If you cant measure it you cant manage it

If You Can’t Measure It You Can’t Manage It
Dan Gordon, CPA
Enduring Business Lessons for the Savvy PCO

AGENDA
 Why Are We In Business?
 The Current Economic Environment for the Pest Control Industry
 Growing The Bottom Line
 Measuring:
• Quality Service
• Customer Retention
• The Quality of Accounts Receivable
• Credit Worthiness to Banks, Vendors and Other Interested Parties
• Sales Performance
 Speeding the Velocity of Cash Flow, by Billing Prior to Service –
AND YES IT WORKS
 Price Increases –YES YOU CAN, AND HERE IS HOW!!
 What You need to do next

Why are we in Business?
To Maximize the value of
Our Business…. Period !
There is No Other
Reason !!

In Maximizing the value of our business we:
 Create a great Place to Work
 Increase Salaries & Benefits
 Create Job Security
 Do business in a Socially Responsible Manner
Why are we in Business?

The Current Economic Environment
for the Pest Control Industry

PCO Bookkeepers 2009 Profit / Loss Data
Our Data is not the result of a survey where the respondents can sKew data either
purposely or non purposely. Our data comes from the transactional accounting
records found in our clients Pestpac, Service pro, QuickBooks and payroll records
that we maintain. And that we create financial statements on a monthly basis. As
a result of my accounting practice and expertise…..
The Current Economic Environment for the Pest Control Industry
Smallest Annual Revenue – about $400K
Largest Annual Revenues – about $15 million
With over 40 clients throughout the U.S.,
We find some very interesting facts
Range of clients:

Revenues:
Average Growth for all clients 2009: down about 1%
Average Growth for 2010
for all clients has Stabilized and
is actually INCREASING a few points
 From down 10% to up 25%
 Those with growth over 5 % do less than 1 million in annual sales
 Those with growth over 12% do less than $700K in Sales

Profits are UP!!!

While the whole world was preparing for
economic Armageddon, PCOs tightened our
belts, prepared for the worst, and those
adjustments were stronger than the overall
negative darts the economy shot at us
allowing us to increase our profitability in
the worst economic times since the Great
Depression
Conclusion from the Data

Why can’t we tighten our
belts in good times this
way and become wildly
PROFITABLE?
Question:

Business today has become a race to efficiency. Those companies who
can become more efficient in managing their businesses will grow their
bottom line.
Efficiency can be improved
through Effective Measurement.
Growing Your Bottom Line:
Measurement
is a collection of quantitative data. A
measurement is made by comparing a
quantity with a standard unit.
Since this comparison cannot be perfect,
measurements inherently includes error.

Efficiency is not as necessary to grow the top line. In fact growing the top
line without profitability is quite easy.
 Overpay for Acquisitions
 Invest in advertising that provides some results but not enough
to yield profits
• Does anyone advertise in the Yellow Pages? Is this model changing?
 Sell unprofitable work by low balling the competition
 My favorite: Sell unprofitable work and make it up on the volume
Growing Your Bottom Line:
Strategies to grow top line without Profitability:

Definition: Quality Service
The customer’s perception that the Pest Management firm’s
performance meets or exceeds his or her expectations in addition
to solving the customer’s problem.
 Knowing what customer wants
 Understanding customer expectations
 Designing services to meet customers’ needs;
 Setting service standards;
 Setting performance measurement indicators;
 Measuring performance.
 Improving performance
Measuring Quality Service
Important measurement elements include:

 Technician is on time
 The problem is taken care of with the
appropriate treatment
 The technician is courteous
 Call backs are held to a minimum
Indicators of Quality Service In the field:

What can be easily
Measured, Benchmarked and Improved?
Call Backs are normal in the course of any pest control business.
Call Backs Need to be minimized.
Call Backs:

How can Call Backs be measured?
1. Ratio of Callbacks to regular service calls under a contract (i.e.
Callback ratio is 25% - this means that for every 4 regular
services, there is one call back)
2. Ratio of call back time taken to regular service time taken
under a contract (i.e. The initial work takes two hours and over the
next 6 months there were 2 call backs at ½ hour each – Call back
ratio is 50%)
3. By calculating our dollars per hour received for work on a
particular customer over a period of time.
Assumption: That our services are priced properly for profit.
Callbacks will drive this dollar per hour down

For our purposes lets define customer retention as
those customers who extend their contract beyond the
initial period of service.
 Renewal
 Extension of Route work
Measuring Customer Retention:
Definition: Customer Retention
They can extend by:

Important measurement elements include:
First Year Retention – First year retention becomes extremely
important as this demonstrates a customer’s willingness to employ a
pest control service beyond solving his initial problem.
Second Year and beyond Retention – Once first year retention is
striped out of the equation, we are left with customers who have the
propensity to spend on pest control services. These folks:
 Know they need it
 Are willing to spend to get it
 Are willing to purchase those services from your company

Benchmarks to Measuring Customer Retention
Total Advertising Spend percentage – This is one that most don’t
think about but is the key to success in any pest control company.
 A brand new company with no clients and in Year One:
 He spends $20,000 on advertising
 That 20K yields him 100K of new service contract work
 Year 1 Advertising is 20% of revenues
Explanation:
Example:

 Retention is 80% or he has $80,000 of business from prior year
customers
 He spends the same $20,000 on advertising
 Again, That 20K yields him 100K of new service contract work
 Year 2 Advertising is 11.11% of revenues
Example – Continued
Figured: 20K of Advertising divided by 80k of prior year customer
revenue plus 100K of current year customer revenue
Year 2
20,000
180,000
= 11.11%

As long as advertising as a percentage of revenues is falling then
we are experiencing positive customer retention. This is why for
smaller companies they don’t understand why the bigger companies
report to the industry surveys that they spend about 6% of revenues
on advertising.
That 6 % is on total revenues. Retained customers where there is
no advertising dollars spent as well as new customers. Smaller
companies spend a greater percentage on advertising because they
don’t have as many retained customers.
A better way to think about advertising is the total spend divided by
the revenue of the actual customers garnered by that spend.
Conclusion:

Problems with the example:
What happens when we increase or
decrease the dollar amount spent on
advertising in the year of measurement?
In this case it skews our retention
percentage so for purposes of our
example, we need to substitute the
actual spend in year 2 with the same
spend as in year one.

Measuring The Quality of
Accounts Receivable

 We can age our Accounts Receivable
 Current 30 days 60 Days Over 90 days with percentages of Total
 We can try to improve those percentages on monthly basis
 We can see how close we are keeping our customers within our
terms using a ratio called Number of days sales in receivables
 Calculation: AR balance/(Cumulative Sales/Cumulative days)
Measuring The Quality of Accounts Receivable

Average Collection Period
Calculation: (AR balance/ ( Cumulative Sales / Cumulative days)
Month
Accounts
Receivable
Cumulative
Sales
Cumulative
Days
AR Collection
(In $$) (In $$) (In Days)
Jan 92,978.71 141,979.65 30 20
Feb 99,344.19 229,884.19 60 26
Mar 118,261.00 349,186.84 90 30
Apr 127,553.67 469,772.91 120 33
May 119,382.39 573,908.18 150 31
Jun 110,584.97 681,817.53 180 29
Jul 114,392.45 781,463.98 210 31
Aug 120,091.32 897,158.05 240 32
Sep 134,356.95 1,009,201.90 270 36
Oct 108,142.62 1,125,025.47 300 29
Nov 107,366.28 1,234,987.85 330 29
Dec 116,399.87 1,294,946.77 365 33
Measuring The Quality of Accounts Receivable

Measuring The Quality of Credit
Worthiness to Banks, Vendors and
Other Interested Parties

Liquidity Ratios
A Liquidity ratio is one of the benchmarks that banks, vendor credit
departments, and others used to determine our ability to pay bills.
Current Ratio=
A Ratio over and above 1.0 means we are healthy. A ratio of
less than 1.0 means we have cash flow issues.
Measuring The Quality of Credit Worthiness to Banks, Vendors and Other Interested Parties
The two that are most commonly used
Quick ratio=
Cash plus AR
Current liabilities
Cash
AP

Current Ratio = (Cash plus AR)/Current liabilities
Month Cash
Accounts
Receivable
Current Assets
Current
Liabilities
Current
Ratio
(In $$) (In $$) (In $$) (In $$)
Jan 15464.42 146,296.26 161,760.68 243,380 0.66
Feb 12877.43 132,795.59 145,673.02 241,993 0.60
Mar 18164.63 153,743.82 171,908.45 244,707 0.70
Apr -30861.21 182,235.61 151,374.40 234,523 0.65
May 19080.04 160,188.85 179,268.89 255,731 0.70
Jun 20140.13 163,733.64 183,873.77 248,087 0.74
Jul 13273.08 166,878.43 180,151.51 240,763 0.75
Aug 23384.19 197,268.87 220,653.06 258,781 0.85
Sep 31285.09 196,236.65 227,521.74 250,031 0.91
Oct 81064.63 154,337.98 235,402.61 230,781 1.02
Nov 58021.88 179,616.14 237,638.02 211,383 1.12
Dec (27,200.97) 314,572.16 287,371.19 288,739 1.00
The rows colored in grey are healthy as the ratio is 1.0 or greater than 1.0
Measuring The Quality of Credit Worthiness to Banks, Vendors and Other Interested Parties

Measuring The Quality of
Sales Performance

Sales Performance
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.
Some Sales people Sell management on why Sales can’t be made
The best thing about what we do as Accountants, is that the numbers
don’t lie – no matter which Sales technique are used.
Measuring The Quality of Sales Performance

What are the important data points:
 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

We need to distinguish between
creative leads and inbound leads.
As the ladder will yield much
higher percentages
Number of leads Received/Closed
Sometimes we draw Conclusions based solely on the numbers.

Batting Average = # Leads Closed
# Leads Received
Pitch Efficiency = # Proposals written
# Leads given

Sales Dollars Efficiency = # of Dollars Sold
# of Dollars Proposed

 Using the proposal Dates and follow-up dates we can age our
proposals, last contact dates and make estimates of
likeliness of Closure.
 What we obviously find is the older the proposal the less likely
we close it.
 What happens if we introduce telemarketing?

Sales Compensation as a percentage of Sales
=
Base salary + Commissions
Total Sales
AND LAST BUT NOT LEAST……

Speeding the Velocity of Cash Flow,
by Billing Prior to Service –
AND YES IT WORKS

Well guess again! Human Nature, Is Human Nature!
The magic of billing prior to service or the lesson’s we’ve learned in
smoothing monthly income and reducing A/R.
When I suggest Billing prior to Service, it’s as if I’ve lost my mind
according to many of our clients.
Speeding the Velocity of Cash Flow, by Billing Prior to Service – AND YES IT WORKS
Do you think your Business is different than other PMP’s?
Are your customers different than your competitors?

“Billing prior to Service ” - When you pre-
bill a customer (commercial or residential) you
send him a periodic bill prior to service.
This can be Monthly, Quarterly, Tri-Annually,
etc.
Definition:

Let’s just assume they will (as crazy as I may be). Let’s look at the
benefits that you will receive as an independent business person from
employing this strategy.
Once we show you how it will improve everything you do in business,
we’ll teach you how to make it happen. (If you are convinced once I
am through here.)
Before you close your mind and say,
“My customer’s will never go for it!”

But How Do We Improve Cash Flow???
The answer is simple – You need to employ a strategy of Billing prior to Service..
That is on the first of the month; send out bills for all route work that is expected
to be preformed for the month.
It will lower your Days Sales in Accounts Receivable (remember that from a prior
slide?) usually in an amount that is less than your credit terms.
How will this improve your cash flow?
Why you ask?
Because some customers (a good percentage of them) will pay as soon as
they received the bill – prior to service, thereby leaving you with less money
on the street. We have clients employing this strategy who have DSAR at
about 15 days!

If you are doing $1.2 million in Annual Sales and your DSAR is 40 days,
you have roughly $130K on the street.
Improve your DSAR to 20 days and you have $65K more in your pocket. Look at
what that $65K is costing in terms of poor cash flow!
 Do you pay late fees to vendors?
 Do you have a credit line?
 Does your firm owe you money?
 Ever have to hold your own paychecks waiting for cash in the bank
to allow you to take what’s yours?
If you said “Yes” to any of the above…Improving your DSAR will relieve some of
these pressures…And pre-billing your customers will reduce DSAR!

OK, you say I’m convinced that Billing prior to Service is a good thing –
but my customers will never go for it! I say Bull…They will! Not all of them,
but the majority will.
How do you do it? In the words of a great sneaker company…
Here are the steps:
 Your computer system will allow you to see you’re route charges for the
upcoming month.
 Run your route charges for the upcoming month
 Draft a letter to all clients that explains what you are doing – blame it on your
“new computer system “(whether you have one or not). Tell them that this is
the only way you can get it to work. Some will refuse (so deal with them), but
most will fall in line & about 30-40% will pay prior to service!
JUST DO IT!!

That is if you have 1000 customers and 5% complain – you’ll get
50 phone calls – your CSR’s will think the world is coming to an end
and tell you your company will go down the tubes if you don’t switch
your policy back.
After all, 50 phone calls with people screaming at you, is a lot! BUT
950 customers will quietly fall in line. You must stay the course
though – Establish the rules – Then deal with the exceptions. We’ve
done this with dozen’s of companies and those who have stayed the
course are reaping the rewards…Not one of them is sorry they’ve
done it!
Just Remember

“If I do the above without getting lynched by my customers, what else
do you want me to do?”
 Offer an incentive for allowing you to automatically charge their credit card
for service at Billing prior to Service; or
 Offer an incentive for allowing you to automatically do an Electronic Funds
Transfer (EFT) from their account to yours – you need to set this up with
the bank of course, but why not – there are many people who pay their bills
by EFT. Do you pay any of your bills this way?
It’s really a great way to get paid quickly with a minimum of hassles.
Want to Turbo charge your Billing prior to Service ?
WOW…you say,

Without keeping a watchful eye on it,
your business can fail. You can literally
go broke trying to get rich.
Keeping your DSAR to a minimum by
Billing prior to Service is an excellent
way to achieve this goal!!
Conclusion:
Cash Flow is King!!

Price Increases –
YES YOU CAN,
AND HERE IS HOW!!

Price Increases –YES YOU CAN, AND HERE IS HOW!!
Increasing Prices PRICING - KEY ISSUES
 What prices need to be increased?
Anything less than our standard hourly rate
 When to increase prices?
Usually the anniversary date of the contract
 How do you determine HOW MUCH?
The difference between the standard hourly
rate and what is currently charged

7 STEPS TO INCREASING PRICES
 Your standard hourly billing rate should be analyzed and adjusted to
ensure that your hourly cost and profit objectives are being met.
 Your estimated time to complete a job including time to retreat should be
reviewed to determine if your estimated time to complete a particular job
is accurate.
 Your standard pricing for new work and your customer service records
should be viewed to determine the amount of time spent servicing each
customer and the amount of money that each customer was billed for the
year.

 Divide the total amount of money billed, by the amount of hours of
worked, to determine the dollars per hour on each account.
 Once the dollar per hour has been determined for each customer and
each job type, compare that dollar per hour to the standard hourly billing
rate.
 If necessary increase the price to bring the dollar per hour in line with the
standard billing rate per hour.
 Once the price increase amount has been determined, the most important
step is selling the price increase to your customers by showing the value
of your service.
7 STEPS TO INCREASING PRICES

 PREPARE for the unpredictability of the economy 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
What you need to do Next

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!!
 Create your 5 year plan; and EXECUTE!
What you need to do Next

PCO Bookkeepers visit www.pcobookkeepers.com

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PMP
WEALTHBUILDERS.COM
Best Business Plan for PCO’s
Who want to grow their business
PCOBOOKKEEPERS.COM
ACCOUNTANTS
For Growing Pest Control Firms
P.O. Box 810
Newton, NJ 07860
Phone: (877) 682-8118
Fax: 866-273-0101
Email: info@pcobookkeepers.com
Join us now to Grow your business

If you cant measure it you cant manage it

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