PCO Bookkeepers is an accounting and business advisory firm obsessed with providing pest control companies’ information they need to prosper in today’s competitive business environment
1. A Division of Wealth Depot, LLC
P.O. Box 810
Newton, NJ 07860
Phone: 973-300-0288
info@pcobookkeepers.com
www.pcobookkeepers.com
We are an accounting and business
advisory firm obsessed with providing pest
control companies’ information they need to
prosper in today’s competitive business
environment
Daniel S. Gordon, CPA
2. Success in the Pest Control Business is No Accident…
Daniel S. Gordon, CPA, General Partner and founder brings over 20 years of
experience in accounting and managing high growth pest control companies. As
an owner, manager, chief financial officer and industry consultant he has been
involved with the development of several pest control companies from inception to
the $15 million in annual sales levels and beyond.
PCO Bookkeepers is an all inclusive accounting and business advisory firm
serving pest control companies with over $500,000 in annual sales. We create
financial and operational systems that allow firms to grow rapidly. With our
experience and your efforts, you can use our expertise in the following areas to
improve and grow your company:
• Monthly Closeout Service, synchronizing your CRM system with your
General Ledger so that you can make accurately informed business decisions
(e.g. PestPac®, ServicePro®, other pest control specific software solutions,
and QuickBooks®)
• Preparation of Sales and Income Tax Return filings
• General Ledger maintenance, including monthly entries
• Outsourced Accounts Payable management
• Outsourced CFO services
• Management of labor costs
• Strategic Pricing services for profit
• Management and measurement of advertising campaigns
• Service Contract design
• Design and implementation of management information systems
• Renewal Management
• Route Management
• Development and execution of compensation programs
• CRM, Accounting, and Sales software consulting
3. Five Questions for You to Answer…
PCO Bookkeepers deploys a unique approach to managing a pest control company
for growth. We help you configure your company for success, focusing on
developing and maintaining healthy, accurate operational systems that enable
business growth.
Here are five questions for you to ask yourself:
1. Are you experiencing stagnant growth or rapid growth that you can’t
handle?
2. Do you feel like your employees are not understanding your vision and/or
not contributing directly to your company’s growth?
3. Do you feel like your company should be more profitable at your current
level of revenue?
4. Do you feel that if you are not involved in every aspect of running your
company, things just won’t get done?
5. Are you gathering tons of data but still do not know how to leverage it to
provide visibility and understanding of the current shape of your business?
If you answer “YES” to any of these questions, then our
capabilities will be meaningful to your pest control
company’s further development .
4. Understanding the Anatomy of a Pest Control Company…
The pest control business is a simple business model that is EXTREMELY
difficult to execute effectively.
First lets take a look at why the pest control business is a simple business model.
The flow chart below is a simplified visual representation of how a pest control
company works.
5. That looks easy, doesn’t it? Well, you know as well as we do that it’s not that easy
to execute. There’s a lot of planning, system design, implementation, and
execution that goes into successfully operating and growing a pest control
business. Information is the key!
The diagram below illustrates the activities that must be performed within your
business systems in order to operate effectively.
Are you currently performing each of these activities? And if so, are you
performing these activities correctly and efficiently on a regular basis?
In the end, the objective is to set up and operate your daily business processes and
information systems in a way that satisfies the needs of each of these activities.
Doing so will enable your company’s management team to achieve a higher level
of business decision making -- management with visibility.
6. Getting Started with PCO Bookkeepers:
We’ve made it easy to work with us. Our professionals work with you every step
of the way to ease you into the system. The PCO Bookkeepers process includes:
I. The Assessment
II. The Operational Cleanout
III. Regular Service Agreement
I. The Assessment
A. During the assessment phase, we will look under the hood of your current
systems and assess your business in the following areas:
Office Processes – What we look for here, is how work is generated, dispatched
and recorded. This is the heart and soul of any PCO firm and without smooth
procedures, growth will never be sustainable.
Accounting and Bookkeeping Procedures – Here we review your chart of accounts,
which is the backbone of your reporting system. A well designed chart of accounts
enables you to generate consistent reports allowing you to benchmark and
determine areas of improvement.
B. Next, we will prepare a Financial Report Card:
Revenues – What we look for is not only dollars but quality of Revenues.
Obviously they need to be high enough to sustain a profit, but they also must recur
or lead to recurring revenue. The three sources of revenue we look for are:
• New Sales
• Route Work
• Renewals
Expenses – Cost containment should always be a priority in any business – a pest
control business is no different. Sometimes it isn’t always easy to isolate which
areas need work. In this phase we break down expenses into three departments:
• Direct Costs
• Selling and Advertising
7. • General and Administrative
Once costs are organized we are able to report on the reasonableness of these costs
as compared to revenues using our in-depth industry experience and from working
with other successful PCOs who are already doing what you want to in terms of
growth and profitability.
C. As the final step of our assessment, we will make Recommendations for
Improvement:
This is the operational report card where we will provide feedback with regard to
what you are doing well and where you can improve your operation and
accounting processes. In this section we also outline what PCO Bookkeepers can
do to help and what our fees will be.
II. The Operational Cleanout
This phase includes the initial set up and implementation of our agreed upon
procedures. Using the knowledge and insight gained from the Assessment Phase,
we will work collaboratively with you to set up your systems so that you can
transform your business into a tightly operated profit generating machine. We will
show you what to measure, how to measure it, and how to interpret the results in
such a way that you can operate your pest control business with new found
visibility and focused intention.
We help you set up your accounting system using operational software and we
blend it with a general ledger system. The two systems will be configured and
mapped in such a way that it enables us to “marry” the systems, keeping them
synchronized and enabling informed business decisions based on accurate and
timely information.
When this phase is complete, we will have everything set up for ongoing
accounting and creation of the valuable reports that we will provide to you on a
monthly schedule.
8. III. Regular Service Agreement
At this point, your pest control company’s technology systems and business
processes are configured in such a way as to support your business’ growth
initiatives. Based on the findings of the Assessment Phase and your Operational
Cleanout, we will regularly perform a monthly set of business and accounting
services customized to your business needs. Our regular service offerings include:
• Monthly Closeout Service, synchronizing your CRM system with your
General Ledger so that you can make accurately informed business decisions
(e.g. PestPac®, ServicePro®, other pest control specific software solutions,
and QuickBooks®)
• Preparation of Sales and Income Tax Return filings
• General Ledger maintenance, including monthly entries
• Outsourced Accounts Payable management
• Outsourced CFO services
• Management of labor costs
• Strategic Pricing services for profit
• Management and measurement of advertising campaigns
• Service Contract design
• Design and implementation of management information systems
• Renewal Management
• Route Management
• Development and execution of compensation programs
• CRM, Accounting, and Sales software consulting
Additionally, we will show you how to leverage computer technology to facilitate
growth in your pest control company. Utilizing today’s most advanced customer
relationship management and accounting software packages powered by the
Internet, we will provide you with monthly reports that will prove to be critical to
your company’s ability to make decisions and sustain growth. Our reporting
package includes, Our One Minute Manager, Service Drill Down Report,
Expanded Financial Reports, and other customized reports.
Custom tailored to show profitability by branch, department, and service line, our
reporting packages will provide you with a high level of operational visibility and
strategic understanding that has previously been available only to large companies
with big budgets.
9. Case Study #1: JP McHale Pest Management, Inc.
Overview
JP McHale operates in the New York Hudson Valley, Northern New Jersey, and
Southern Connecticut. They are ranked as one of the 50 largest Pest Control firms
by PCT Magazine.
Growth Challenge
When we met JP McHale, they were doing a few million in annual revenue. They
had a multitude of issues that were hindering growth. The operational software
they were using was not being utilized efficiently. They relied on an accountant
who had no industry experience and was not willing to spend the time to set up
systems for reporting results accurately. His sole intention was to produce sales
tax and income tax returns. The owners were at a cross roads. They knew they
had to do something or they were going to stagnate.
Suggested Management Strategy & Implementation
We met with them and laid out a strategy that included retrofitting their PestPac
software. We aligned all set up tables to enable proper revenue reporting. We then
created their chart of accounts and set up QuickBooks as their general ledger
system. Systems and procedures were created that allowed for accurate and
consistent recording of transactions. Once we set up the infrastructure to handle a
rapid growth strategy, a marketing plan was devised and implemented. A
compensation plan for managers and salespeople was also set up to coincide with
this growth initiative.
Result
Over the next seven years, JP McHale quadrupled in size, employing over 100
employees while becoming extremely profitable. The owners are now in a place
where they provide steady employment and outstanding health benefits to
employees along with profit sharing and a company 401K plan. Their employee
compensation plan far exceeds the rest of the industry. The owners no longer
dread going to work nor having vendors and employees abuse them. Instead, they
have built a great place to work and significant wealth in the process.
10. Case Study #2: RK Environmental, LLC
Overview
RK Environmental operates in the Northeast and Mid Atlantic States. Its owner
Hank Hirsh is a Board Certified Entomologist and a specialist in food safety. The
company only services the food processing and related industries.
Growth Challenge
In 2001 RK’s owner decided to parlay his food processing knowledge by
purchasing a small route that was grossing less than $200,000 in annual revenue
servicing a couple of food processors in the New York metropolitan area. He
wanted to grow the company in a rapid manner while providing the highest quality
service.
Suggested Management Strategy & Implementation
We first met with Hank and helped him develop an offer for purchase of this small
company. We became his outsourced Chief Financial Officer and helped him
negotiate the purchase and work out the financing terms to allow his ultimate
purchase. We knew the only way to implement a high growth strategy would be to
set up a strong management infrastructure in terms of routing and financial
management. We performed services to set up the company’s back office tools,
including PestPac design and configuration along with QuickBooks set up and
implementation as the general ledger. We formulated sales forecasts and a budget,
which he adhered to closely. While we ran the finances, Hank was able to focus
on sales and operations and over the next 7 years together we turned this one-route
company into a 2.2 million dollar company with about a dozen technicians and a
bottom line of approximately 17%.
Result
Today RK Environmental is one of the most respected pest management and food
safety firms in the industry, boasting clients who read like a “Who’s Who” in the
food processing industry. We continue to work with him as an outsourced CFO,
performing accounting, budgeting and business consulting services. He makes an
excellent living and his firm has sustained along its high growth trajectory. The
firm is currently worth several million dollars.
11. Case Study #3: S&S Termite & Pest Control
Overview
S&S Termite and Pest Control operates two branches in Alabama. This pest
control company performs termite work for residential and commercial customers,
as well as general pest control services in these two Alabama markets. 2008 sales
were in excess of $1.2 million.
Growth Strategy
We met S&S owner John Story in 2004 at a Pest Control Industry conference.
Gross Revenues in the prior year was $350,000. John had built a small pest control
company in the past and sold it for a tidy profit. This time around he decided that
he was going to build a company that would do several million in annual revenue.
Suggested Management Strategy & Implementation
When we met John he was using PestPac to run his operation and QuickBooks to
pay his bills. While he had the proper tools, he lacked the expertise to make them
work efficiently. His PestPac was not set up to give him the proper information
and QuickBooks was merely used to print checks. We did an analysis of both
programs and made several adjustments to each – redesigning and implementing
PestPac and QuickBooks to provide accurate and timely business information. We
currently maintain both systems for S&S, allowing him to focus on building his
business by working “on his business” rather than “in his business”. We also set
him up with our PMP WealthBuilders program, where he learned more profitable
pricing, routing, and sales management methodologies.
Result
Within 5 years S&S had grown from a single branch with $350,000 of sales to a
two-branch operation with over $1.2 million in annual sales. We continue to be
their outsourced Chief Financial Officer. John attributes his ability to grow to our
program of keeping his operation efficient and providing monthly management
reports. He has also embraced the insights and materials gained from our PMP
WealthBuilders program to train his staff and communicate his vision.
12. Principal…
Daniel S Gordon, CPA, Founder
• Certified Public Accountant licensed to practice in New Jersey. His expertise
is in entrepreneurship and new venture management. He has personally been
involved with building two pest control companies that employ over 100 full
time employees.
• Was employed by Deloitte & Touche, an international accounting and
consulting firm, as an auditor and tax consultant
• Started, owned, operated and grew a pest management firm in Northern New
Jersey that he eventually sold to a large regional Pest Management Company
for a significant profit.
• Worked as CFO for acquiring Company. While there the company tripled in
size in terms of revenues and employees.
• Currently owns an accounting and consulting firm with two offices in
Northern New Jersey that specializes in building service businesses, more
specifically pest control businesses.
• Currently runs with Jim McHale, of JP McHale Pest Management (One of
the nation’s 50 Largest Pest Management firms), PMP Wealthbuilders, a
business building and coaching firm that caters to pest control company
owners and managers.
• Has spoken for the National Pest Management Association, The New Jersey
Pest Management Association, The Michigan Pest Control Association, Pest
Control Technology’s Business building seminars and Marathon Data’s user
conferences in Florida. Topics include route management, Business
building, pricing for profit, running an efficient office and how doing so will
make you a successful PMP.
• Has written articles for both Pest Control Magazine and PCT on
o What to look for in an accountant
o Pricing Ant Programs for profit
o Running an Efficient office
o Effective Routing
• Certified QuickBooks Pro Advisor
13. • Has worked with and done dozens of PestPac Software implementations for
Pest Control Firms all over the country. Has been working PestPac by
Marathon Data Systems since 1994.
• Dan is a graduate of Northeastern University where he graduated Magna
Cum Laude with a degree in Accounting and Management.
Our Professional Staff
• With over 25 years of collective experience in the pest control industry, our
team members are able to provide accounting and bookkeeping solutions
that are custom-tailored for PCOs and relevant to the PCO business model.
• The PCO Bookkeepers professional staff includes bookkeepers and
accountants with years of experience using business and accounting software
applications, such as QuickBooks and PestPac.
• Our team of professionals is committed to providing you with prompt and
courteous accounting, tax, and consulting services of the highest standards.
14. Your Pest Control Company’s Growth Opportunity…
Now it’s time to start working ON your business and not IN your business.
Remember to prioritize and focus on what matters. Business growth!
Don’t fall into the trap of doing the same things year after year. If you decide to do
something different this season, hire PCO Bookkeepers as your collaborative
business partner. We can help you achieve your business goals and make a
difference in your life!
If you believe based on what you’ve read in this booklet that PCO Bookkeepers
can provide structure and enhance growth in your pest control company by
implementing our proven financial, operational and accounting programs…
Lets Talk!
We look forward to the opportunity to serve your pest control business needs. Feel
free to contact me or visit us on the web at www.pcobookkeepers.com.
Sincerely,
Daniel S. Gordon, CPA
973-300-0288
dan@wealthdepot.com
CALL US TODAY!
973-300-0288
15. Articles by Dan Gordon, CPA
This section contains a sampling of articles written by Daniel Gordon, CPA.
Dan’s articles have been published by numerous industry specific magazines
and websites.
The first article discusses the importance of having an accountant that
possesses intimate knowledge of the industry you work in. All large
companies have a CFO and an accounting department, yet so many small
businesses are content to “fly by night” without a single member of their
management team having accounting skills and experience coupled with a
thorough understanding of the pest control industry. There is a gaping hole
in such a management structure that needs to be filled.
In the second article, Dan explains how to apply proven methodologies
backed by facts and data towards pricing your services in such a way as to
build a profitable pest control business that accumulates value and wealth. If
your prices aren’t high enough, then you’re leaving money on the table.
This article will walk you through a strategic approach to pricing that will
help you capture profits, starting with your company’s top line.
16. Is Your Accountant a Valuable Part of Your Management
Team -- Or Does He Just Push Paper?
By Daniel S. Gordon, C.P.A.
Accounting is the language that we use to communicate the health of our business.
When many of us think of accounting we think of April 15th – TAX DAY.
However, there is a lot more to the accounting function with respect to the Service
Firm owner than taxes. A competent CPA should be able to file your taxes and
prepare statements for banks, creditors and other stakeholders in your business.
However, the overall goal of your accountant should be to help you accumulate
and preserve wealth. Saving taxes is just a small part of this overall task. A
competent accountant recognizes that he/she needs to be a valuable member of
his/her client's management team and is able to provide many more added value
services than just tax preparation. The growing pest management business needs
help with many of the financial aspects of their business.
As your business grows you need the internal structure and financial controls to
support this growth. This aspect of accounting is called Management Accounting
and will be the focus of this article. Management Accounting has to do with
compiling and reporting information that you need to improve the results of your
operations.
Many CPAs are in a unique position to help you in this area by helping you to set
up procedures to accurately record the daily transactions associated with doing
business and by making observations about your firm and comparing that
information to other clients that they work with. Your accountant should be a
trusted member of your management team, providing you information on ways to
improve the efficiency of your business.
The following are essential elements of the inside accounting function required to
run a successful pest management business.
17. PREPARATION OF FINANCIAL STATEMENTS
Financial Statements are the culmination of the accounting process. They are used
to convey a concise picture of the profitability and financial position of your
company. The two most important financial statements that allow you to get an
accurate snap shot of the results of your business are the Profit & Loss Statement
(P/L) and the Balance Sheet.
The P/L shows how much profit or loss your firm made for a given period. But
more importantly it shows how that profit or loss was derived by category of
expense and revenue. It is extremely important that your accountant understand the
pest management industry because we use terminology specific to the industry (i.e.
specials, intensives, one shots, baiting, termite labor, pest labor, etc.), and we have
certain financial benchmarks to rate our businesses using this terminology that are
unique to our industry.
A growing pest management firm that uses a generic chart of accounts is at a
distinct disadvantage to the larger players in the industry who use their chart of
accounts to generate financial statements that allow them to analyze their
businesses and answer important questions such as:
• Is my Material expense in line with my revenue?
• Is my direct labor cost in line with my overall revenues?
• Am I spending more or less as a percentage of revenues than the average
firm on advertising?
• What percentage of my revenue do I spend on running my office?
• What are my vehicle costs as a percentage of revenues?
• I know I spend a lot on overtime…But do I spend too much on overtime?
The Balance sheet shows the financial position of a firm on a given date (i.e.
assets, liabilities and net worth).
An easy way to distinguish the P/L from the balance sheet would be to think of the
P/L as a statement showing how our business did in terms of revenue, profit, and
growth for a given period, and the balance sheet would show us what our firm is
worth as a result of all cumulative P/Ls and financing activities in the past.
18. BOOKKEEPING
Your accountant should be able to help you prepare your financial statements by
providing you with bookkeeping services or over seeing the person who performs
your bookkeeping. With the proliferation of the Internet many accountants now
offer online bookkeeping services. This is an outstanding way for the Pest
Management Professional to have his internal accounting supervised by a qualified
accounting professional at a very reasonable cost, and it is done using ATM like
security.
In this day and age, most bookkeeping is done using a computer. In this regard, I
suggest that the Service firm owner and his accountant use two types of software:
1. The first program should be industry specific and track all the money
coming into the business. More specifically, revenue types, customer
payments and accounts receivables. This program should also provide you
with information on technician productivity, and other marketing and
operational information used to run your business.
The program should have the capability to provide you with periodic reports
that can easily be exported to your accounting general ledger package. One
such program that I've had experience with and provides excellent reporting
is PestPac ® or Routepoint ® by Marathon Data.
2. The second program should be an off the shelf accounting general
ledger and accounts payable system such as QuickBooks ® by Intuit or
Peachtree ® by Sage Software. For the most part we as service firm
owners do not keep large complicated inventories or sell our services using
sophisticated point of purchase devices and therefore don't require elaborate
and very expensive general ledger programs.
In most cases these off the shelf programs should be adequate, and they are
extremely powerful. However, they need to be set up properly to give you
the type of information that you require.
These programs will provide you information such as how much money you owe
to suppliers, how much you have paid them in the past, and profit by service class.
The general ledger
19. program will actually generate financial statements at the push of a button. One
word of caution though, the statements produced are only as good as the as the data
entered into the package. Therefore your accountant should set up office
procedures to insure that information is entered into your accounting system in an
accurate fashion.
BUDGETING
Budgeting is nothing more than formulating a coherent financial plan for some
period in the future, usually one to two years. As the plan is implemented we are
able to rate our efforts compared to the budget that we created. Budgeting allows
us to predict the amount of technicians, vehicles, equipment, etc. that we will need
in the future based on our revenue projections.
While many business owners think that they are too busy to do budgeting, there is
nothing further from the truth. You see, the reason that most small business people
do not budget is because they are so concerned with meeting a payroll each week,
that they rarely take time to plan. Lack of planning continues a vicious cycle that
underscores a relationship between the failure of a business to maximize its profits
and the absence of planning. If you are running a growing service firm you can't
afford not to budget for the future.
During the budgeting process we determine the areas of spending that we can
reduce. Revenues are analyzed to determine which are the most profitable and if
there are other sources of revenue that can contribute profitably to the bottom line.
Budgeting should be done annually and actual results should be compared to
budgets monthly.
ACCOUNTS RECEIVABLE MANAGEMENT
Accounts Receivable Management is an extremely important area of Management
Accounting. A business that doesn't have control of its accounts receivable will
usually have poor cash flow and have trouble meeting its expenses in a timely
fashion.
Accounts Receivable Management starts with laying out a formal procedure for
their collection. This procedure starts with an Accounts Receivable aging report.
This report should categorize the firm's receivables by age. There should be a
20. “Current”, “Thirty”, “Sixty”, and “Over Ninety Day” column. At each point along
the way a collection effort should be made (i.e. at 30 days perhaps a phone call to
the customer, at 60 days perhaps a letter and at 90 days perhaps a stronger effort).
In any event the pest management firm should not allow a very large percentage of
their receivables to go over the sixty-day column. History shows that the older a
receivable is, the more difficult it is to collect.
CONCLUSION
The accounting function is far more than filling out tax returns. The accounting
function in the successful service firm allows the owner to make sound business
decisions about expansion, cost reduction and efficient operation of his firm. The
Management Accounting function provides controls that insure financial
transactions are recorded properly and provides the information that allows the
successful owner to make those decisions based on hard facts.
At a minimum, the internal procedures within a pest management firm should
include the use of financial statements, a well-supervised bookkeeping function, a
formal budgeting procedure and an aggressive accounts receivable management
program.
As your firm grows there are several other aspects of management accounting that
should be explored and implemented. But the firm that successfully uses the
principles of Management Accounting outlined above will accumulate much more
in terms of wealth than the firm that operates by “Shooting From The Hip”.
21. Pricing Your Ant Management Program for Profit
By Daniel S. Gordon, C.P.A.
As a Pest Management Professional we need to understand our cost structure in
order for us to price our services for profit. The following article is meant to make
the reader focus on the real cost of doing business and choose his/ her pricing
accordingly. During the spring and summer there is no shortage of customer calls
for Carpenter Ants, Fire Ants, Pharaoh Ants, etc. One thing is for sure that if
priced correctly, there is a lot of money in ants!
THE PRICING MODEL
The Pest Management Pricing model is based on two variables: Time and Money
(hourly rate).
Time - The service time that it takes to fulfill the obligation of eliminating the
customer’s ants under the service program. This includes treatment time and call
back time. The benefit of being an experienced PMP is that you can reasonable
estimate the time that it will take to complete the job and reasonably estimate call
back time for the average customer. The PMPs that make the most money realize
that while they provide pest management services, what they are really selling is
time (the time to effectively service their customer). Every action performed that
makes more efficient use of time will provide larger profits. This is not to say that
we must trade quality workmanship for time. It is to say that we must make
reasonable estimates of the time that it takes to provide quality service.
Money – This is an hourly charge for our ant control 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 technique called breakeven
analysis.
BREAKEVEN ANALYSIS
The following discussion will give you a basis for figuring your hourly rate. I urge
you to think hard about the following discussion, since your profitability relies on
it. Remember, that pest management is your profession. Therefore, you should
22. never sell yourself cheap. After all, you are providing a needed service and if it is
communicated to the customer that way, you will be able to command your price.
And you deserve it!!
Let’s start with some definitions you need to know…
Fixed Costs- Any cost that remains constant at any volume of business (i.e. rent,
advertising, utilities, etc.)
Variable Costs- Costs associated with producing one unit of a good or in our case
one unit of a 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 of variable costs would
include: Hourly pay for your employees, Workers Compensation Insurance,
Material Costs, etc.
Gross Profit- The difference between the price charged per unit (Hour of Service)
and the variable costs. For 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 $35, our gross profit would be $45 (figured: $100 billed
less ($20+$35) variable costs).
Once these definitions are clearly understood, we can determine our breakeven
point. Breakeven point in units (service hours) = fixed costs divided by gross
profit per hour.
Example: If our rent, utilities, and all other fixed costs are $10,000 and if
using the example above, our gross profit is $45 per hour, than our
breakeven point is 222.2 hours of service at $100 per hour just to break even
(Figures: $10,000 divided by $45 Gross Profit Per hour).
At 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 profit contributes to bottom line profit. This is the
reason some accountants call gross profit the contribution margin.
Is it really this simple? YES!!! 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).
23. Therefore, figuring your breakeven point can sometimes be confusing. The
“Hourly Rate Calculation” at the end of this article illustrates a real life example.
While everyone needs to tailor this example to their individual facts and
circumstances, it should be noted that using the assumptions in the example the
PMP would have to charge $76.02 per hour to make a 5% profit.
THE ANT MANAGEMENT PROGRAM
While this article is not meant to endorse any one method of Ant treatment, the
PMP needs to decide on a program. Typically there are two programs that could
be offered to customers to control ants.
Type 1 Program – Employing this type of program would have the PMP perform
a one time intensive that may take several hours while offering free call backs for
the service guarantee period (i.e. one year, six months, etc.). This type of program
usually gives the customer an option to renew at the end of the service guarantee
period.
Type 2 Program – Using this program the PMP spends less time on the intensive
but returns for periodic visits either monthly or quarterly.
No matter which program is used, the PMP must estimate the time to be spent
fulfilling his obligation to the customer. For example, under a Type 1 Program the
PMP might spend three and one half hours on the intensive with an average of 2
call backs each at 45 minutes during the service contract period or five hours total.
Using a Type 2 Program two hours might be spent on the intensive with three
additional quarterly visits that each average 45 minutes with an average of 1 call
back per year at another 45 minutes. Here again, we are at 5 hours for the year.
Pricing Ant Management Services – Using the discussion above and the hourly
rate calculated in the “Hourly Rate Calculation” at the end of this article, each
program would be priced at $380.10 as follows:
Type 1 Program – 5 hours x $76.02 = $380.10 Due at completion of the
intensive
Type 2 Program – 5 hours x $76.02 = $380.10
$209.05 Due after the Intensive = 2 hour initial + estimated call back time of
45 min x $76.02
24. $57.02 Due for each of 3 Quarterly visits (we are off $.01 due to rounding)
CONCLUSION
The above discussion is accurate in terms of pricing methodology. Some would
argue that a small operator can operate at lower prices because he/she does not
have the overhead of the larger companies. There is nothing further from the truth.
You see the above costs may vary slightly from company to company. But over
the long run the cost structure is the same for the small operator and large operator
alike.
A small single person operation has the same cost structure as the bigger
companies. However, the small guy can be his own technician, run his own books,
and perform all of the office functions himself (By the way, this is the way that I
suggest that the small guy operate). In this manner, you may think that you are
saving all of that money in technician and office salaries, and that the savings is
going right to your bottom line, thereby making you much more profitable.
The problem with this thinking is that you are in business to make a profit and
perhaps build a business that has some value should you decide to sell it. You see
the fact is, that you can go out and get a job as a technician, and you could get a
job as an office worker at night. Working at these jobs you would get paid a fair
wage. Why would you take all the risks associated with going into business if your
plan didn’t include making more money than a wage earner? You see the profit
that we spoke about before is your reward for taking the risk. If you operate under
the false illusion that you can cut your price because your costs are lower, you will
eliminate this reward for taking the risk. In fact, you may not only wipe out your
profit you may even cut into the wage portion (It may still appear that you’re
making money, because there is some wage left, not all, but some!!). At this point,
why be in business? You can certainly can go out and make more money as a
wage earner working for someone else doing the same amount of work.
So how do you compete? Beat them on quality workmanship!!! Never on
Price!!!