A Competitor Offers to Buy Your Customer List

Why this matters

A competitor asks what you would take for your customer list. Most owners have no framework for this at all, so they either name a number out of the air or refuse on instinct, and both are decisions made with the wrong question in view. This is not selling the business - the goodwill, the crew, the vans and the name are a different transaction that the ownership cards own, and if that is what is on the table start there instead. See related: A Competitor Makes an Unsolicited Offer to Buy You Out.

What makes this its own problem is that a list is the one asset a shop can sell while still standing, and its value sits almost entirely outside the file. The rows are nearly worthless. The buyer is paying for an introduction from you, and that one fact decides the structure, the timing and what you can honestly promise. Nothing here is legal advice on your own deal; the two points where that matters are named where they arise.

Which situation you are actually in

Three branches, and they change what you should optimise for.

You are winding down. The list is a terminal asset, so convert as much of it as possible and land the open obligations cleanly. Timing is the leverage: the introduction is worth far more while you are still answering the phone than three months after you stop, and a list of people who have already had to find somebody else is a list of names.

You are exiting one segment and keeping the shop. Different objective. The transfer must not damage the customers you are keeping, some of whom will hear about it, so retention on what you keep outranks price on what you sell and a worse number for a cleaner handoff is the right trade.

You are healthy and they approached you. Ask why now. It is usually that they are short of work, building for a sale of their own, or buying entry into your segment because it is cheaper than competing for it. All three are legitimate, and under the third you would be funding a competitor's way into the segment you are standing in. Most of the time the answer in this branch is no, and the useful version of no is a referral relationship instead - see related: The Referral Relationship With a Competitor That Works.

What is actually being bought

A file of names, addresses and job history has almost no standalone value: the buyer could assemble something similar from public records, and the customers on it owe them nothing. The value is in what is attached to the rows.

• The introduction. A message from you saying you handed these customers to somebody you chose is the largest single driver of whether any of it converts.
• The equipment history. What is installed, when, by whom, what it has needed. A buyer cannot reconstruct it.
• Live agreements. A maintenance agreement with months left on it is a relationship with a date attached rather than a name.
• Concentration. Forty customers in two buildings is worth more per row than four hundred scattered across a county, because the buyer can actually serve them - see related: Average Travel Time and the Route Density It Implies.

Structure decides more than the number

The earn-out is the default because it is the only structure where what the buyer is paying for and what you can actually deliver are the same thing. Under a lump sum you are paid for every row and the buyer spends the next year discovering how many stayed, which is an argument you have after the money is spent. Under an earn-out your incentive to make a real introduction runs the whole window, which is the behaviour the buyer needed and could not otherwise purchase.

Define three things in it or it ends in a dispute: which customers count as transferred, what counts as retained (any customer who pays for one job inside the window is a workable definition), and who can see the records that measure it.

What you owe the customers before anything moves

This is the part most sellers never consider and it is the part that can turn a small transaction into a complaint.

Your own privacy policy is the first document to read. If your website or your service agreement told customers you would not share their information, transferring it contrary to that promise is the classic exposure: the FTC treats a transfer that contradicts a business's own stated policy as a deceptive practice under section 5 of the FTC Act (15 U.S.C. 45). The promise you wrote is the enforceable term.

State privacy law applies above thresholds most small shops do not meet. California's statute reaches a business only if it crosses one of three gates: personal information of 100,000 or more consumers or households, 50 percent or more of annual revenue derived from selling or sharing personal information, or an annual revenue threshold that is indexed and adjusted periodically. Several other states now have comparable regimes with their own thresholds. A single-market shop is usually well under all of them, but a shop winding down, whose list sale is most of what it earns that year, should ask whether the revenue-share gate reaches it.

Two federal rules bite at the buyer's first contact rather than at the transfer. Under CAN-SPAM, once a recipient has opted out of your commercial email you may not sell, lease, exchange or otherwise transfer that address (15 U.S.C. 7704(a)(4)(A)(vi)), so the suppression list is scrubbed out of the file before it moves. And consent to be called or texted under the TCPA (47 U.S.C. 227, administered by the FCC, not the FTC) is given to a specific caller, so the buyer should not assume it travels with the list.

Consent is the practical route around most of this. A joint letter naming the buyer and giving an easy way to say no is both the decent version and the low-exposure one, and it converts better, which sellers do not expect.

This is the fork where you stop acting on an article. Before signing anything that transfers customer records, take your own privacy policy, your service agreement template, the draft agreement and a sample of the fields being transferred to a lawyer in your state - see related: Choosing a Lawyer for a Shop This Size.

The obligations that stay with you

Selling a list moves information. It does not move your promises.

Labour warranty on work you performed is your obligation to that customer. Whether any of it can be assigned, and on what terms, is a legal question for your attorney and the buyer's. The operational fact you can bank is simpler: the customer calls the number on the invoice, that invoice has your name on it, and if nobody arranged anything they are calling you. Price a reserve, in time as much as money, for the tail.

Prepaid maintenance agreements are a liability, not an asset. The unearned months are money already taken for work not done. Either the buyer assumes the agreement with that customer's agreement and you credit the unearned value in the deal, or you refund it. There is no honest third option. Open deposits and outstanding quotes are the same shape and get resolved one by one before closing.

The non-compete they will ask for

Expect it and read the scope rather than the principle. A buyer paying for an introduction is entitled to protection against you calling the same customers next month, and the narrow instrument that does exactly that is a written non-solicitation of the transferred customers for a defined period - see related: The Non-Solicitation Clause That Protects Your Customer List.

What gets slipped in beside it is broader: a general trade restriction across a county for a long term. Scope it against what you are being paid for. Sold one segment, the restriction covers that segment. Keeping the shop, a general trade restriction is not a protective term, it is a second asset going out for free. Covenants tied to the sale of a business are treated differently from employment non-competes in most states, and how differently is state law and your attorney's call.

The worked case: 240 rows, 190 active, an earn-out on 104

A shop exiting its light commercial work while keeping its residential base gets an offer for the commercial file.

What was in it: 240 customer records, of which 190 had a service in the last 24 months. Within those 190: 46 hold a maintenance agreement with unearned months on it, 12 carry a labour warranty on work done within the last year, and 3 have a deposit against a quoted job.

What was declined: the lump sum offered on 240 rows. The owner's counter was an earn-out on collected revenue from transferred customers over 24 months, with a retained customer defined as one who pays for at least one job inside the window.

How the transition ran: a joint letter naming the buyer with an opt-out, then the seller riding along on the first visit to the twenty largest accounts, chosen on revenue rather than sentiment, because the introduction is the scarce resource.

What it produced at 12 months: 104 of the 190 active customers had paid for at least one job with the buyer, about 55 percent of that active base. A lump sum priced against 240 rows would have paid the seller for more than twice the customers who actually stayed, and the buyer would have spent the year believing they were sold a bad file. The earn-out paid on the 104 and neither side had that argument.

The agreements: of the 46, thirty-one customers agreed to have their agreement assumed by the buyer, about two thirds, and the unearned value on those was credited against the earn-out. The remaining 15 declined and were refunded the unearned portion directly. 31 plus 15 accounts for all 46.

The tail the seller kept: the 12 open warranties did not transfer, and four of those 12 produced a callback over the following year, handled by the seller personally. The three deposits were resolved before closing, two by performing the work and one by refund.

The finding from the run: proceeds were set almost entirely by the introduction and the twenty ride-alongs rather than by the size of the file. Had the seller closed first and sold the list afterwards, the same 240 rows would have converted a fraction as well.

Your name goes with the handoff

Every customer on that list heard about the buyer from you, and for the next two years the buyer's work is partly your reputation, in a market where you still trade or still live. So run the diligence you would run on a subcontractor: licence and insurance current, how they answer a phone, what their reviews say read for pattern, and whether their pricing is anywhere near what these customers are used to. A buyer priced far under the market you built will reset those customers' expectations and then struggle, which is a predictable mechanism with a predictable timeline - see related: Competing Against a Shop That Does Not Know Its Own Costs.

References

• Federal Trade Commission Act section 5, 15 U.S.C. 45, on business practices inconsistent with a company's own stated privacy commitments
• CAN-SPAM Act, 15 U.S.C. 7704(a)(4)(A)(vi), prohibiting transfer of an email address after the recipient has opted out
• Telephone Consumer Protection Act, 47 U.S.C. 227, administered by the Federal Communications Commission, on caller-specific consent
• State comprehensive privacy statutes, including the California thresholds of 100,000 consumers or households and 50 percent of revenue from selling or sharing personal information
• See related: A Competitor Makes an Unsolicited Offer to Buy You Out, The Non-Solicitation Clause That Protects Your Customer List, Choosing a Lawyer for a Shop This Size, The Referral Relationship With a Competitor That Works