1. Measuring Quality Service,Consumer Retention and Team Work www.pcobookkeepers.com To Grow the Bottom Line Daniel S. Gordon, CPA www.pmpwealthbuilders.com

2. Overview

Why are we in Business?

Todays Economic Environment

Growing The Bottom Line

Measuring:

• • Quality Service

• • Customer Retention

• • Teamwork

Putting it all Together

3. To maximize the value of Our Business.Period! There is no other reason !! Why are we in Business? 4.

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? 5. Todays Economic Environment

• Stock Market Collapse

• Housing Crisis

• Record Prices at the Pump

• Implosion of the Auto Industry

• Meltdown of Financial Services

• Exodus of Manufacturing

MajorDevastating Events of2008 & 2009 6.

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 noexcess 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 forgrowth in 2009 Todays Economic Environment 7.

Because of the Feds 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 aservice economy

Painful for those in Manufacturing

Tremendous Opportunity for those in Service like us PCOs

Todays Economic Environment Major Events that have provided opportunity forgrowth in 2009 8. 2009 PCO Bookkeepers 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:Todays Economic Environment WE ARE AN ACCOUNTING FIRM WITH A HIGHLY SPECIALIZED EXPERTISE IN THEPEST CONTROL INDUSTRY 9. 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 clientspestpac ,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. Todays Economic Environment 10.

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

• Smallest Annual Revenue about $400K

• Largest Annual Revenues about $13Million

Todays Economic Environment Range of Clients: 11.

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% Todays Economic Environment 12.

Huge Eye Opener!!!

Profits are way up across the board!! Todays Economic Environment 13.

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 theGreat Depression

Conclusion from the DataTodays Economic Environment 14.

Why cant we tighten our belts in good times this way and become wildly profitable?

Question: Todays Economic Environment 15. 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 througheffective Measurement The length of a piece of string can be measured by comparing thestring 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. 16.

Overpay for Acquisitions

Invest in advertising that provides some results but not enough to yield profits

• • Does anyone advertise in the Yellow Pages? Is thismodel changing?

Sell unprofitable work by low balling the competition

• • My favorite:Sell unprofitable work and make it up onthe 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: Growing Your Bottom Line 17. Measuring Quality Service,Customer Retention and Teamwork All Three Factors are interrelated Growing Your Bottom Line Successful Execution bymanaging throughMeasurement Quality Service Customer Retention Teamwork Increased Bottom line 18.

By measurement of the contributing factors to each; and

Devising strategies to raise those contributing factors; and

Executing on those strategies

Its pretty obvious that good teamwork allows us to provide quality service for our customers which leads to retention. But if we arent there yet how do we improve? Growing Your Bottom Line Measuring Quality Service,Customer Retention and Teamwork 19. 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 customers perception that the Pest Management firms performance meets or exceeds his or her expectations in addition to solving the customers problem. Important Measurement elements include: 20.

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 21.

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 Indicators of Quality Service: 22.

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 Indicators of Quality Service: 23.

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

Call backs Need to be minimized.

Contd. What can be easilymeasured, benchmarked and improved Call Backs: Quality Service 24.

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

Ratio ofcall 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 andover the next 6 months there were 2 call backsat hour each Call back ratio is 50% 25.

By calculating ourdollars per hourreceived for work on a particular customer over a period of time.

Assumption:That ourservicesarepriced properly for profit .

Callbacks will drive thisdollar per hour down

How can we measure call backs? Quality Service 26. Customer Retention

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

• Renewal

• Extension of Route work

27.

First Year Retention First year retention becomes extremely important as this demonstrates a customers 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 28.

Total Advertising Spend percentage This is one that most dont 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 29.

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 yearcustomer revenue plus 100K of current year customerrevenue

Example Continued 20,000= 11.11% 180,000 Customer Retention 30.

Conclusion:As long asadvertisingas a percentage of revenues is falling then we are experiencingpositivecustomer 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.That6% 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 dont have as many retained customers.

Contd Customer Retention 31.

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 32. Measuring Teamwork

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

Measure it 33.

InBaseball , a double play would be a good example ofeffective 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 34.

Teamworklike 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 35.

Lets 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 36. Putting it all Together

What will the result ofHigh Quality Work , High Customer Retention facilitated byEffective Team Work Yield?

Acceptable Dollars per hour ------The hallmark of Profitability in the Pest Control Industry 37. Putting it all Together

Money

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

So lets put it all together and figure outHow to make a Profit!

Time

The service time that it takes to fulfill the obligation of eliminating the customers Pests under the service program. This includestreatment timeandcall back time

The pest control business model is based on 2 factors : Putting it all Together 38. Break-Even Analysis Break-Even point= Fixed CostsGross Profit per Hour. in units (service hours) Putting it all Together Putting it all Together 39. Definition Fixed Costs Any cost that remains constant at any volume of business Examples: Rent, Advertising, Utilities, etc. Putting it all Together Putting it all Together 40.

Variable Costs

Costs associated with producing one unit of ourservice.For our purposes, one unit of a servicewill be one hour of service.Thus, variable costsare those costs that rise and fall based upon thenumber of hours that we provide service.

ExamplesHourly pay for your employees, Workers CompensationInsurance, Material Costs, etc.

Definition Putting it all Together 41. Gross Profit The difference between the price chargedper Unit (Hour of Service) and the VariableCosts. Example If we bill our service at $100 per hour and a technicians gets $20 per hour and all other variable costs associated with providingthathourofserviceare $30, our gross profit would be $50.(figured: $100 billed less ($20+$30) variable costs). Putting it all Together Definition 42. What Is My Breakeven Point? = Fixed CostsGross Profit per hour. Putting it all Together Breakeven Pointin Units (Service Hours) 43. If rent, utilities and all other fixed costs are $10,000 and we use our $50.00 gross profit per hr examplethanour breakeven point is 200 hours of serviceat 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 Putting it all Together What Is My Breakeven Point? 44. $10,000 Fixed Costs $50.00 Per Hr Variable Costs 200 Hrs to Break Even = Putting it all Together What Is My Breakeven Point? Gross Margin Break-Even Point 45.

What Happens ifWe have poor quality, poor teamwork and poor customer retention?

Our Gross Margins Shrinks because our dollars per hour falls. Putting it all Together 46.

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

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

Thereby increasing ourBreakeven Point Putting it all Together 47. Putting it all Together Real World Example So lets assume that our signature plan isQuarterly Pest Controlthat weve 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 Hour 2 call backs each at hr=1 Hour Total=4 Hour 48. Putting it all Together Lets Assume that thequality of service ,team work(efficiency) andretentioncaused us to spend additional call back hours at the original Program Selling Price of $400.00 as below 49. Putting it all Together Draw Your on Conclusionsbut let me leave you with this thought: If we assume one Truck/Technician can perform 120 hrs of on the job work per month 50. Putting it all Together Executing on the Plan! The key to maximizing Profit is through measurement, Benchmarking and defining improvement and then: Successful Execution bymanaging throughMeasurement Quality Service Customer Retention Teamwork Increased Bottom line So Profits are yielded byQuality Service ,Customer RetentionandTeam Work 51. PMP WEALTHBUILDERS.COM Best Business Plan for PCOsWho 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