother cash flow frees up your mind to worry about more important things – like growing your business.
Keep your income consistent (and grow it!) by appealing to the same subscription strategy your clients have already adopted with other companies.
Cody is a copywriter with Service Autopilot. He was writing before he could read, dictating stories to his mom. Of late, he distills business principles and practices learned from his ever-increasing trove of books and his year with SA Support into digestible blog posts designed to provide maximum value to service industry business owners.