[Termite Control] A Whole New World

The competitive pretreat market remains a sore spot for many PCOs. However it doesn’t have to be that way, says Kevin Etheridge, president of Contractors Termite and Pest Control of California and Arizona. Etheridge has built his pretreat business on the principle of providing value to customers, along with a refusal to cave in to predatory pricing tactics.

Etheridge recently presented his ideas at PCT’s Termite Management Summit held in November in Houston. His presentation, "Pretreats: A Rapidly Changing Marketplace," focused on how pest management professionals should price pretreatments and why these prices are merited.

In his presentation, Etheridge conveyed the important message that pest management professionals add value to the structure. "We can provide protection. We as PMPs have the knowledge, the ability, and the skill," he said. He also provided pointers on how to price these valuable services, and create more of a demand for them.

With combined experience in the termite business and the construction trade, Etheridge has learned many of the subtleties of marketing pretreat services. He joined the industry in 1972, when he started with The Way Co./Best Way Termite Control in California. Over his 11 years with the company, he learned all aspects of the business and moved up the ranks into management.

In 1983, Etheridge founded Contractors Termite and Pest Control in California. He added offices in the Arizona market beginning in 1994, and today runs four independent offices. The Chino, Calif., operation serves Southern California, and the three Arizona locations: Phoenix, Tucson, and Prescott Valley, collectively serve the entire state.

CHALLENGES. Like many in the pretreat market, Etheridge encountered many challenges along the way. However they have only made his business stronger. For instance, he rethought his business strategy in 2001 after experiencing a significant loss in pretreat revenue in the Southern California market. "We were faced with competitive bids that didn’t reflect the true costs of doing the job," he says.

Instead of running from the situation, Etheridge dug in his heels and also made some efforts to further diversify his business. He hired two termite estimators and two technicians to handle inspections, treatments and repairs. Today the company employs 40 associates and offers pest control, termite control, inspections, maintenance and repairs. However, pretreatment work still accounts for most of the company’s business. Etheridge says 25 to 75 pretreatments are performed each day company wide.

Etheridge proposes that PCOs rethink how they are pricing their pretreat work. "Other trades would never dream of giving a price without considering the material costs," he said. "I’m going to suggest to you that we as an industry at least entertain the idea of pricing by our material needs and then add our overhead markup and labor."

As an example, Etheridge cited a hypothetical job involving a liquid pretreat application that would require 2.024 gallons of product. At a cost of $145 per gallon, and including sales tax where necessary, the material costs would come to about $315. However, PCOs then need to add their markup based on overhead costs including labor, insurance, general and administrative expenses, equipment and profit.

Arriving at the needed markup percentage depends on many factors, he says, including such things as how labor-intensive the job is or the amount of travel required. Etheridge says his markup is consistent from job to job. "I arrived at the figure of markup by studying my P&L," he says. "That enabled me to come up with a percentage figure that includes overhead items, labor and profit."

In the example he presented, Etheridge used a figure of 55% markup, meaning 55% of the total price of the job would reflect overhead and profit. That means the $315 in material costs would account for 45% of the quoted price. To arrive at the proposed price for the job, he simply divided $315 by 45%, yielding a quote of $700. Jobs using borates can be priced in a similar fashion, Etheridge said, however he notes the markup percentage may differ depending on the amount of time the job requires.

Other obstacles to overcome in the pretreatment industry involve the building industry’s budgeting process, Etheridge notes. He explained that many larger builders have construction budgets with trade line items within those budgets. In many cases the budgeted pretreatment numbers are either below actual costs or have been left off entirely. What’s more, Etheridge said, many times project managers’ bonuses may be linked to the financial performance of the project. "At this point," he says, "we’re not adding, we’re not helping, we’re taking away, and that’s where the beating begins for us as PMPs."

Etheridge notes that in Southern California, builders are not required to provide pretreatments with conventional mortgages, and many builders don’t. Furthermore, much of the housing is too expensive to qualify for FHA-VA financing, which would require pretreatments. "Right now we represent a 99a and a 99b to the builders," Etheridge said. "A lot of builders don’t see a great benefit to that."

REACHING HOMEOWNERS. The key to overcoming this obstacle, says Etheridge, is to create a demand for termite protection services among homebuyers by educating them on the benefits of pretreatment. "We need to create a demand by informing the public that we provide value, we provide protection and service," he said. Further, he added, demand on the part of buyers would naturally translate to demand by builders. "If we had John Q. Public starting to ask for warranties and pest control programs, it certainly would increase our worth to the builders," he said. That might also have the added benefit of motivating purchasing agents to better qualify their bids, he added. "In a market where the client, the homebuyer, continues to ask for pretreatment options, the builders simply will just have to listen."

What’s more, builders would stand to gain from providing pretreats, Etheridge said. "Markups can benefit the builders’ bottom line," he said. "For example, a 10-year warranty with annual inspections built in can be sold as a premium to the buyer by the builders’ sales department, and the builder can mark the cost from the PMP up."

He suggests that builders sell treatment and warranty options to homebuyers at a premium, in much the same way they sell upgraded countertops or bathroom fixtures. Contracts could include warranty packages along with pretreatments, built-in renewal programs with annual inspections, drywood termite protection, even pest management programs. At the very least, Etheridge said, builders could offer protection as an itemized option. "At my company we always offer two materials on our bids: one standard treatment and one premium material, with warranty options," he said.

Most importantly, Etheridge notes, PCOs have to deliver the important message of the value of pretreatments to both consumers and contractors. "There are effective ways to get the word out," he adds. The good news is they don’t have to be expensive. Besides advertising, PCOs can offer educational seminars, form partnerships with manufacturers, and work with pest management associations to spread the word. "It can be something as helpful and inexpensive as speaking at one of your Kiwanis, Rotary or Lions Club meetings," he said.

The author is former managing editor of PCT magazine. She can be reached via e-mail at lmckenna@pctonline.com.

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Equipment Considerations: When Bigger is Better

An important consideration for PCOs in the pretreat market, said Kevin Etheridge,president of Contractors Termite and Pest Control of California and Arizona, is the equipment used. Equipment choice not only affects the image presented to the customer, but the overall efficiency of the job. He notes, for example, that a 50-gallon termite rig typically produces a delivery rate of 4 or 5 gallons per minute. If the job requires the application of 200 gallons of finished material, you’re looking at 40 minutes just in application time, not including the additional fill-ups required.

Alternatively, Etheridge notes, “large capacity rigs can deliver a minimum of 28 gallons a minute.” So a job that might take one hour and 40 minutes (in both application and fill-up time) with a 50-gallon rig would take under 10 minutes with a large capacity rig that only requires one fill-up.