Add on services For the PCO

Building Your Business Through Expanded Business Offerings Daniel S. Gordon, CPA

Overview Can we SURVIVE this economy? How can we GROW our business? Measuring our STRENGTHS and WEAKNESSES What will it take to be PROFITABLE ? Offering EXPANDED SERVICES ? MARKETING MATH for the PCO EVALUATING the Market TEST and IMPLEMENT Your NEXT STEP

Can we survive this economy? Major events of 2008 Stock Market Collapse Housing Crisis Record Prices at the Pump Implosion of the Auto Industry Meltdown of Financial Services Exodus of Manufacturing Our Great Nation is involved with 2 wars

Can we survive this economy? But hold on – NOT SO FAST!!! We can still succeed… America is the strongest economy in the world! Spending doesn’t stop because we don’t have money We go into debt to get what we want. It’s not good for the long term but it will help to pull us out short term We are a nation of spenders helping to keep the economy moving Most of the rest of the world are savers Americans find ways to put “stuff” with consumers. Never Count out The U.S. Consumer!! Can’t afford a vacation home? Carve one up… buy a time share Can’t afford to buy a car? Lease one Don’t have money for merchandise at the department store? Get a credit card at the cash register and receive a discount

Can we survive this economy? Can we survive? YES… and the strong companies will emerge STRONGER! Is it going to be tough? Yes Is it going to take a long time? Possibly Is time going to pass no matter what we do? Yes, so we should get to work!

Can we survive this economy? What ADVANTAGES do we have as PCOs? Fuel Prices have dropped significantly Our Services are need based and sometimes mandated by law In most areas of the country we are seasonal, we are used to managing downturns. The winter comes every year – doesn’t it? Long before the recession, experts have predicted the U.S. will become a service economy. Here we are in service businesses and we have a big head start! No matter what your political views, you can’t argue the fact that the government is implementing the largest stimulus program in history - over 750 billion dollars. This money will ultimately trickle down. For the most part our costs are variable, we can make drastic changes quickly (not always an easy decision but it can be done)

Can we survive this economy? What are the RISKS we have as PCOs? Our customers are feeling the pinch and won’t spend Our customers fail, leaving us with uncollectable fees Banks won’t lend to us for vehicle purchases or leases Competition from other PCOs Inadequate financing Falsely believing what worked in the past will work in the future Ultimate Failure – bankruptcy

How do we weather the storm? PREPARE for the recession to be long and deep and then build flexibility to adjust when needed Make sure you have TIGHT ROUTES . You may not be able to raise prices but tight routing has the same effect as raising prices NEVER SELL UNPROFITABLE WORK on the basis of “its steady work”… Shrink your business if you have to. Make sure you have an accounting system that gives you accurate and timely INFORMATION MEASURE the results of all your programs and increase the profitable services and decrease the unprofitable services Increase your COLLECTION efforts – make sure you’re A/R is healthy and collectable Tighten your CREDIT TERMS – shut customers off if needed Increase your SALES & MARKETING effort – be effective!! Get ready for the upturn!! Create your 5 year plan; and EXECUTE!

How can we grow our business? First lets go over how we run a successful Pest Control Firm The Pest Management business is Simple (Not Easy But Simple) We are in a Service Business and Sell our Time. This time that we charge for includes: Diagnosing the Problem Providing a solution Setting the Customer up on a Service Contract Doing the Same thing Over and over until you have built a route or several routes.

How can we grow our business? The Concept of Selling Time: Time is a Perishable Commodity Once it is gone, you can’t resell it If you route your calls effectively you will be able to maximize the amount of time that you can sell.

How can we grow our business? What is it that we are growing? Are we growing the number of employees? Are we growing sales? Are we growing our current income? Are we increasing the value of our firm?

How can we grow our business? Let’s assume we are increasing the value of our firm How do we MEASURE THE VALUE of our firm? Accounting approach: Assets minus Liabilities Assets include: Customer Lists (The most valuable asset) Accounts Receivable Trucks and Equipment Furniture and Fixtures Real Estate owned Other Assets Liabilities Include: Accounts Payable Credit Lines Loans Payable

How can we grow our business? The Customer List (Your most Valued Asset) Long Term – Can be compared to machinery in a manufacturing business: Must be “well oiled” by providing great Service Routes must be tight allowing for the greatest output from this machine Short Term - Can be compared to a life insurance Salesman setting up a book of renewable policies that generate current income.

How can we grow our business? You need a Plan… The plan must focus on growing your customer list as well as selling more to existing customers This is the Asset that will spit out the profits. Remember- The PCO business is not a high margin business. Rather it is a moderate margin business where you generate high profits from customers that use your service on a scheduled recurring business

How can we grow our business? Service Contracts vs. One Shots Consider that it costs anywhere from $80.00 to $500.00 to generate a lead from the phone book Which is better a one shot at $150.00 or a ongoing service agreement at $75.00 per quarter?

Measuring our Strengths and Weaknesses Strengths We know how to do small jobs assigned to one Technician in a truck who repeats this all day long We know how to sell these jobs in a formula that includes: Initial service Sell a recurring contract or renewal Manage that customer, collecting revenue from him on a periodic basis long into the future Price that work at an Acceptable Return per hour that yields a profit each and every time we service the customers Scheduling or routing that work that maximizes the efficiency of our routes Having a back office operation that allows proper billing and A/R management Minimizing financial risk by each ticket being small compared to our overall operation making it almost inconsequencial if the customer defaults on the services

Measuring our Strengths and Weaknesses Weaknesses: Our Equipment is highly specific and can’t be used to do much other than pest control Our sales efforts are based on selling a formula based standardized service making it very difficult to sell complicated services that need further research and multiple visits to price the service. Our services cross many trades or disciplines but our knowledge is only in one Skilled employees are hard to come by We are not used to billing on percentage of completion Competitors in other disciplines can sometimes employ cheaper help

Offering Expanded Services? What a great idea: Maximize our average revenue per customer We have a business model that can be applied to several services Customers like us and would trust us for other services One stop shopping We need to remember our objective which is to build the value of our company maximize the recurring work within a customer data base.

Offering Expanded Services? Benchmarking Revenue Per Customer – Most companies look at Revenue for the company or Revenue for the branch and determine profitability from there. Disadvantages to Looking at your business this way: You can have unprofitable customers You will never understand your profitability as you will always be looking at the sum of the parts as opposed to the parts themselves Suggestion: Look at Dollars per hour per customer Look at Revenue per customer per year Benchmark that number Try to increase that average each year By doing this you guarantee profitability as well as maximize the amount each customer is spending with you

Offering Expanded Services? Can we make money with one shot work? Absolutely Does it take our focus off building our annuity machine? Maybe Is it a good idea to emulate companies who have done what you want to do? Probably What does Rollins offer? Recurring Services What does Servicemaster offer? Recurring Services Is there a reason that there are no national Carpentry companies?

What will it take to be profitable? The Pest Management Pricing Model is based on two variables: Money This is an hourly charge for our service that covers our costs and allows us to make a reasonable profit. How do we know what that hourly rate should be? Accountants calculate this number using a technique called BREAKEVEN ANALYSIS . Time The service time that it takes to fulfill the obligation of eliminating the customer’s pests under the service program. This includes treatment time and call back time.

What will it take to be profitable? Run a Break-Even Analysis to find out… Break-Even Point in Units (Service Hrs) = Fixed Costs Gross Profit per Hour

What will it take to be profitable? Fixed Costs Any cost that remains constant at any volume of business - Examples: Rent, Advertising, Utilities, etc.

What will it take to be profitable? Variable Costs Costs associated with producing one unit of our service. For our purposes, one unit of a service will be one hour of service. Thus, variable costs are those costs that rise and fall based upon the number of hours that we provide service. Examples: Hourly pay for your employees, Workers Compensation Insurance, Material Costs, etc.

What will it take to be profitable? Gross Profit The difference between the price charged per Unit (Hour of Service) and the Variable Costs. Example : If we bill our service at $100 per hour and a technicians gets $20 per hour and all other variable costs associated with providing that hour of service are $35, our gross profit would be $45. (figured: $100 billed less ($20+$35) variable costs).

What will it take to be profitable? So, what Is My Breakeven Point? Break-Even Point in Units (Service Hrs) = Fixed Costs Gross Profit per Hour.

What will it take to be profitable? If rent, utilities and all other fixed costs are $10,000 and we use our $45.00 gross profit per hr example than our breakeven point is 222.2 hours of service at a $100 per hour selling price. After 222.2 hours of service we will start making a profit of $45 per hour. You see the gross profit contributes to paying the fixed costs. Once the fixed costs are paid, the gross profit contributes to bottom line profit. This is the reason some accountants call gross profit the contribution margin . Example

What will it take to be profitable? $10,000 Fixed Costs $45.00 Per Hr Variable Costs 222.22 Hrs to Break Even = Gross Margin Break-Even Point

What will it take to be profitable? However, at various sales levels certain fixed costs rise (i.e. after a certain sales level, a new piece of equipment might have to be added, thus the cost of using that piece of equipment must be added to fixed costs). Therefore, figuring your breakeven point can sometimes be confusing . Is it Really That Simple? YES!!!

What Services can we offer? Lawn Care Pros: Recurring Revenue Routing Easy Fits our business model well Suppliers cross over with pest control Weed and Feed can be very profitable Cons: Seasonal – same as Pest control is a very labor intensive Cutting requires expensive mowers requiring maintenance Carrying materials can test the suspension on smaller trucks

What Services can we offer? Pool Care Pros: Fits our business model well Offers twice per year high ticket (Opens and closing) Offers weekly route work – cleaning / chemicals Routing is easy Training is relatively easy Cons: Seasonal – same as Pest control May require specialized knowledge of pumps etc. Can ruin Pool liners if chemicals not added properly

What Services can we offer? Air Duct Cleaning Pros: Very profitable Renewable Equipment is affordable and can be leased or financed Customers perceive it as a needed service Training is relatively easy Maybe able to offer an annual deodorizing service Cons: A full blown renewal or repeat of the service happens only every 2 or 3 years Requires a dedicated set up on our Trucks The industry has many “Shotty low ball Operators” that we need to compete with

What Services can we offer? Other Pest Control Services (more service to customers who are wealthier and more sensitive) Pros: Fits our Business Model Well Makes Use of the 80 / 20 Rule Very Profitable Can be routed easily Technicians are already Trained (or need minimal Training) High Dollar per Hour Cons: Customers require extra attention We may have to go outside our standard service May require additional training for Techs

What Services can we offer? Septic Cleaning Pros: Recurring Revenue Very profitable Renewable Customers are usually mandated by local law to have this service performed Training is relatively easy Cons: A full blown renewal or repeat of the service happens only every 2 or 3 years Requires a dedicated Trucks that are expensive It’s a dirty business The disposing of collections are subject to fees and regulation

What Services can we offer? Chiropractic or Dental services???  Pros: The model is exactly like ours Cleanout Recurring service or renewal Cons: Need a license which includes many years of School This example is made in jest, but it brings to light the concept of selling time in an initial service and then setting up recurring revenue – This is how you grow the value of your business.

What Services can we offer? “ Honey Do Services” – How about sending a handyman out to a customer’s house on a periodic basis to do whatever is needed around the house – for a fixed number of hours Pros: Fits our Business Model Well Makes Use of the 80 / 20 Rule – high end customers will subscribe Very Profitable Can be routed easily High Dollar per Hour Cons: Customers require extra attention We may have to go outside our standard service May require additional training for Techs

What Services can we offer? Crawl Space encapsulation Pros: Very Profitable / High dollar item Installation and sales can be reduced to a formula Very small Capital Investment to get started Solves moisture problems that can help pest control program Cons: Usually requires more than one technician Requires special Training Renewal potential – but retention is low Requires Technicians usually for a full day or more so routing can become a problem

What Services can we offer? HVAC Services Pros: Recurring Revenue Very profitable Renewable Customers rely on this service to heat or air condition a house Cons: Requires a dedicated Trucks that are expensive Need trained, licensed technicians May be prudent to set up another division to handle this

What Services can we offer? Mold Remediation Pros Initial Service and annual renewal possible People are very aware of this problem – its well publicized Very profitable Excellent Training available from the vendors Cons: Requires a dedicated Trucks Down time for training May be prudent to set up another division to handle this

What Services can we offer? Rodent Proofing Pros: We are in the pest control business (implied expertise in customer’s eyes) Initial Service and annual renewal possible Material cost minimal High dollar per hour Very little training Cons: Customers require extra attention We may have to go outside our standard service

What Services can we offer? Bed Bugs Pros: Large Commercial and residential market Initial Service and annual renewal possible Product sales possible Cons: Customers require extra attention We may have to go outside our standard service Extra Training Need for Techs When call backs are a problem, they can require a lot of attention

What Services can we offer? Wildlife Control Pros: Large Commercial and residential market Initial Service and annual renewal possible Product sales possible Cons: Customers require extra attention We may have to go outside our standard service Extra Training Need for Techs When call backs are a problem, they can require a lot of attention Some States require additional licensing

What Services can we offer? Mosquito Control Pros: It’s a needed service It can either be a routed service or a renewable service Profitability is usually high Addresses Public Health Concerns Cons: Need Special Equipment Highly Seasonal May need additional licenses in some states

What Services can we offer? House Cleaning Pros: Can be set up on routes Usually recurs weekly or 2 time per month Can cross sell even more service (i.e. window cleaning, carpet cleaning etc.) Cons: Labor is very difficult to come by and usually work in crews Need to be extremely efficient as Gross Margins are low Quality issues are always a problem

What Services can we offer? Security Services Pros: Fits our model very well. Initial set up and monthly monitoring Mail box money each month Truly an annuity business Monitoring is outsourced and the money is made on the markup with no labor Cons: Need specialized Training to set up

What Services can we offer? Gutter Cleaning Pros: It’s Renewable and usually can be done a couple times per year Not much equipment needed Very little training needed Cons: Competition is very stiff from low priced competitors since there are no barriers to entry Low dollars per hour Workers comp rate is that of a roofer

What Services can we offer? Carpet Cleaning Pros: Recurring work – at least annually but sometimes quarterly Dollars per hour can be high Add on services such as stain removal, Scotch Guard, etc. Cons: Need Special Equipment that can be expensive Need specialized training Work is very strenuous and labor intensive

What Services can we offer? Snow Plowing Pros: Great counter seasonal work Dollars per hour are high Contract work as opposed to per snowfall work will give you predictable revenue Cons: Needs special equipment – Puts a lot of wear and tear on trucks Work is done 24 / 7 when it snows

What Services can we offer? Carpentry Pros: Big ticket Jobs – can we keep guys busy? Could include termite repair – built in source of leads Smaller jobs – usually more profitable Cons: The competition is with other carpentry companies – They work for a much lower dollar per hour Non recurring work There is a reason that there are no national carpentry businesses

What Services can we offer? Deck Sealing Pros: It’s a needed service It’s an annual renewable service Help’s with pest management Profitability is usually high Cons: Need Special Equipment Highly Seasonal The work is multi step requiring a couple of visits

What Services can we offer? Christmas Lighting Pros: Counter Seasonal to Pest Control It’s annual and renewable It can be very high dollars per hour Cons: Storage Breakage of the decorations / Lights Highly subjective based on the customer’s expectations Need to purchase inventory that may or may not get used for a year or more

Marketing Math for the PCO We want Growth How Much? Over What Period of Time? What Resources Will We Need? Equipment, People, Money? Where Will the Growth Come From? New Customers, or More Business from Existing Customers? Is Our Current House in Order to Achieve this Growth?

Marketing Math for the PCO Define Growth – Set Goals Example of a Goal I want to take my Business from $500,000 in Annual Revenue to $1,000,000 in Annual Revenue over the next 4 Years, increasing my profit margin from 12% to 20% for the same period. Not an example of a Goal I want to get Bigger.

Marketing Math for the PCO What is our Revenue per Machine, Truck or Other Key Hard Asset? What is our Revenue per Employee? Are Revenues Maximized per Employee or Hard Asset… or can we do more with what we have? In Order to Fuel This Growth, How many more employees will we need? What new Hard Assets will we Need?

Marketing Math for the PCO Money Requirements If more People or Equipment is Required For Expansion… How does it get Paid For? Several Options Exist: Through Daily Operations & Cash Flow Through Financing (i.e Bank, Finance Companies, etc.) By Giving Up Equity (i.e. Silent Partner, Not so Silent Partner, Joint Venture)

Marketing Math for the PCO Where Will the Growth Come From? New Customers New Customer Acquisition is Expensive The Yellow Pages estimates that Cost per Lead can vary from $80.00 - $500 per Lead. Selling Expense once the Lead is Secured includes Employee Time, Commission, etc.

Marketing Math for the PCO More Business From Existing Customers Your Customers Already Know You The Cost associated with expanding your relationship is significantly less than new customer acquisition. An excellent way to guarantee yourself a predictable revenue stream while allowing your customers to do predictable expense budgeting.

Marketing Math for the PCO Is Our Current House in Order to Achieve Growth? Is your Accounting System Set Up so that you know exactly where you are in terms of: Sales Expenses Accounts Receivable Accounts Payable Cash Account Balances

Marketing Math for the PCO One of the most important things that you need to do in business is to decide: What it is you are going to do With whom you are going to do it How much you are going to charge, How you will get the word out to potential customers.

Marketing Math for the PCO A common error among PCOs is trying to be everything to everyone. Example 1 : Bird work is a very highly specialized area of pest control that can be extremely profitable. However, if you don’t have the skills to do that type of work, DON’T DO IT! Since it will probably lead to substandard work, bad feelings with the customer, and take time away from developing the type of service work that you want to develop.

Marketing Math for the PCO In defining your overall strategy, the MARKETING MIX concept is extremely useful. It is broken into four categories known as the Four P’s of Marketing: Product Price Place Promotion

Marketing Math for the PCO PRODUCT - From a marketing prospective our product is our service. We need to define: The Quality The Features The Services The Warranties etc. From a standpoint of practicality, it makes sense that as we grow our business we need to be uniform in our Service Plans. As our customer list grows, it will become extremely difficult to manage a business where every customer’s service is different. Thus, in defining our services we should design a core group of services that are standardized. All of our technicians can be trained to work using standardized methods. In addition our office staff is not faced with differing problems with each customer. STANDARDIZATION OF SERVICES IS KEY!

Marketing Math for the PCO PRICE Pricing is extremely important. You need to price for profit. Remember our discussion on Breakeven Analysis… Understand how high the bar is that you are trying to reach!

Marketing Math for the PCO PLACE Service Area Defined - In designing our business we need to define our service area. Again, if you go outside of your service area, you need to charge a lot more money in order to account for the travel time. The most profitable pest control companies have very well defined service areas. In fact, each office has sub service areas for each route. Sound routing methodology needs to be employed. At this point we should note that you should have well-defined service areas that you will not breach .

Marketing Math for the PCO PROMOTION This is getting the word out. It’s is not my intention to speak about all of the promotional concepts of marketing a pest control company. However, we should be able to track our advertising in our computer system and generate reports that will tell us which advertising works and which does not. Promoting your company through advertising is the single most important thing that you can do to build your company. However, too much of the wrong type of advertising can sink your company quickly. By tracking which advertising is working through your computer system, you can build successful advertising campaigns that deliver RESULTS .

Evaluating The Market We have a huge advantage in surveying the market to see if our new business (“added service”) is viable. Captive audience / response rate no matter what you do will be hire than if you were starting a brand new business. Understanding the demand for your service – We can literally get the same type of information as a focus group by doing telephone surveys. These surveys can be used as a marketing tool to sell our services. Once we determine how many customers are interested, we can do accurate revenue projections using our customer database. If we determine that there is demand for our service to our existing customer base we can then roll it out to the world.

Test and Implement Business is an ongoing experiment... suggested method of rollout: Go Slow – make sure that operational issues are sorted Choose a select group of customers Be honest and let them know you are testing (perhaps offer a discount). In computers this is called “beta testing” Get Feedback on how the entire customer experience worked out Take note of customer feedback and implement constructive changes Retest the service implementing those changes Once you feel that you have a winner, roll it out to your entire customer base Roll it out to the rest of the world (within your geographical limits)

Your Next Step… - PestPac & QuickBooks Online Integration & Reporting - Monthly Conference Call to Help Improve Your Results - Year End Financial Reporting - Year End Tax Services If your CPA doesn’t know Your Industry… YOU DON’T NEED HIM! Daniel S Gordon, CPA daniel.gordon@wealthdepot.com 973-300-0288 www.pcobookkeepers.com

And For Super-Charged PMP Business Growth… www.pmpwealthbuilders.com Best Coaching in the PMP Industry Monthly Newsletters & Conference Calls Manuals & CD’s Covering Operations Accounting Marketing Management The McDonald’s Franchise System For Building a PMP Firm Without Paying 1 MILLION DOLLARS!!!

CONTACT US TODAY! 973-300-0288 www.pcobookkeepers.com/growyourbiz

Add on services For the PCO

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