Loss Control Made Easy

MAJOR CONTRIBUTING FACTORS. Recently, it was reported by NPMA that the association did a study to determine the single biggest drain on revenue for pest management firms. The study concluded that account retention was the most important factor because the cost of retaining a customer is always must lower than that of obtaining a new one. We have all heard the phrase, "…throwing them out the back door as fast as they pull ’em in the front!" to describe a company that was selling accounts with no net growth. This company will operate at a loss because of the additional costs associated with obtaining new accounts. A general rule of thumb is that a company must add three accounts to make up (in the short term) for every account lost. This is due to the costs associated with advertising, marketing, preparation, sales commissions, sales overhead and the amount of additional labor and material that must be used to bring the account into a "maintenance" ready condition.

A closely related issue is that of "charge-backs" to sales people, levied when relatively new accounts cancel after a sales commission has been paid. Charge-backs can demoralize a salesperson, reducing the chances that additional sales will be made. As part of this study, NPMA polled clients to find out the main reason customers dropped or changed pest management companies. The No. 1 reason was employee turnover or failure of the company to send the same person consistently. Other reasons included poor communications, failure of the company to demonstrate a real interest in the client’s needs, missed appointments and other items related either directly or indirectly to employee turnover.

Commonly, management will say that chemical costs as a percentage of revenue are a major factor in loss control. In a few instances, this is true. For general pest control, with chemical costs ranging from a low of 4 percent to a high of 8 percent, a rise in usage of 25 percent barely shows in the bottom line! Squeezing distributors for a 10 percent discount also makes no significant difference. Do not misconstrue this to mean that chemical usage and costs are not important when developing a loss control strategy. It’s just that chemical isn’t the most important item.

Pricing can be a major factor in loss control. One of my favorite commercials is for Jack-in-the-Box restaurants. Jack’s accountant is asking how they can sell hamburgers for 50 cents without cutting back on the bread, meat, cheese or trimmings. When the accountant points out that the company loses money on every burger they sell, Jack says he has a plan…he will make it up in volume. The accountant says, "Well I guess that’s why you where the pointy hat!" Too often, companies get so intent on picking up new business, that management prices the work without profit, or worse, they price it at a loss.

Billing and accounts receivable can be significant factors in loss control. If all of the production doesn’t get billed, then you don’t have a business…you have a hobby! Assuming the billing is sent out, next there is the issue of collections. Typically, the people who are best at customer service and pest management are the worst at bookkeeping. It takes different personalities and skill sets to excel at each of these functions. Failure to keep up with billing and accounts receivable will result in cash flow difficulties that can cripple a company’s productivity and growth.

PRICING. Analyze the costs of doing business. How much does overhead actually cost and what can be reduced without sacrificing quality? A company that is running lean has more room for error than one with lots of no-value-added expenses.

Keep in mind that in any given market, 10 to 20 percent of pest control companies are in the process of going out of business. This means that a well-run company can never be the cheapest company in a given market. Since this is a given, than it takes all of the low price pressure off of a company that wants to be successful. Determine what differentiates your company from the competition and price (and market) accordingly.

CONCLUSION. There are lots of additional methods for improving loss control. One of my favorites is to provide pesticides to employees in small, often pre-measured, single-use containers that reduce over-usage and liability while improving user safety. I have found that the additional per unit cost is more than offset by reduced overall usage due to more precise measuring.