A New Look at Renewals

The professionals at Columbia, S.C.-based Terminix Service, Inc., which celebrated its 50th anniversary of their franchise ownership in 1997, can certainly testify to the evolution of subterranean termite control methods over the years. In fact, Terminix held the first patent for a termite control product in 1931, and now, decades later, employees are encountering yet another paradigm shift toward baits.

According to Tom Fortson, president of Terminix Service, Inc., the movement from soil treatments to termite baits is a natural phenomenon in line with other trends experienced by the industry. Termite baits suit the direction toward effective pest control with decreased material usage.

But while there’s little doubt in Fortson’s mind that termite baits are the wave of the future, the reality of the situation today remains: liquid termiticide treatments still play an important role in the industry. In fact, revenue generated from Terminix Service’s termite renewal contract portfolio provides a major source of income for the company, which is an independent business licensed by Terminix International.

“The idea of using baits for colony elimination is more appealing than applying a liquid barrier to keep them out and we are moving in that direction rapidly,” Fortson says. “Yet in the short term, the reality is liquid barrier treatments still account for about 70% of our new sales. Beyond these new accounts, our termite renewal program brings in more than 20% of our company’s total income. That’s a significant part of our business.” Fortson has been in the pest control industry for 34 years. He’s also been a leader to the industry. He has served as president of both the South Carolina and North Carolina Pest Control Associations, and as a past member of the National Pest Control Association’s Executive Board.

POSITIONING RENEWAL SERVICE. Terminix Service sells the idea of a termite renewal contract with the initial treatment to help position the importance of annual inspections in the customer’s mind from the very beginning.

“When we first contract with a customer, we discuss, up front, the need for periodic inspections,” Fortson says. “No matter how well we conduct the treatment, there’s always a chance of reinfestation. In the customer’s mind, we want them to understand that maintaining their inspections — and renewing their termite contract each year — should be a way of life.”

For homeowners, purchasing a termite treatment is a large initial investment, so there’s a very real value in renewing that contract each year at a moderate price. A fairly priced renewal results in a win-win situation for Terminix Service and its customers because it allows the customers to hold on to the equity in the initial job over the length of the contract.

“A renewal has an extremely high value to our customers. It protects their home, which is probably the largest investment they’ve made,” Fortson says. “At the same time, that ‘protection’ is moderately priced so they are likely to retain it.”

For Terminix Service, every dollar of new termite sales brings in one dollar of income from renewals. In 1997, those renewals accounted for approximately 21% of the company’s total income. “There’s no question renewals are the most profitable part of our business,” Fortson says. “We’ve been able to keep our damage claims in check, so that renewal base builds our business as a whole.” With the average life of a termite service contract being approximately 14 years, the renewal portfolio has become the cornerstone of the business for Terminix Service, with some homes having been continuously under contract since the early 1930s. Beyond the continuous revenue stream it generates, the ongoing contact with customers builds relationships and breeds customer loyalty, which helps increase awareness of the company in the community and also helps Terminix cross-sell other services. “For instance, if our termite renewal customers develop a general pe st or moisture problem, or need repairs in their home, we know they’re going to call us,” Fortson says.

MAINTAINING RENEWAL INCOME. In the 1950s, Terminix offered the first termite damage guarantee. That’s when the inspection became an even more important part of the termite contract process. Today, Fortson credits the company’s commitment to conducting annual inspections as one main reason Terminix Service achieves good account retention from year to year.

Terminix Service’s termite contract renewal rate of about 94% annually doesn’t just happen. Establishing a process of conducting inspections and supporting that commitment over time helps maximize renewal income. The company requires that a minimum of 95% of the inspections for the renewal base must be completed each year. “Let’s say a branch has approximately 200 renewals per month. We add the amount of inspections for the entire year, and then divide by 11 months to set our monthly inspection quota for the year. We include inspections due for April in our original total, but we don’t inspect during April because that’s our busiest month. That way our inspectors can be out with potential new customers in April,” Fortson explains.

Typically, the company generates an inspection work order 45 days before the renewal notice is mailed to the customer; thus almost all of the inspections are completed prior to the customer receiving the notice. Some may say this is wasted effort because some customers may not renew even though they’ve had the annual inspection. However, Fortson believes it’s an investment that provides a higher return in the long run.

“Conducting an inspection before sending the bill for the renewal is an investment on our part, and an investment in our community,” Fortson says. “We could get by without the early inspection, but we believe the large stream of revenue we count on from our renewals would dwindle rather than accrue.”

In addition, educating customers about the importance of renewals doesn’t stop once the inspection is complete. Terminix Service uses the yearly renewal notice to explain that reinfestation can still occur. “We view the billing process as a sales process. The letter we send to our customers helps reinforce that they’ve made or are making the right choice in paying their renewal,” Fortson says. “It’s really selling them peace of mind.”

However, renewal revenue can fly right out the window if the termiticide is not properly applied, or if the termiticide doesn’t hold up. “It takes a little creativity to control termites. You’ve got to make sure you’re putting down the right volume in those areas where there is a high risk of termite infestation,” Fortson says.

In addition, renewal contracts cannot be sustained if the termiticide doesn’t have long-lasting residual. For Terminix Service, long residual means more potential renewal profit. In USDA-Forest Service tests, the active ingredient in Equity* termiticide has demonstrated more years of proven performance than any other product.

“We use Equity because it has a long track record — the data from Gulfport demonstrates that it’s number one. Statistically, it’s got the best residual,” Fortson says. “I know that where we’ve applied it, we’ve got the longest-lasting chemical available.”

THE COST OF RETREATS. There’s no doubt that significant cost can be involved in retreating a structure. Beyond the time and hard costs of retreating a structure, there’s also a direct loss of income-producing labor for the company because that technician is not out treating a new customer. Terminix Service devised a system to keep employees motivated to do the job right — when doing the initial treatment and during annual inspections.

TERMINIX SERVICE SERVES THE COMMUNITY Twenty percent of a company’s total income stemming from termite renewals doesn’t just happen. And it doesn’t happen overnight. According to Tom Fortson, president of Terminix Service, Inc., Columbia, S.C., it’s a result of the company’s “community pest control” philosophy. Rather than extending service from one main location into other communities, whenever possible, Terminix Service sets up new offices where people from that locale operate branches in their own communities. “From a business perspective, it’s an expensive marketing strategy because our overhead increases with each new location,” Fortson says. “However, business is all about relationships. We want to be a part of that community, by practicing pest control and having a positive impact on the community as a whole and providing opportunity for our employees.” With 36 branches throughout the Carolinas and Georgia, 580 trucks on the road and more than 600 employees, Terminix Service’s marketing approach to positioning and maintaining termite treatment renewals, combined with the company’s philosophy of community pest control, has been a positive influence on the communities they serve.

“Termite treatments are an enterprise where the technicians are directly involved, so we pay them a percentage of each job. We follow up with quality control checks to keep our system in balance,” Fortson explains. “When employees have a stake in the treatment, they’re more encouraged to do the job right.”

In addition, the company pays a “bounty” to anyone who finds live termites during an annual inspection. In these cases, a supervisor returns to the property with the technician to help plan a strategy for retreatment. “This program to incentivize our inspectors helps ensure they do a thorough job on the annual inspection,” Fortson says. “This strategy also demonstrates to the customer that we take retreatments very seriously.” Although Fortson says they’ve always had retreats — even back in the days of chlordane — the programs Terminix Service have in place to educate and inspire employees keeps the company’s renewal rate up and the retreat rate down.

As the evolution of the pest control industry continues toward prescription treatment for pest control, termite renewal portfolios remain an important asset. Positioning and maintaining termiticide treatment renewals, making the investment in annual inspections and keeping the retreat rate below 5% will keep Terminix Service’s termite business profitable — and a major source of income for years to come.

Chris Finerty is a writer based in Brookfield, Wis.

*Equity termiticide is a trademark of Dow AgroSciences LLC.