A leading industry business consultant says there are three keys to profitability: understanding your customers, understanding your business and bringing the two together.
Acme Bakery, your largest commercial customer, just called to cancel their service; one of your technicians accidentally spilled some pesticide in a residential neighborhood and several homeowners called the fire department to complain; your receptionist just turned in her resignation … needless to say, it’s been a long day! Your head is pounding. On your way home you stop at the drugstore to get your hands on a bottle of acetaminophen, naproxen sodium or ibuprofen. Right?
Probably not. In fact, what you’ll look for at the drugstore is a brand name — a Tylenol, Bayer, Advil, Alleve or Motrin. Because when you’re buying a pain reliever you’re not buying the active ingredient, you’re buying relief from your headache. The brand that best represents that relief is the one you’ll choose, gladly handing over your money in exchange for an end to your discomfort.
According to Paul Drees, a business consultant with Market Focus Consulting, customers look at pest control the same way. “Customers don’t buy good entomology, they don’t buy an active ingredient, they don’t buy integrated pest management,” Drees said. What they buy is a solution to a problem.
You can maximize profit, Drees said, by clearly understanding what problems you can solve for your customer, where the profit and cost centers are within your business, and how you can combine the two. Drees, who has spent the last few years analyzing the pest control industry and other service businesses, discussed maximizing profit at a presentation during Zeneca Professional Products’ Ant Workshop, May 11-13 in San Antonio, Texas.
hold your mouse over image for more information
IDENTIFY THE NEED. The key to business success, according to Drees, is asking the following questions about your business: What am I going to procure for customers? What problem(s) am I going to solve for customers? “Think of the small business owner, the homeowner, the restaurant owner, what does he value, what does he need?”
Drees used ants as a prime example. “The No. 1 expectation that your customer has is they want no ants. They don’t want dead ants, they really don’t want controlled ants, they want no ants.” It’s the PCO’s job to provide the technical expertise to achieve such a goal, while having the marketing savvy to sell customers on the fact that your company can solve their problem and make their life easier. “Your job is to help link up some of those technical features with the benefits that customers value,” Drees says.
Often your customers value more than just seeing no ants. They also want things like safety and hassle-free service. “We’ve all heard the concerns about spraying inside homes with children, as well as concerns of pets outside getting into baits. Your customers generally don’t want to be interfered with, they just want the problem to go away,” Drees says.
If you determine exactly what the customer wants and deliver on that promise, you can mitigate the issue of price from being the determining factor in their decision to retain your services. Make sure you know the target you are going after, what that customer cares about and how you are going to address those concerns. Then, charge the appropriate price based on your costs and a reasonable profit. “If you focus on the value side more than the price side, chances are you are going to keep your prices higher and do a better job of satisfying the customer,” Drees says.
“The challenge that you have is the fact that people have different things they want in addition to no ants. And that creates tremendous opportunity for you,” Drees says. The key, of course, is tapping into what the customer values most.
UNDERSTANDING PROFITABILITY. The next question to ask is how does your company make and lose money? “I know you are sitting there thinking, ‘Am I really that stupid that I don’t understand how I make money? If I get more accounts, and I charge a higher price and I can beat up my basic suppliers on price, I’ll make more money, right?’” Drees asks, playing the part of the PCO.
But it’s not so simple. “When you get into the individual activities of running your business and studying them in greater detail, and really understanding how different activities contribute to costs and how different positioning can contribute to being able to get higher prices, you can significantly change the profitability of your business.”
It takes serious analysis and accounting, but recognizing your profit and loss centers will create a more focused organization.
Drees pointed out two areas of particular importance: the cost of acquiring new customers and the cost of callbacks. It takes a tremendous amount of resources to acquire new customers, and as a result, you normally don’t make money on that customer until you have retained them for a significant period of time. If you add up all the time you spend acquiring new customers — time spent strategizing, time spent on the phone with them, time spent designing marketing materials, as well as the actual monetary costs involved in marketing and sales materials, the cost is very high. “You will more than likely not recoup that cost in your first transaction with a new customer,” Drees says.
The effect then is that if you lose that customer after a brief period of interaction, you have lost money and wasted labor resources. You must retain customers to maximize profitability, Drees says. “As you keep that customer over the long haul (three or more years), the profitability of that customer increases dramatically.”
As you develop this longstanding relationship with the customer, you also get to know them better and determine how you can provide more value, while eliminating the things that don’t add value to them. You can streamline your operations, providing more value and resulting in a more satisfied customer, all the while reducing costs and unnecessary labor. At this point you are meeting their needs so well, Drees says, that you can often raise prices. What’s more, customers you’ve retained over the long haul will also be more likely to refer new customers to you. And referred customers obviously don’t require any additional expense to obtain.
It’s this condition — the fact that customer retention is so important toward generating a profit — that makes callbacks a key profit/loss area. “Once you get a customer, and once you invest all the money (to acquire a new client), you better be very careful that you are understanding them and keeping them happy. They may forgive you in year four for a little hiccup, but they are not going to forgive you in year two, Drees says.
“Not all customers are the same, but I’m absolutely positive there is a segment of customers who want it done right the first time, will pay a very high amount of money for that, and then they do not want to see you again,” Drees says.
Another negative by-product of callbacks is the fact that dissatisfied customers often simply cancel their service and find a new provider. They don’t call you or give you the opportunity to remedy the situation and retain them, Drees says. Your investment in acquiring that new customer is lost, and so is your profitability.
MERGING THE TWO TOGETHER. Understanding your customers and what they value can help create a successful marketing strategy that will serve the long-term interests of your business. Understanding where you make and lose money can help you streamline operations. Concentrating on merging both functions can make a powerful profit-boosting combination and create a powerful brand for your company, Drees says.
“Once you have a good focus on customer needs, and you really understand in greater detail how you make money, you can put those together and focus on those parts of the market where you’ve got something unique and special to add (to the business relationship),” Drees says.
And if you’re successful, you’ll develop a “brand” that your customers will not only trust, but pay a premium price for. Just like you when buying a bottle of aspirin to relieve your headache.
Warning! Using Price To Lure New Clients? Proceed With Caution
Acquiring new customers is one of the most expensive, time consuming and important functions of a pest control company. Tempted by fierce competition and time constraints, some PCOs may feel compelled to lower prices as a quick fix to attracting new business. Those who do so should think twice, however, says Paul Drees, a business consultant with Market Focus Consulting, Wilmington, Del.
“If you use price to acquire new customers, you are getting somebody in year one and because you’ve lowered your price, you’ve lowered your potential for profitability not only in year one, but forever. You are never going to be able to get your price up to where it should be.
“You’ve also purchased the most unattractive of customers, you’ve bought a customer that is very price conscious.” Therefore, Drees warns, “Think very carefully about buying business by lowering prices.”
Check out more from this issue and find your next story to read.
Explore the July 1999 Issue
Latest from Pest Control Technology
More from Pest Control Technology
