If You Can’t Measure it,You Can’t Manage it<br />Daniel S. Gordon, CPA<br />
Overview<br />Can We SURVIVE this economy?<br />Let’s Grow Our Business – What Resources are Required?<br />Let’s Measure:...
Can we survive this economy?<br />Major events of 2008<br />Stock Market Collapse<br />Housing Crisis<br />Record Prices a...
Can we survive this economy?<br />But hold on – NOT SO FAST!!!  We can still succeed…<br />America is the strongest econom...
Can we survive this economy?<br /><ul><li>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?<br />Can we survive?<br />YES… and the strong companies<br />		will emerge STRONGER!<br />Is ...
How do we weather the storm?<br />PREPARE for the recession to be long and deep and then build flexibility to adjust when ...
How do we weather the storm?<br /><ul><li>MEASURE the results of all your programs and increase the profitable services an...
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!</li></li></ul><li>Let’s Grow Our Business<br />Whyare we...
Let’s Grow Our Business<br />  In Maximizing the value of our business we:<br /><ul><li>Create a great Place to Work
Increase Salaries & Benefits
Create Job Security
Do business in a Socially Responsible Manner</li></li></ul><li>Let’s Grow Our Business<br />First lets go over how we run ...
Let’s Grow Our Business<br />The Customer List (Your most Valued Asset)<br />Long Term – Can be compared to machinery in a...
Let’s Grow Our Business<br />You need a Plan…The plan must focus on growing<br />	your customer list as well as selling <b...
Let’s Grow Our Business<br />Future Customer Acquisition Requirements<br /><ul><li>  Target Annual Revenue Per Customer: $...
  Cost To Acquire 1 New Customer (average): $250.00
  Expansion Goals: Double Revenues over 4 Yrs (20% per Yr)
  Assume 100% retention</li></li></ul><li>Let’s Grow Our Business<br />Money Requirements<br />If more People or Equipment...
Through Financing (i.e Bank, Finance Companies, etc.)
By Giving Up Equity (i.e. Silent Partner, Not so Silent Partner, Joint Venture)</li></li></ul><li>Financial Performance – ...
Financial Performance<br />What Are Financial Statements?<br />Financial Statements are the Box Scores in the game of Busi...
A well-designed Pest Control Profit & Loss Statement includes:<br />Revenue 	    - 	Broken up by department with Recurring...
A well-designed Pest Control Profit & Lossalso includes !!<br />G & A Expenses - The cost associated with running the offi...
 Profit & Loss Ratios & Benchmarks <br /><ul><li>  Gross Margin
  Technician Labor cost as a percentage of revenue
  Chemical Cost as a percentage of revenue
  Selling Cost as a percentage of revenue
  Office Labor as a percentage of revenue
  Other G & A as a percentage of revenue</li></li></ul><li>Drilling down in Profit & Loss Statement<br /> Why is it so imp...
  It allows us to isolate revenue types that will add to the value of our     business
  It allows us to isolate expense types so that we can implement cost     controls</li></li></ul><li>Drilling down into a ...
Drilling down into a Balance Sheet<br />What is important about B/S?<br /><ul><li>  CASH!
  Accounts Receivable
  Equipment
  Credit Line & Loan Balances
  Accounts Payable
  Owners Equity</li></li></ul><li>Drilling down into a Balance Sheet<br />Rating our Accounts Receivable<br /><ul><li>  We...
  Current 30 days 60 Days Over 90 days with percentage </li></ul>    of Total<br /><ul><li>  We can try to improve those p...
  We can see how close we are keeping our customers </li></ul>    within our terms using a ratio called No of days sales i...
Drilling down into a Balance Sheet<br />Current Ratio= (Cash plus AR)/current liabilities<br />So the rows colored in grey...
Marketing Math for the PCO<br />
Marketing Math for the PCO<br />We want Growth<br />How Much? Over What Period of Time?<br />What Resources Will We Need? ...
Marketing Math for the PCO<br />Define Growth – Set Goals<br />Example of a Goal<br />I want to take my Business from $500...
Marketing Math for the PCO<br />More Business From Existing Customers<br />Your Customers Already Know You<br />The Cost a...
Marketing Math for the PCO<br />In defining your overall strategy, the MARKETING MIX concept is extremely useful.  It is b...
Marketing Math for the PCO<br />PRODUCT - From a marketing prospective our product is our service.  We need to define: <br...
Marketing Math for the PCO<br />     PRICE<br />Pricing is  extremely important.<br />You need  to price for profit. <br /...
Marketing Math for the PCO<br />     PLACE<br />Service Area Defined -  In designing our business we need to define our se...
Marketing Math for the PCO<br />PROMOTION<br /><ul><li>This is getting  the  word out.  It’s is not my intention to speak ...
However, we should be able to track our advertising in our computer system and generate reports that will tell us which ad...
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 worki...
Sales Performance<br />There are many schools of thought on how a sale should be made. Some sales techniques work better d...
Sales Performance<br />What are the important data points:<br /><ul><li>  Number of leads received
  Number of leads Closed
  Number of proposals written
  Dollars Proposed
  Dollars Sold
  Closing  Percentages
  Follow Up actions Including dates
  Commission’s Earned by Sales Staff
  Base Pay For Sales People</li></li></ul><li>Sales Performance<br />Number of leads Received/Closed<br />Sometimes we dra...
Sales Performance<br />Batting Average 	=     # Leads Closed<br />                                      # Leads Received<b...
Sales Performance<br />Sales Dollars Efficiency =  	# of Dollars Sold<br />                                               ...
Sales Performance<br /><ul><li>  Using the proposal Dates and follow-up dates we </li></ul>    can  age our proposals, las...
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Danspresentationnpmaacademy09 12566688864796 Phpapp02

  1. 1. If You Can’t Measure it,You Can’t Manage it<br />Daniel S. Gordon, CPA<br />
  2. 2. Overview<br />Can We SURVIVE this economy?<br />Let’s Grow Our Business – What Resources are Required?<br />Let’s Measure:<br />Financial Performance<br />Marketing Performance<br />Sales Performance<br />Operational Performance<br />Case Study: Pricing your Pest Program for Profit<br />Your Next Steps<br />
  3. 3. Can we survive this economy?<br />Major events of 2008<br />Stock Market Collapse<br />Housing Crisis<br />Record Prices at the Pump<br />Implosion of the Auto Industry<br />Meltdown of Financial Services<br />Exodus of Manufacturing<br />Our Great Nation is involved with 2 wars<br />
  4. 4. Can we survive this economy?<br />But hold on – NOT SO FAST!!! We can still succeed…<br />America is the strongest economy in the world!<br />Spending doesn’t stop because we don’t have money<br />We go into debt to get what we want. <br />It’s not good for the long term but it will help to pull us out short term<br />We are a nation of spenders helping to keep the economy moving<br />Most of the rest of the world are savers<br />Contd…<br />
  5. 5. Can we survive this economy?<br /><ul><li>Americans find ways to put “stuff” with consumers.
  6. 6. Never Count out The U.S. Consumer!!
  7. 7. Can’t afford a vacation home? Carve one up… buy a time share
  8. 8. Can’t afford to buy a car? Lease one
  9. 9. Don’t have money for merchandise at the department store? Get a credit card at the cash register and receive a discount</li></li></ul><li>Can we survive this economy?<br />What ADVANTAGES do we have as PCOs?<br />Fuel Prices have dropped significantly<br />Our Services are need based and sometimes mandated by law<br />In most areas of the country we are seasonal, we are used to managing downturns. The winter comes every year – doesn’t it?<br />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!<br />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.<br />For the most part our costs are variable, we can make drastic changes quickly (not always an easy decision but it can be done)<br />
  10. 10. Can we survive this economy?<br />Can we survive?<br />YES… and the strong companies<br /> will emerge STRONGER!<br />Is it going to be tough? Yes<br />Is it going to take a long time? Possibly<br />Is time going to pass no matter what we do? <br />Yes, so we should get to work!<br />
  11. 11. How do we weather the storm?<br />PREPARE for the recession to be long and deep and then build flexibility to adjust when needed<br />Make sure you have TIGHT ROUTES. You may not be able to raise prices but tight routing has the same effect as raising prices<br />NEVER SELL UNPROFITABLE WORK on the basis of “its steady work”… Shrink your business if you have to.<br />Make sure you have an accounting system that gives you accurate and timely INFORMATION<br />
  12. 12. How do we weather the storm?<br /><ul><li>MEASURE the results of all your programs and increase the profitable services and decrease the unprofitable services
  13. 13. Increase your COLLECTION efforts – make sure you’re A/R is healthy and collectable
  14. 14. Tighten your CREDIT TERMS – shut customers off if needed
  15. 15. Increase your SALES & MARKETING effort – be effective!!
  16. 16. Get ready for the upturn!! Create your 5 year plan; and EXECUTE!</li></li></ul><li>Let’s Grow Our Business<br />Whyare we in Business?<br />To maximize the value of Our Business…. Period!<br />There is no other reason !!<br />
  17. 17. Let’s Grow Our Business<br /> In Maximizing the value of our business we:<br /><ul><li>Create a great Place to Work
  18. 18. Increase Salaries & Benefits
  19. 19. Create Job Security
  20. 20. Do business in a Socially Responsible Manner</li></li></ul><li>Let’s Grow Our Business<br />First lets go over how we run a successful Pest Control Firm<br />The Pest Management business model is Simple <br />(Not Easy But Simple)<br />We are in a Service Business and Sell our Time.<br />This time that we charge for includes:<br />Diagnosing the Problem<br />Providing a solution<br />Setting the Customer up on a Service Contract<br />Doing the Same thing Over and over until you have built a route or several routes.<br />
  21. 21. Let’s Grow Our Business<br />The Customer List (Your most Valued Asset)<br />Long Term – Can be compared to machinery in a manufacturing business:<br />Must be “well oiled” by providing great Service<br />Routes must be tight allowing for the greatest output from this machine<br />Short Term - Can be compared to a life insurance Salesman setting up a book of renewable policies that generate current income.<br />
  22. 22. Let’s Grow Our Business<br />You need a Plan…The plan must focus on growing<br /> your customer list as well as selling <br /> more to existing customersThis is the Asset that will spit out the profits.<br />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<br />
  23. 23. Let’s Grow Our Business<br />Future Customer Acquisition Requirements<br /><ul><li> Target Annual Revenue Per Customer: $500.00
  24. 24. Cost To Acquire 1 New Customer (average): $250.00
  25. 25. Expansion Goals: Double Revenues over 4 Yrs (20% per Yr)
  26. 26. Assume 100% retention</li></li></ul><li>Let’s Grow Our Business<br />Money Requirements<br />If more People or Equipment is Required For Expansion,<br /> How does it get Paid For?<br />Several Options Exist:<br /><ul><li>Through Daily Operations & Cash Flow
  27. 27. Through Financing (i.e Bank, Finance Companies, etc.)
  28. 28. By Giving Up Equity (i.e. Silent Partner, Not so Silent Partner, Joint Venture)</li></li></ul><li>Financial Performance – Measuring The <br />Health of Our Firm<br />
  29. 29. Financial Performance<br />What Are Financial Statements?<br />Financial Statements are the Box Scores in the game of Business. <br />They are the culmination of the accounting process. They are used to convey a concise picture of the profitability and financial position of your company.<br />
  30. 30. A well-designed Pest Control Profit & Loss Statement includes:<br />Revenue - Broken up by department with Recurring & Non- Recurring Revenue accurately displayed <br />Direct Costs - All cost associated with putting a truck on the road & performing service <br />Gross Margin - Revenue minus Direct Cost<br />Sales & Marketing - All cost associated with sales and marketing function <br />
  31. 31. A well-designed Pest Control Profit & Lossalso includes !!<br />G & A Expenses - The cost associated with running the office. Usually these costs are fixed with regard to transacting business up to a certain level <br />EBITA - Earnings before Interest taxes & Amortization <br />IADT - Interest, Amortization, Depreciation & Taxes<br />Net Income - Net Performance of the Business <br />
  32. 32. Profit & Loss Ratios & Benchmarks <br /><ul><li> Gross Margin
  33. 33. Technician Labor cost as a percentage of revenue
  34. 34. Chemical Cost as a percentage of revenue
  35. 35. Selling Cost as a percentage of revenue
  36. 36. Office Labor as a percentage of revenue
  37. 37. Other G & A as a percentage of revenue</li></li></ul><li>Drilling down in Profit & Loss Statement<br /> Why is it so important to setup a P & L using the approach described?<br /><ul><li> It allows us to make accurate conclusions about how our management staff is executing our business strategy.
  38. 38. It allows us to isolate revenue types that will add to the value of our business
  39. 39. It allows us to isolate expense types so that we can implement cost controls</li></li></ul><li>Drilling down into a Balance Sheet<br />The Balance Sheet allows us to see the prior results of our operations plus any financing activity that has taken place.<br />The P & L tells that how we are doing in terms of profit & the B/S tells us what we have as the results of those profits.<br />
  40. 40. Drilling down into a Balance Sheet<br />What is important about B/S?<br /><ul><li> CASH!
  41. 41. Accounts Receivable
  42. 42. Equipment
  43. 43. Credit Line & Loan Balances
  44. 44. Accounts Payable
  45. 45. Owners Equity</li></li></ul><li>Drilling down into a Balance Sheet<br />Rating our Accounts Receivable<br /><ul><li> We can age our Accounts Receivable
  46. 46. Current 30 days 60 Days Over 90 days with percentage </li></ul> of Total<br /><ul><li> We can try to improve those percentages on monthly basis
  47. 47. We can see how close we are keeping our customers </li></ul> within our terms using a ratio called No of days sales in <br /> receivables<br /><ul><li> Calculation: AR balance/(Cumulative Sales/Cumulative days)</li></li></ul><li>Drilling down into a Balance Sheet<br />Average Collection Period<br /><ul><li> Calculation: (AR balance/ ( Cumulative Sales / Cumulative days)</li></li></ul><li>Drilling down into a Balance Sheet<br />Liquidity Ratios<br />A Liquidity ratio is one of the benchmarks that banks, vendor credit<br />departments, and others used to determine our ability to pay bills. <br />The two that are most commonly used<br />Current Ratio= (Cash plus AR)/current liabilities<br />Quick ratio= Cash/AP<br />A Ratio over and above 1.0 means we are healthy. A ratio of less than 1.0 means we have cash flow issues.<br />
  48. 48. Drilling down into a Balance Sheet<br />Current Ratio= (Cash plus AR)/current liabilities<br />So the rows colored in grey are healthy as the ratio is 1.0 or greater than 1.0 <br />
  49. 49. Marketing Math for the PCO<br />
  50. 50. Marketing Math for the PCO<br />We want Growth<br />How Much? Over What Period of Time?<br />What Resources Will We Need? <br />Equipment, People, Money?<br />Where Will the Growth Come From?<br />New Customers, or More Business from Existing Customers?<br />Is Our Current House in Order to Achieve this Growth?<br />
  51. 51. Marketing Math for the PCO<br />Define Growth – Set Goals<br />Example of a Goal<br />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.<br />Not an example of a Goal<br />I want to get Bigger.<br />
  52. 52. Marketing Math for the PCO<br />More Business From Existing Customers<br />Your Customers Already Know You<br />The Cost associated with expanding your relationship is significantly less than new customer acquisition.<br />An excellent way to guarantee yourself a predictable revenue stream while allowing your customers to do predictable expense budgeting.<br />
  53. 53. Marketing Math for the PCO<br />In defining your overall strategy, the MARKETING MIX concept is extremely useful. It is broken into four categories known as the Four P’sof Marketing:<br />Product<br /> Price<br /> Place<br /> Promotion<br />
  54. 54. Marketing Math for the PCO<br />PRODUCT - From a marketing prospective our product is our service. We need to define: <br /> The Quality<br /> The Features<br /> The Services<br /> The Warranties etc. <br />From a standpoint of practicality, it makes sense that as we grow our business we need to be uniform in our Service Plans.<br />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.<br />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. <br />STANDARDIZATION OF SERVICES IS KEY!<br />
  55. 55. Marketing Math for the PCO<br /> PRICE<br />Pricing is extremely important.<br />You need to price for profit. <br />Remember our discussion on Breakeven Analysis…<br />Understand how high the bar is<br />that you are trying to reach!<br />
  56. 56. Marketing Math for the PCO<br /> PLACE<br />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.<br />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.<br />At this point we should note that you should have well-defined service areas that you will not breach.<br />
  57. 57. Marketing Math for the PCO<br />PROMOTION<br /><ul><li>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.
  58. 58. 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.
  59. 59. Promoting your company through advertising is the single most important thing that you can do to build your company.
  60. 60. 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.</li></li></ul><li>Sales Performance<br />
  61. 61. Sales Performance<br />There are many schools of thought on how a sale should be made. Some sales techniques work better depending on the personality of the sales person.<br />Some Sales people Sell management on why Sales can’t be made <br />The best thing about what we do as accountants, is that the numbers don’t lie - no matter which Sales technique are used.<br />
  62. 62. Sales Performance<br />What are the important data points:<br /><ul><li> Number of leads received
  63. 63. Number of leads Closed
  64. 64. Number of proposals written
  65. 65. Dollars Proposed
  66. 66. Dollars Sold
  67. 67. Closing Percentages
  68. 68. Follow Up actions Including dates
  69. 69. Commission’s Earned by Sales Staff
  70. 70. Base Pay For Sales People</li></li></ul><li>Sales Performance<br />Number of leads Received/Closed<br />Sometimes we draw Conclusions based solely on the numbers.<br />We need to distinguish between creative leads and inbound leads. as the ladder will yield much higher percentages.<br />
  71. 71. Sales Performance<br />Batting Average = # Leads Closed<br /> # Leads Received<br />Pitch Efficiency = # Proposals written<br /> # Leads given <br />
  72. 72. Sales Performance<br />Sales Dollars Efficiency = # of Dollars Sold<br /> # of Dollars Proposed<br />
  73. 73. Sales Performance<br /><ul><li> Using the proposal Dates and follow-up dates we </li></ul> can age our proposals, last contact dates and make <br /> estimates of likeliness of Closure.<br /><ul><li> What we obviously find is the older the proposal the </li></ul> less likely we Close it.<br /><ul><li> What happens if we introduce telemarketing?</li></li></ul><li>Sales Performance<br />AND LAST BUT NOT LEAST……<br />Sales Compensation as a percentage of Sales<br />=<br />Base salary + Commissions<br /> Total Sales<br />
  74. 74. Operational Performance<br />
  75. 75. Operational Performance<br />Effective Routing<br />HOW TO…<br /><ul><li>Increase Sales
  76. 76. Lower Expenses</li></li></ul><li>Operational Performance<br />Profitability<br />It is affected by two factors:<br /><ul><li> Revenue
  77. 77. Expenses</li></li></ul><li>Operational Performance<br />Routing will affect both<br />Revenue and Expenses.<br />
  78. 78. Operational Performance<br />The Single Largest Expense for a Pest Control Company is<br />LABOR <br />Pest control companies for the most part compensate their technicians one of two ways or a combination of both:<br /><ul><li>Technicians are paid an hourly rate.
  79. 79. Technicians are compensated as a percentage of their route</li></li></ul><li>Operational Performance<br /><ul><li>Technicians are paid an hourly rate.</li></ul>This rate climbs by 50% (overtime) after the technician works 40 hours in any given week. and or;<br /><ul><li>Technicians are compensated as a percentage of their route</li></ul>As a percentage of the dollar value of the jobs that they complete<br />
  80. 80. Operational Performance<br />To Increase Profitability We Need to Increase Efficiency <br />(Fit More Work into Less Time)<br />This Increases Profitability by Increasing Total Dollars of Profit. <br />
  81. 81. Operational Performance<br />Using Our Technician Who is Paid Hourly<br /><ul><li> Example 1</li></ul>Let’s say we have a technician that earns $15.00 per hour.<br />Further, let’s say that he can complete one job in an hour that produces $50.00.<br />In this case our labor percentage is 30%(15/50 = .3). This means for every $100.00 of revenue we have a profit of $70.00 (ignoring all other costs)<br />
  82. 82. Operational Performance<br />Using Our Technician Who is Paid Hourly<br /><ul><li>Example 2</li></ul>Let’s say we have a technician that earns $15.00 per hour. Further, let’s say that he can complete two jobs in an hour that produces $50.00 each or $100 total. <br />In this case our labor percentage is 15% (15/100 = .15).<br />
  83. 83. Operational Performance<br />Using Our Technician Who is Paid Hourly<br />This means for every $100.00 of revenue we have a profit of $85.00 (ignoring all other costs).<br />By fitting more work into one hour we have been able to increase our profit by $50.00 per hour.<br />Here we have increased our revenue in dollars and decreased our labor expense as a percentage of revenue.<br />
  84. 84. Operational Performance<br />Using Our Technician Who is Paid A Percentage Of His Route<br /><ul><li>Example 1</li></ul>Let’s say we have a technician that earns 25% of dollars produced. Further, let’s say that he can complete one job in an hour that produces $50.00. In this case our profit is $37.50<br />($50.00 – (25% x $50.00) =$37.50) (ignoring all other costs).<br />
  85. 85. Operational Performance<br />Using Our Technician Who is Paid A Percentage Of His Route<br /><ul><li>Example 2</li></ul>Let’s say we have a technician that earns 25% of dollars produced. Further, let’s say that he can complete two jobs in an hour that produces $50.00. In this case our profit is $75.00<br />(($50.00x2) – (25% x $100.00)) =$25.00) (ignoring all other costs).<br />
  86. 86. Operational Performance<br />Using Our Technician Who is Paid A Percentage Of His Route<br />By fitting more work into one hour we have been able to increase our profit by $37.50 per hour from $37.50 to $75.00 dollars. <br />In this case we increased the revenue by $50.00 per hour while holding our <br />labor expense constant as a percentage of revenue at 25%.<br />
  87. 87. Operational Performance<br />Utilization<br />One of the most important benchmarks in judging how efficient your routing is called Utilization. Utilization is a calculation that CPA firms and law firms use to see how productive their accountants and lawyers are at billing their time. However this calculation fits our industry perfectly. Quite simply, utilization is the following fraction:<br />
  88. 88. Operational Performance<br />Utilization<br />Total Technician Hours Spent at All Stops During the Time Period<br />_________________________________________________<br />Total Technician Hours Clocked in (Paid Hours) During the Time Period<br />
  89. 89. Operational Performance<br />Utilization<br /><ul><li> Example </li></ul>Let’s say that your technician spent 30 hours at various jobs doing actual work for a one week period. Let’s also assume that according to his time card he was punched in and paid for 50 hours.His utilization would be 60% (30hrs worked / 50 Hours Clocked in).<br />This means that he was producing revenue 60% of the time he was clocked in. <br />
  90. 90. Operational Performance<br />Utilization<br /><ul><li>Example Continued…….</li></ul>Let’s say your average dollar per hour on your accounts for the day is $75.00. With a 60% utilization you’re actually taking in $45.00 per hour. If your technician clocks in 8 hours for the day, he will produce $360.00 for the day ($75.00 x 60% x 8hrs).<br />If his utilization is 75% he will bring in $450 ($75.00 x 75% x 8hrs). If he is 40% utilized he will bring in $240 ($75 x 40% x 8hrs). These numbers are using the same $75.00 per hour but varying the utilization percentage.<br />
  91. 91. Operational Performance<br />Utilization<br />This point illustrates the fact that there are two ways of increasing daily revenue:<br /><ul><li>Raising your prices (dollars per hour). This is not always feasible.
  92. 92. Increasing your utilization by making your routing more efficient.</li></li></ul><li>The PMP Pricing Model<br />
  93. 93. The Pest Management Pricing Model<br /><ul><li> It is based on two variables:
  94. 94. Money </li></ul>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 techniquecalledBREAKEVEN ANALYSIS. <br /><ul><li>Time </li></ul>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<br />
  95. 95. Break-Even Analysis<br />Fixed Costs <br />Gross Profit per Hour.<br />Break-Even point <br />=<br />in units (service hours)<br />
  96. 96. Definition<br />Fixed Costs<br />Any cost that remains constant at any volume of business<br />(i.e. Rent, Advertising, Utilities, etc.)<br />
  97. 97. Definition<br /><ul><li>Variable Costs</li></ul> 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. <br /><ul><li>Examples Hourly pay for your employees, Workers Compensation Insurance, Material Costs, etc.</li></li></ul><li>Definition<br />Gross Profit<br />The difference between the price charged per Unit (Hour of Service) and the Variable Costs.<br />Example <br />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).<br />
  98. 98. Breakeven Point <br />in Units (Service Hours)<br />What Is My Breakeven Point?<br />Fixed Costs <br />Gross Profit per hour.<br />=<br />
  99. 99. Example<br />If rent, utilities and all other fixed costs are $10,000 and we useour $45.00 gross profit per hr example than our breakeven point is 222.2 hours of serviceat a $100 per hour selling price.<br />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 profitcontributesto bottom line profit. This is the reason some accountants call gross profit thecontribution margin.<br />
  100. 100. Gross Margin<br />Break-Even Point<br />$10,000 Fixed Costs<br />$45.00 Per Hr Variable Costs<br />222.22 Hrs to Break Even<br />=<br />
  101. 101. Is it Really That Simple?<br /><ul><li> YES!!!!</li></ul>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). <br />Therefore, figuring your breakeven point can sometimes be confusing. <br />

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