Peter Cox takes a look at what it means to fine-tune the finances of your pest management business.
I have finally discovered the secret in pest management. It is called fine-tuning. It is unbelievable the improved result in sales and gross profit and therefore net profit by just adding a little more effort in what you do out in the field – you do not need to spend a fortune on advertising. It is all about the numbers.
The first area is retaining customers. I will use a case study and keep the maths simple.
Existing customers x retention rate.
Old: 500 customers x retention rate of 80% = 400 customers.
New: 500 customers x retention rate of 90% = 450 customers.
How to increase? Be different. Offer good service and knowledge, and make doing business with your business simple.
Increasing conversion rates
The second area is increase conversion rates.
The conversion I am talking about is using word of mouth marketing from existing customers as well as some simple marketing.
Number of leads, enquiries and new customers.
Old: 400 customers x conversion rate of 30% = 120 customers.
New: 400 customers x conversion rate of 40% = 160 customers.
How to increase? Be different from the opposition. Offer good service and knowledge and make doing business with your business easier than the pest controller they are dealing with now.
Using the example above, the total number of customers has increased from 520 regular customers to 610 customers – a 17.3% increase. How much is spent on print, radio and television advertising to get this result? The key has and always will be, what is the experience of the existing and potential customer with your services.
Transactions per year and their value
The third area is transactions per year. For this case study we will assume two transactions per year, just once every six months.
However the real key in dramatically increasing sales is to increase the average dollar transaction.
Old: $250 average transaction New: $300 average transaction
How? Simply ask the question. If someone is enquiring about vermin eradication what else do they need? I am still staggered after two decades in training in this area why the question is not asked. Go to a car dealer and buy a new car. Have you ever left the dealership without the salesperson trying to sell you the ‘add ons’ – the mats, bonnet, headlamp protector and extra warranty etc. If too afraid to ask, and there are people who are simply not motivated to do so, then follow up marketing is the key, particularly using latest technology.
The net result of this fine-tuning is:
Old: Annual sales = $260,000
(520 customers x 2 times per year x $250 average invoice size)
New: Annual sales = $427,000
(610 customers x 2 timer per year x $350 average invoice size)
This represents an increase greater than 64%, that’s right, a 64% increase in sales!
Now add in the gross profit margin. In past issues I have written about how to increase the margin from within the operation. Improving booking out procedures, checking goods in, reducing damaged stock, reducing potential theft, checking freight bills, better cash security, better pricing, knowing the difference between mark up and margin etc.
Old gross profit margin: 80% New gross profit margin: 85%
Thus gross profit dollars would be $427,000 x 85% = $362,950 – an increase of a whopping 75% on the old dollar gross profit result.
So by fine-tuning retention rates, conversion rates, average transaction size, as well as gross profit margin, the gross profit in dollars (and remember you do not bank percentages) has increased by 75%.
When was the last time you had a marketing campaign that added this to the bottom line? The message is, it is what happens in the field and the operation that counts, and it is your knowledge and service. The numbers back it up. It is that simple!
Peter Cox, Director, Peter M Cox & Associates