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HOW POOR SERVICE AFFECTS YOUR PROFITS

The ‘five Ps’ of marketing are a helpful way for pest managers to determine the level of value they offer to customers, with each factor strongly linked to the company’s overall profitability.

A commonly accepted theory is that for a service business to increase profit – and thus increase the value of the business – it needs to grow.

This makes sense. When I ask an owner or manager how their pest management business is going, 99% of the time the conversation will centre around sales. Even when you read the financial press reporting on large public companies, the article centres around sales turnover as the barometer of success.

The standard three-point plan to boost sales and grow a pest management operation is to increase the following:

  1. Number of new and existing customers who call or email to book a job
  2. Amount of money customers spend with you
  3. Number of times customers return to use your services.

I learnt this three-point plan 30 years ago in a marketing unit at the University of New England (UNE) in Armidale and it is as relevant now as it was then. Alongside this, pest managers should consider how they manage the ‘five Ps’ of marketing, which I’ll outline below.

Right product: I work on the principal that over 90% of the service product range in a pest management business is the same as the competitor down the road.

Right price: Around 80% of service fees are similar between competitors, sometimes higher and sometimes lower. There can also be different prices for customers depending on the amount of business they do with you and their history with the business. There is a small cadre of what I call ‘D-class’ customers who will choose a pest manager based solely on price. These are customers who spend their whole day on the phone getting quotes to eradicate an ant hill!

Right promotion: Businesses can differentiate themselves on how they promote themselves and the standard of marketing materials and methods of getting the message out there. I still believe the best method of marketing is word of mouth – that is, customers talking to potential customers, inadvertently promoting your pest control operation based on their experience of doing business with you. More about this later.

Right place: Location, location, location. Is the business headquartered somewhere convenient and what do you consider your catchment area?

Right people: Having the right people is the cornerstone and glue that holds together the ‘four Ps’ listed above. This really can differentiate the business from its competitors and can have a dramatic effect on sales and therefore profit.

I read an article many years ago by retail consultant Carol Walker of Service Market Audit Research that looked at the reasons why customers chose not to return to a retail store after having shopped there previously. The article reported that 9% of customers felt prices were too high; 14% felt the products on offer were inferior; and 68% named the attitude of the staff as the reason they would not return.

What happens to profit if you don’t have the right people with the right attitude, and service levels drop? Let’s use a case study to see.

Case study for XYZ Pest Control

In this case, we assume that when business is going well and good service is being provided, the company might operate 285 days a year, servicing eight customers per day. This equates to 2,280 jobs per year.

Let’s say the service levels drop: customers wait too long, the pest managers are not turning up on time, are wasting time talking on their mobile phones, losing time in transit between jobs, missing out on upselling opportunities, incorrectly costing the job or simply not invoicing correctly (or at all!). The impact of this poor service could easily be a 10% reduction in the number of customer jobs. Furthermore poor invoicing and an inability to upsell could actually reduce the size of the average sale (lets assume 10%). Unfortunately, the business costs do not change, with a resulting hit on profit margin (assume a 5% reduction).

The following table highlights the impact on the business – with a reduction in sales and the costs remaining the same, there is a reduction in profitability of a staggering 24%!

 

Measurement Good Service Levels Poor Service levels
Number of customer jobs per year 2,280 jobs 2,052 jobs
Average customer spend per job (includes large job purchases) $250 per job $225 per job
Total revenue (sales) $570,000 $461,700
Average gross profit margin 80% 75%
Gross Profit $456,000 $346,275
Loss in gross profit $109,725

Remember, there are some customers who only shop on price but the vast majority out there shop based on a combination of factors such as the ‘five Ps’ listed in this article. Again if you do not have the right people and cannot provide the service levels and knowledge expected by your clients, it is staggering the amount of profit lost – profit that goes to your opposition.

Peter Cox, Peter M Cox & Associates

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