Early order program breakdown

October 17, 2016 -  By

is_17912437_xosUsed strategically, early order programs can be a winning proposition.

For as long as Mark Leahy can remember, he’s been looking for a deal. He recalls stocking up on bags of fertilizer in the early days when he ran his company out of a barn.

“I would literally stack them by hand up to the ceiling in the one stall I knew wouldn’t get wet,” he says.

So it’s no surprise he’s a proponent of chemical and fertilizer suppliers’ early order programs (EOPs).

“We’re usually saving 10 percent on our overall cost, so that just makes us more competitive,” says Leahy, president of Blades of Green, a $5.3 million lawn care and pest control company based in Edgewater, Md. “Instead of buying product as needed, you’re buying it upfront and getting a better price.”

Although Leahy and others deride EOPs for being a bit of “a game” due to their complexity and fine-print requirements, it’s a game worth playing to get a significant discount, they say.

The discounts come in terms of percentages off, cash rebates, extended payment terms and even spiff money.

“You’re talking about bottom line dollars,” says Doug Cash, vice president of Arbor-Nomics Turf, a Norcross, Ga.-based lawn care company with around $10 million in annual revenue.

“I think a lot people hesitate because it’s a lot of money and they’re not good at reading the tea leaves, but if you bury your head in the sand, you’re never going to grow at all.”

Game plan

Cash, who focuses on preemergent herbicides and fungicides from manufacturers like Syngenta and Bayer for his EOP purchases, says he’s participated in these programs as long as they’ve been around.

But the company has gotten more aggressive with early ordering in recent years.

“Instead of inching into the purchases, I do better due diligence in calculating what I’m going to need for that season based on manageable growth,” he says. “It’s a lot more thorough of a process, so I can buy more and save more.”

To get Arbor-Nomics’ EOP purchasing just right, the company has committed to having an accurate square footage on record for every property it services.

These measurements are documented in the company’s software system, so Cash can run a report that tells him how many thousands of square feet the company treats by grass type, which drives product selections and quantities.

Every Arbor-Nomics vehicle is outfitted with a measuring wheel and the company’s technicians are trained to remeasure a property if they believe it’s incorrect.

“If the square footages are correct on your properties, you can dial in purchasing pretty
darn close,” he says.

Before focusing on square footages, Arbor-Nomics made EOP purchasing decisions based on dollar revenue assumptions, like many companies do.

Many companies also price their lawns based on rough estimates, which Cash doesn’t recommend.

“If people are ball-parking prices, that gets dangerous,” he says. “It’s easier to ball-park if you’re a one-truck operation, but eventually you have to go to a more scientific method and that has to be knowing your square footages.”

Cash strategy

Leahy agrees you have to “know your numbers,” and he says you must watch your cash. Blades of Green’s approach is to participate in EOPs to get a lower price on the products it would buy anyway and spend money so it’s off the books by the end of the calendar year.

“That reduces our taxable income for the year,” he says. “There’s no reason to pay taxes on it if you know you’re going to buy the product anyway.”

Plus, Leahy says the company typically makes its EOP purchases with an American Express card, earning credit card points and 45 extra days to pay.

He prefers to take the larger percentage discount upfront rather than take extended payment terms.

“A lot of guys buy stuff and don’t pay until May, June or July, but they’re going to lose the 4-5 percent discount that I take advantage of,” Leahy says.

It works for Blades of Green, but he acknowledges it’s a risk to tie up cash in inventory.

“It’s a fine line, and you have to know you’re going to be able make it,” he says.

When it comes time for EOP purchasing, Leahy recommends leaning on your suppliers for guidance. He meets with three distributor representatives starting in October to plan purchases for the following year.

“Always try to use a supplier who will do the paperwork for you,” he says, and be careful if you’re buying the same product from two different vendors. For example, he buys liquid

Dimension from one vendor but fertilizer with Dimension from another. “Make sure they’re both submitting paperwork for you or, if not, you’re getting receipts,” he says.

Adam Linnemann, owner of Linnemann Lawn Care & Landscaping in Columbia, Ill., makes his EOP purchases in September at the annual BWI Expo in Nashville.

BWI Cos. is a regional distributor based in Texarkana, Texas.

This year Linnemann committed to about $65,000 worth of purchases there, primarily fertilizer, for his full-service company. The benefits, for him, are extended terms and also the overall product discounts, which he says can be around 20 percent. At the end of the event, the distributor doles out cash back in the form of account credits or Visa gift cards.

He’s been participating in EOPs for about five or six years, since he reached the purchasing level to get a complimentary trip to the Expo.

“Before that, I hadn’t reached that level and didn’t realize it was an opportunity,” Linnemann says. “I recommend checking with your suppliers to see what they have—talk to the reps.”

Finally, remember to ask if it’s possible to stack EOPs with regular distributor offers, Leahy says, such receive 3 percent off if you pay by the fifteenth of the month. “That just adds to the savings,” he says.

Risk and reward

Of course, there are challenges and risks to buying early, one of which is storage. Many companies don’t have the space to store pallets of materials.

“What happens if a building catches fire or there’s a leak or accident? You could lose product that way, but you should have insurance for that,” Leahy says.

One solution is to see if your distributors can hold the product for you, lawn care operators say. Typically, they like you to take the product as soon as possible, but it doesn’t hurt to ask.

Price fluctuations are another risk. Both the seed and fertilizer markets are susceptible to major swings.

“The market fluctuates so much,” Linnemann says. “Grass seed, for instance, the price is cheap right now. It’s the time to buy.”

Fertilizer prices are usually cheaper in the fall and pricier in the spring and summer, but “every once in awhile it will flip-flop on you,” Leahy says. “Fertilizer is a commodity.”

Cash acknowledges that for some people, it’s too big of a gamble to buy early and use up your cash or even to commit now and pay later, but he encourages LCOs to put in the time to plan ahead and take advantage of the savings.

“Once you start doing it, it becomes part of your business plan,” Cash says. “Even if you bought dead even with last year’s usage, it would be a victory.”

Photo: ©istock.com/Kevin Landwer-Johan

Marisa Palmieri

About the Author:

Marisa Palmieri is an experienced Green Industry editor who's won numerous awards for her coverage of the landscape and golf course markets from the Turf & Ornamental Communicators Association (TOCA), the Press Club of Cleveland and the American Society of Business Publication Editors (ASBPE). In 2007, ASBPE named her a Young Leader. She graduated with a Bachelor of Science in Journalism, cum laude, from Ohio University’s Scripps School of Journalism.

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