Andrew Usher, Director of M&A firm Catand Advisory, shares the results of a survey that invited pest managers to share their approaches towards business management, particularly in relation to growth and finances.
During the months of February and March, Catand Advisory conducted a business-focused survey on the pest industry. The aim was to get a picture of the current state of the industry, identify opportunities for growth and share some key statistics with the wider industry.
The majority of respondents (69%) had been in business for more than five years, run their businesses from home and covered residential, commercial and termite work. Most respondents were from Queensland, followed by New South Wales, then Victoria. Below I will summarise the survey findings in three key areas: growth and opportunities; financial stats; and concerns for the pest industry going forwards.
Growth and opportunities
It was evident that the pest industry is still very strong, and growth within the industry healthy.
The majority of respondents felt positive about the growth opportunities in the industry today with 79% feeling confident of expanding their business in coming years.
Organic growth percentages (i.e. growth over prior year excluding any business acquisitions) for the majority were above 5%, with the majority above 10% (Figure 1). Considering that generally speaking inflation is below 2% (pre COVID-19), this is actually exceptional growth and sets a solid benchmark for what pest businesses should target. The question is, how do pest managers increase their revenue – through price increases, expanding their client base, or both?
Referrals, additional services, retention, repeat business and price increases were all opportunities that respondents were looking to explore to grow their businesses (Figure 2). Look into your business data, especially if you run a database. Calculate what your retention rate is. Then ask yourself which services could possibly be due for a price increase and how this would look overall. Who are your most loyal customers? Firstly, thank them and then ask for a referral. Pest managers all agreed that word of mouth still forms the best marketing avenue for new business.
In the current situation, reducing unnecessary costs rather than reducing prices is certainly worthwhile, but there is no reason not to keep focused on picking up additional business, especially when many of these activities do not cost money, only time.
With me being an accountant, numbers are important in business and the old adage “cash is king” remains true today. The survey asked for respondents to share a few key stats such as wages percentage to revenue, vehicle costs percentage to revenue, materials percentage to revenue and profitability – all of which are key indicators of a business’s financial performance.
Some of the responses such as ‘do not know’ or ‘unsure’ indicate that some pest managers do not know their numbers as well as they perhaps should. The survey told us that wages costs range from ‘unsure’, to between 20% and 43%; motor vehicle costs from ‘don’t know’, to between 5% and 30%; and material costs from ‘don’t know’ to between 5% and 35%.
Of course, those doing pre-construction work will have higher material costs, and those leasing vehicles versus making outright purchases will also have different costs. However, there should not be such a wide range. Those operating with 30% vehicle costs should perhaps be asking ‘Why are my costs so high?’ The purpose of this survey was to share business information, so that pest managers might be able to make improvements to their own operations.
The survey also indicated a varying degree of profitability amongst the respondents, from less than 10% to greater than 30%. My personal experience is that 30%+ is very good and typical of a strong operator and likely the owner is on the tools. Less than 10% is either a mistake, the owner’s wage/pro t has already been factored in and this is their taxable profit, or this is just an inefficient business. So how is it that one business operates at 30%+ profitability while the next operates at less than 10%?
Several factors influence your profitability. For example, your daily job management – are you driving too far during the day? Do you have old or new vehicles? Is your setup too complicated or expensive? Materials are the next focus. Are your mixture/application rates correct? When did you last negotiate with your suppliers on pricing? Do you hold too much stock?
Looking more closely at your business – are you utilising your staff correctly? Do you set daily targets for them and even yourself if you are on the tools? I was surprised that so few respondents of the survey said that they incentivised their staff. This could of course be because of the number of sole traders (49%) who responded. However, whether you have two or 20 technicians, there is nothing more valuable than recognising someone’s hard work by saying a simple ‘thank you’ with a small gift, cash incentive or even a meal voucher to the local. When I took up a senior position within the pest industry, we focused on staff retention and soon found that the profitability of the business increased the more we focused on keeping our staff happy and motivated.
Concerns for the pest industry
The offering of cut-price services and finding/training quality staff were highlighted as two of the major concerns of survey respondents (Figure 3).
We all know that when people buy cheap, they get cheap. The issue is that it tarnishes the reputation of the industry. This is why these are two particular areas of focus for industry bodies such as AEPMA, who help set the standards to follow which in turn will deliver the respect (and appropriate price) from the public.
By sharing the results of this survey I hope that pest managers might be inspired to examine their businesses more closely and explore new avenues to maximise their profitability.
Andrew Usher, Director, Catand Advisory