How much is a customer base worth??

[peter d]

I dont know how you could says its worth ZERO

maybe in the most technical aspect

but in the real world of you think you can keep his customers and make money then I would see some real value in that

getting customers (advertising etc) costs money so how is having customers not worth anything?)

So let's say you buy a business and pay for the perceived value of the customer base. What happens when the customer base dries up because they decided to use a different EC? Now you just threw away money on a worthless asset.

 

[petersonra]

So if you were to make an offer on an exsting business whether its been around for 2 months or 40 years your offer woud be based soley on the co assets.....Wouldnt the name hold any value positive or negative.....

mostly no.

it sounds to me like a one man band kind of place. the files may have a non-zero value, but it is not very much.

only an ongoing and profitable business actually has any real value, and even then it is not anywhere near as much as you might think.

most small businessmen have learned how to acquire business. most times he is not going to be able to transfer that ability to you. you will need to learn for yourself.

 

[Greg Swartz]

A customer base is worth zero.

Lets face it, no one has to choose this electrical company again, the next time they need electrical work.

So, unless you have service contracts in place, that will stay in place, the base is worth zero.

There is a EC in our area trying to sell his company that does about $400k a year. He is selling his company, and customer base for $75k. No tools / equipment / employees come with the package.
H's been trying to sell it for 2 years...

That just does not make good business sense.

When you go into business, you are not just an electrician... you are a businessman. You have to make those decisions that you never did as a Journeyman or Foreman or Superintendant. Everything comes down to whether or not you are going to make money. It's unfortunate, but true.

 

[Greg Swartz]

Couple of things I forgot:
Since this is family, you've got a lot more at stake: i.e.: your wife and kids... making the rest of the family happy...
If your father-in-law stays on, with you at the helm, helping make those transitions with the business executives he made contact with... then your customer base could actually be worth something.

However, I have an acquaintance in the process of taking over a Fire Alarm company. All of his investors tell him that a customer base = $0
They are willing to count his monitoring contracts, but that's it. Contracts only.

 

[petersonra]

Look at it this way.

Suppose someone you did not know came to you one day and offered to sell you their business if you would just hire him and let him work for you. Say it was identical to the business in question in every way except that you do not know the guy.

How much are you going to be willing to pay him to come work for you.

Keep in mind a small business that nets the owner $50,000 is a loser if you have to pay someone $60,000 a year to do the work the previous owner was getting $50,000 for.

Most small businesses are not all that profitable. They are just jobs, often netting the owners less than they could make working for someone else.

 

[Greg Swartz]

Most small businesses are not all that profitable. They are just jobs, often netting the owners less than they could make working for someone else.

Ouch!
How true...

 

[SmithBuilt]

What happens when the customer base dries up because they decided to use a different EC? Now you just threw away money on a worthless asset.

This could be true with any business.


If you have repeat customers then you have a customer base. It is worth something if you can open the doors the day after buying the company and actually have business/backlog. It may not be worth much but something.


I personally would rather have good customers(if there are many) than the assets of the company.


Companies are bought every day just to acquire the customer base. I realize it's not worth much in a small shop, but disagree that it is worth nothing.

 

[petersonra]

Companies are bought every day just to acquire the customer base. I realize it's not worth much in a small shop, but disagree that it is worth nothing.

It may be worth less than nothing. The whole business might be built around a model of the owner working cheap to keep those customers. That is a fairly typical model for a one or two man shop.

That kind of customer list is worth nothing at all.

 

[SEO]

.

That kind of customer list is worth nothing at all.

I agree and if you take them as customers they will expect you to do the same as previous owner.

 

[peter d]

Most small businesses are not all that profitable. They are just jobs, often netting the owners less than they could make working for someone else.

Aint that the truth. I never understood why someone would run a business only to make equal to or less than what they could by working for a paycheck someplace else.

 

[SEO]

Aint that the truth. I never understood why someone would run a business only to make equal to or less than what they could by working for a paycheck someplace else.

I've been asking myself that for the last 35 years. But I would do it all over again without question.

 

[peter d]

I've been asking myself that for the last 35 years. But I would do it all over again without question.

Huh? You mean run a business to make paycheck wages?

 

[480sparky]

Aint that the truth. I never understood why someone would run a business only to make equal to or less than what they could by working for a paycheck someplace else.

Because 'working for the man' can only net me so much a week. No more. Period. Sure, I can work OT, but I get paid more only because it's mandated by law.

Working for myself, yes, there's times I make less than I did as an employee. But other times, I get a job that goes far easier than I ever anticipated, took less material, and went super-smooth, and working for myself I have a killer profit-sharing program!

I don't feel the need to go out and 'be an electrician' 40+hours a week just to pay my bills. If I get todays' project done at 2:00, I don't feel one bit guilty about going home early.

Simply put, there's more to it than just making money.

 

[220/221]

Those that say a customer base is worthless are wrong.

It takes a LOT of time and a LOT of effort to build and maintain a customer base and a LOT of new work is via referrals from your existing customer base.

As far as a dollar amount, there are a LOT of vatibles to factor in. Put pencil to paper and figure out how much time/money it will take to achieve the revenue equal to the existing client base. I am a small time bread and butter type contractor and it took us a decade to reach the 1 mil mark.

 

[satcom]

"How much is a customer base worth??"

Nothing if the customers never calls you again, the way they look at the value of an electrical contracting business, is the value, of signed contracts for all existing, and future work, plus all the assets, many contractors build assets by investing in commercial property, so when they sell or retire, they have something to show for their years of hard work.

You can sell a business with contracts, Good Will no matter how many customers you had in the past is worthless.

 

[emahler]

90% of my work is for 10% of my customers, I think a good customer base is priceless.

My wife recently bought a business, from day one she has been making money from the ex-owners customers.

maybe, but if I were buying your business, how would you guarantee that those 10% of your customers would continue to use me? how long could you guarantee it? how could I be sure to get my ROI?

 

[peter d]

It takes a LOT of time and a LOT of effort to build and maintain a customer base and a LOT of new work is via referrals from your existing customer base.

As far as a dollar amount, there are a LOT of vatibles to factor in. Put pencil to paper and figure out how much time/money it will take to achieve the revenue equal to the existing client base. I am a small time bread and butter type contractor and it took us a decade to reach the 1 mil mark.

That is all well and good, but once again the instant the business changes hands there is no guarantee whatsoever that the customer base will stay intact.

 

[480sparky]

I spent the better part of my adult life banking at my local bank.

As soon as Wells Fargo bought them, I closed all my accounts and emptied the deposit box.

How much do you think Wells Fargo paid Brenton Bank for me?

 

[SmithBuilt]

there is no guarantee whatsoever that the customer base will stay intact.

Agreed, but it's better than starting from nothing. Treat them right and there's a good chance of keeping most of them.

 

[brian john]

maybe, but if I were buying your business, how would you guarantee that those 10% of your customers would continue to use me? how long could you guarantee it? how could I be sure to get my ROI?

There are no guarantees in life. BUT if you do you homework, have a good head and treat them fairly having an existing customer base is better than starting off cold.