Retention = Value

Selling your business is a big deal. After years of long hours, hand-picking employees and finding loyal customers, it can be overwhelming to select the best course of action for your company and for yourself.

Consultant Kemp Anderson specializes in providing professional guidance to pest control operators about to enter the world of mergers and acquisitions. Whether you plan to sell your business as soon as possible or simply want to plan for the future, Anderson shared at a recent PCT M&A Virtual Conference how concentrating on retention and customer loyalty should always be a priority for PCOs.

START WITH LOYALTY. As a rule, Anderson said, a potential buyer is going to study a company’s retention by service line, so it’s critical that business owners keep track of customer retention. Retention refers to a metric that measures how many people remain with a company. To increase retention, Anderson suggested business owners look into a concept he called The Loyalty Effect.

“(The Loyalty Effect is) defined as finding and keeping good customers and employees and supportive investors that help you generate...superior results,” Anderson said.

The Loyalty Effect is an equation in which the higher number of clients that feel a stronger loyalty to your company, the higher your rate of retention will be.

Loyalty is not a metric. “Loyalty is actual behavior,” Anderson said. “(It’s) the result of consistent positive experiences with your customer.” It begins with the sale and continues with every phone call, service and bill sent or paid thereafter. Anderson described how each interaction between the company and the customer produces either a positive or negative experience, and those experiences drive loyalty, which, in turn, drives retention metrics.

The Loyalty Effect also factors in the amount of services a client utilizes. Generally, when customers only use one service offered by your company, “it’s easier for them to opt out of the service,” Anderson said. So he recommended growing a customer base that consists largely of clients needing more services and retaining and building loyalty with those customers. This approach to retention will ultimately cause your costs to decrease and your profits to increase.

When potential buyers look at the last three to five years of financials/P&Ls, they might not see a column specifically for retention, but they will see the results of retention, Anderson said.

RETENTION IN NUMBERS. Although it can be hard to accurately measure customer retention, Anderson explained that there are certain percentage goals that PCOs should attempt to meet for each service they offer. On the pest control side, Anderson said a company should strive for an 82 to 87 percent residential pest retention rate. For commercial pest control, a company should aim for greater than 94 percent.

“This is a critical thing,” Anderson said. Commercial pest control is highly valued because high levels of commerical service retention translates into greater profitability. Additionally, commercial sales generally take longer to close, Anderson said. As a result, a company will turn a higher profit over a longer period of time if a large number of commercial pest control customers remain loyal over the years.

When looking to sell your business, PCOs also should consider the 80:20 rule, which is a ratio that demonstrates that effectively 80 percent of a business’ future profits comes from 20 percent of its existing customers.

“A lot of people lose sight of the value of that retained customer and they’re chasing the sale. You need to be equally passionate about chasing retention as well,” Anderson said, because these retained customers are what will drive your profits and the overall value of your company.

In order to see how critical retention is to making a profit, Anderson compared the numbers. He pointed out that a two percent increase in retention has a similar effect as decreasing expenses by 10 percent.

“A lot of people are going to say, ‘Let’s cut costs’ when there may be a more positive approach for the business,” Anderson said. But it would be in a PCO’s best interest to focus more time and effort on retention. “Let’s look at retention from the cradle to the grave, from the day the business is sold until the customer leaves,” Anderson said.

DON’T FORGET COMMUNICATION. Sometimes, it is out of your control whether you retain a customer or not. Clients can move away or change their tactics and try to take care of their pest problems themselves. However, the biggest threat to customer retention is something you can control: a lack of communication.

A pest control company is only as valuable as its customers think it is. That’s why Anderson reminded PCOs that retention is maintained by continually explaining the value of the company to the customer, as well as important aspects like the public health benefits a pest control service provides to the customer and their family.

“A lot of times, they just don’t think that we care about them anymore. We lose that personal touch,” Anderson said.

Ninety-one percent of service cancellations are within a company’s control, Anderson said. In addition to customers simply thinking their pest control provider no longer cares about them, other top reasons for cancelling a service include customers becoming unhappy with their service and customers leaving for a competitor’s service or price.

Studying the reasons why customers end their service will help a company make improvements, allowing PCOs to anticipate a customer’s need before they’re aware of it themselves.

“Be in front of that customer interaction when you can,” Anderson said, so that customers will feel cared for, increasing the likelihood that they will remain with the company.

It is also important to look at how your company is communicating without words. What do your uniforms and trucks look like? Are they professional and identifiable? What about your apps, paperwork and other customer interactions? Do they provide an easy and effective experience? All of these questions need to be considered in order for PCOs to determine if the company is communicating successfully with their customers.

Always look for other ways to make a good impression on your customers as well. Anderson suggested implementing various outreach methods such as donating services to worthy causes in your area and creating customer newsletters. This not only benefits the community, but also adds value to your business in the customer’s eyes.

In the end, having a mindset of exceeding customer expectations in unexpected and helpful ways will drive loyalty, enhance retention and add value to your company, whether you are planning to sell or not.

The author is a New York City-based writer

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