NPMA Measuring Quality Se#B95210

Measuring Quality Service, Consumer Retention and Team Work

www.pcobookkeepers.com

To Grow the Bottom LineDaniel S. Gordon, CPA

www.pmpwealthbuilders.com

Overview

Why are we in Business?

Today’s Economic Environment

Growing The Bottom Line

Measuring:

Quality Service

Customer Retention

Teamwork

Putting it all Together

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



Stock Market Collapse

Housing Crisis

Record Prices at the Pump

Implosion of the Auto Industry

Meltdown of Financial Services

Exodus of Manufacturing

Major Devastating Events of 2008 & 2009

Stock Market Recovery (The psychological wealth effect)

Housing has shown signs of bottoming and speculators are now posturing for the upturn

Prices at the Pump dropped to a level that demonstrated no excess demand in the economy and have now equalized at prerecession levels

Auto Industry has been rescued (for now)

Contd…

Major Events that have provided opportunity for growth in 2009


Because of the Fed’s easing of Interest rates the banks are again making record profits on the spreads between their borrowing and their lending

Say what you about the total irresponsibility of the banking industry (and there is a lot to say), but without a strong banking sector the U.S. economy cannot be strong. And it is currently on the mend

Exodus of Manufacturing – The U.S. is painfully becoming a service economy

Painful for those in Manufacturing

Tremendous Opportunity for those in Service like us PCOs


Major Events that have provided opportunity for growth in 2009

2009 PCO Bookkeeper’s Client Results

PCO Bookkeepers – The goal of PCO Bookkeepers is to assist in the pest control industry in making effective management decisions by providing meaningful financial information on a timely and cost-efficient basis. In a phrase:


WE ARE AN ACCOUNTING FIRM WITH A HIGHLY SPECIALIZED EXPERTISE IN THE

PEST CONTROL INDUSTRY

Relevance of the PCO BOOKKEEPER Information:

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, servicepro, quickbooks and payroll records that we maintain and create financial statements on a monthly basis.

When it comes to operating a Pest Control Firm, purchasing new vehicles or computer systems or making an important decisions, it can be extremely helpful know what other independent PCOs are doing.


With over 40 clients throughout the U.S., we find some very interesting facts

Smallest Annual Revenue – about $400K

Largest Annual Revenues – about $13Million


Range of Clients:

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

Revenues:

Average Growth for all clients: down about 1%


Huge Eye Opener!!!

Profits are way up across the board!!


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 recession 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:


Growing Your Bottom Line

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

The length of a piece of string can be measured by comparing the string against a meter stick

Definition: Measurement is collection of quantitative data. A measurement is made by comparing a quantity with a standard unit. Since this comparison cannot be perfect, measurements inherently include error.

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

Efficiency is not as necessary to grow the top line. In fact growing the top line without profitability is quite easy. Strategies to grow top line without profitability:


Measuring Quality Service, Customer Retention and Teamwork

All Three Factors are interrelated


Successful Execution by managing through

Measurement

Quality Service

CustomerRetention

Teamwork

IncreasedBottom line

• By measurement of the contributing factors to each; and

• Devising strategies to raise those contributing factors; and

• Executing on those strategies

It’s pretty obvious that good teamwork allows us to provide quality service for our customers which leads to retention. But if we aren’t there yet how do we improve?


Measuring Quality Service, Customer Retention and Teamwork

Quality Service

• Knowing what customer wants

• Understanding customer expectations

• Designing services to meet customers’ needs;

• Setting service standards;

• Setting performance measurement indicators;

• Measuring performance.

• Improving performance

Definition: 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.

Important Measurement elements include:

In the Office:

• Phones answered promptly and courteously

• Customer is directed to the proper person who can help solve the problem

• Office staff is knowledgeable and efficiently schedules work to be done

Indicators of Quality Service:

Quality Service

Sales process in the field

• Salesperson is on time

• Appropriate treatment is recommended

• Salesperson is courteous

• Salesperson follows through all requests with the office

Quality Service


In the field:

• 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

Quality Service


Call Backs are normal in the course of any pest control business.

Call backs Need to be minimized.

Contd….

What can be easily measured, benchmarked and improved

Call Backs:

Quality Service

Ratio of Callbacks to regular service calls under a contract i.e. Callback ratio is 25% - this means that for

Ratio of call back time taken to regular service time taken under a contract

How can Callbacks be measured?

Quality Service

Every 4 regular services, there is one call back

Example : 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%

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

How can we measure call backs?

Quality Service

Customer Retention

Definition Customer Retention – For our purposes letsdefine customer retention as those customers who extend their contract beyond the initial period of service.

They can extend by:

• Renewal

• Extension of Route work

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

Important measurement elements include:

Customer Retention

Total Advertising Spend percentage– This is one that most don’t use as a metric but is the key to success in any pest control company.

Explanation:Example:

Year 1

• A brand new company with no clients and:

• He spends $20,000 on advertising

• That 20K yields him 100K of new service contract work

• Year 1 Advertising is 20% of revenues

Benchmarks to measure Customer Retention

Contd…

Customer Retention

Figured: 20K of Advertising divided by 100k of current year customer revenue

20,000 = 20% 100,000

Year 2

• 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

Figured: 20K of Advertising divided by 80k of prior year customer revenue plus 100K of current year customer revenue

Example – Continued

20,000 = 11.11% 180,000

Customer Retention

Conclusion: As long as advertising as a percentage of revenues is falling then we are experiencing positive customer retention. This is why smaller companies are at a disadvantage while building. Larger 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.

Contd…

Customer Retention

A better way to think about advertising is the total spend divided by the revenue of the actual customers garnered by that spend.

Problems with the example:

What happens when we increase or decrease the dollar amount 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.

Customer Retention

Measuring Teamwork

Teamwork is one of those things that we all know when it’s there and working and when it’s not. Measuring it is really difficult unless we further define it and are able to...

Measure it

In Baseball, a double play would be a good example of effective teamwork. We could measure it by counting the average number of double plays turned per nine inning game.

We could then measure how many double plays we turn in a game and how it stacks up to the average or our benchmark.

Measuring Teamwork

Teamwork like all intangibles can be measured by defining a specific quality that the intangible will provide, benchmarking it, forming a strategy to benchmark against and executing against that strategy.

Measuring Teamwork

Let’s assume that effective teamwork in a pest control company will yield quality service (minimized callbacks), higher customer retention and will ultimately result in greater profitability for our firm.

In this manner, we maximize the value of our firm! Remember?

This why we are in business

Measuring Teamwork


What will the result of High Quality Work, High Customer Retention facilitated by Effective Team Work Yield?

Acceptable Dollars per hour ------ The hallmark of Profitability in the Pest Control Industry


Money

This is an hourly charge for our service that covers our costs and allows us to make a reasonable profit.

So let’s put it all together and figure out How to make a Profit!

Time

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

The pest control business model is based on 2 factors:


Break-Even Analysis

Break-Even point =Fixed Costs

Gross Profit per Hour.in units (service hours)



Definition

Fixed Costs

Any cost that remains constant at any volume of business

Examples: Rent, Advertising, Utilities, etc.



Variable Costs

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.

Examples Hourly pay for your employees, Workers Compensation Insurance, Material Costs, etc.

Definition


Gross Profit

The difference between the price charged per Unit (Hour of Service) and the Variable Costs.

Example

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 $30, our gross profit would be $50. (figured: $100 billed less ($20+$30) variable costs).

Gross Profit

Gross Profit

% of Gross Revenue

Gross Revenue Cost of Goods Gross Profit


Definition

What Is My Breakeven Point?

=Fixed Costs

Gross Profit per hour. Breakeven Point in Units (Service Hours)

Break-Even Analysis

Fixed Cost

Gross Profit/Hr

Fixed Cost Gross Profit/Hr


If rent, utilities and all other fixed costs are $10,000 and we use our $50.00 gross profit per hr example than our breakeven point is 200 hours of service at a $100 per hour selling price.

After 200 hours of service we will start making a profit of $50 per hour. You see the gross profit contributes to paying the fixed costs. Once the fixed costs are paid, the gross profit contributes to bottom line profit. This is the reason some accountants call gross profit the contribution margin.

Example



$10,000 Fixed Costs$50.00 Per Hr Variable Costs

200 Hrs to Break Even=

Gro

ss M

arg

in

Break-Even Point



What Happens if We have poor quality, poor teamwork and poor customer retention?

Our Gross Margins Shrinks because our dollars per hour falls.


Why does our dollars per hour fall? Because there is more work or

lower efficiency associated with poor service (more callback hours).

Thereby increasing our Breakeven Point



Real World Example

So lets assume that our signature plan is Quarterly Pest Control that we’ve decided will be priced at $ 100 per hour figured:

So we sell this Service for (4 X $100) = $400 per Annum

4 services at 45 minutes each = 3 Hour2 call backs each at ½ hr = 1 Hour Total = 4 Hour


Lets Assume that the quality of service, team work (efficiency) and retention caused us to spend additional call back hours at the original Program Selling Price of $400.00 as below

Description Scenario 1 Scenario 2 Scenario 3 Scenario 4

Service Call Time 3 hrs 3 hrs 3 hrs 3 hrsCall Back Time 1 hr 2.5 hrs 3 hrs 4.5 hrs

Total hrs 4 hrs 5.5 hrs 6 hrs 7.5 hrs$ per hr $100.00 $72.72 $66.66 $53.33

Assume Var Cost per hr. prior Example

$50.00 $50.00 $50.00 $50.00

Gross Profit per hr $50.00 $22.72 $16.66 $3.33

Assume Fixed Cost per Month 10,000.00 10,000.00 10,000.00 10,000.00

Breakeven in Hrs 200.00 440.00 600.00 3,003.00


Draw Your on Conclusions but let me leave you with this thought:

If we assume one Truck/Technician can perform 120 hrs of on the job work per month

Scenario 1 Would need 1.66 trucks to breakeven





Executing on the Plan!

The key to maximizing Profit is through measurement, Benchmarking and defining improvement and then:

Successful Execution by managing through

Measurement

Quality Service

CustomerRetention

Teamwork

IncreasedBottom line

So Profits are yielded by Quality Service, Customer Retention and Team Work

PMPWEALTHBUILDERS.COM

Best Business Plan for PCO’s Who want to grow their business

PCOBOOKKEEPERS.COM

ACCOUNTANTSFor Growing Pest Control Firms

P.O. Box 810Newton, NJ 07860

Phone: (877) 682-8118Fax: 866-273-0101

Email: [email protected]

Join us now to grow your business

NPMA Measuring Quality Se#B95210

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