Pest Control State of the Industry 2012

The Pest Control Economy in 2012 from a CPA’s viewpoint

The past few years have been dark times in the U.S. economy.  We’ve had a housing debacle, a banking nightmare, implosion of the auto industry and a constant exodus in manufacturing.  But America is still here and the future is starting to look up.  But what about pest control?  How has our industry survived? And what is the future outlook?

As accountants and consultants to the Pest Industry, my firm works with PCO’s from all over the country compiling financial and operational data for our PCO clients.  The following article is my observations looking at monthly data from our client base as a whole from all across the country.

The economy as a whole

It’s been said that our industry is recession proof.  While I don’t think we are immune to economic factors, I do believe we are recession resistant.  After all, our services contribute to public health; many of these services are required by several government branches.  Other services contribute to the protection of real property.  No matter what the state of the economy, owners for the most part must maintain their property in order to protect their investment.  The past few years have seen slower growth than prior to the economic crisis, but growth nonetheless.  Many industries have been hurt badly with tremendous reductions in revenues; our annuity model has helped us to grow each and every year.  I will say that retention is down (perhaps due to the economy?) but those firms who understand the importance of working on sales each and every day have kept revenue growth positive.  The first half of 2012 has also seen significant revenue growth for most of our clients.  There is an ongoing argument as if this is a result of optimal weather or this is the beginning of good times.

Residential Services

Years ago, general pest in the residential market was done monthly.  As time passed, it has gone to every other month, quarterly, and three times per year service.  Clearly this has been a game changer as our dollars per hour per stop have increased significantly.  We’ve also seen many clients address customer skips and accounts receivable issues by automatically charging customer credit cards or ACHs at regular intervals.  While, not all customers participate, we see the benefits of implementing these types of payment programs through reduced accounts receivable balances and early warning signals as to clients who may be having financial issues.

Years ago, most residential stops were scheduled and routed into stringent routing grids.  More and more we are seeing PCOs providing service either on an “outside only” plan or keeping service time flexible to the PCO thereby making daily routing more efficient.

Commercial Services

While the commercial arena is alive and well, we are seeing tremendous price sensitivity.  Whereas pest control budgets of large companies used to be a petty expense compared to other facilities maintenance and management outlays, companies are now looking at how every penny is spent.  Many clients report that in order to keep certain commercial customers they’ve had to adjust treatment schedules and price.

Higher end commercial customers are not only demanding lower prices but they are also demanding computer generated reports on pest activity requiring PCOs to invest heavily in handheld technology.  We see companies doing quite a bit of analysis with respect to the cost benefit of employing technology.  In some cases, it seems that even when the analysis says that there is no savings in employing technology, PCOs are doing it anyway just to keep pace with their competition.

Termites

2012 is the year that has seen revenues from termites stop dropping.  For the past several years, many PCOs have seen their termite revenue shrink for several economic and non economic reasons.  Even though the slide seems to have stopped, it seems that termite work alone is at a fraction of what it was 10 years ago.  Those companies who relied heavily on only the termite business without branching out have been hurt badly and in some cases have been forced to sell or put out of business.

Many companies in an effort to make the most of a shrinking market have created service plans that include general pests and termite coverage.  This strategy has proven well as it allows the PCO to capture more of a shrinking market and allows customers to bundle services.

Bed Bugs

While the bed bug pandemic has been great for the industry, and quite frankly could not have come at a better time as the economy was getting crushed, it seems that revenues have been leveling out and in some cases falling lately.  On the surface it would appear that bedbugs have crested, however, what we are finding is that the market is maturing and that prices are coming down.  This is not unusual for a market that is hot to mature and the more players that enter, the stiffer the competition becomes.  We saw this with the termite baiting market when it first burst on the scene.

Advertising

While it would be a “no brainer” to say that internet marketing has replaced yellow page advertising as the area where most spend their money, we are however seeing an interesting trend.  That is those who are keeping some of their advertising budget in yellow pages are able to negotiate fiercely with their yellow page vendors and negotiate deals that make sense using keyed ad tests and lower ad pricing.  In any event, it really makes no difference what a PCO pays for advertising in the aggregate; it’s really about the advertising cost of a closed sale.

Profitability

The beauty of our business is the consistency.  While companies outside the industry in general are all over the board in terms of profit or losses, what we are seeing is profitability.  Not the kind of homeruns you see with high tech companies or fad companies, but rather the tried and true net margins that have been characteristic of our industry for decades and decades.  Even in the rough economy, what we see is the companies who create an annual budget and work toward that budget examining it on a monthly basis making adjustments in areas that vary from the budget are those that are succeeding.

Acquisitions

Acquisitions have been part of our industry since the beginning.  The market heats up and cools down in cycles.  Currently, the market has heated up again.  However we are now seeing sophisticated players from private equity firms entering the market.  We are helping more clients with due diligence with respect to buying and selling than ever.  Clearly, smart people have recognized the beauty of our business model.  It appears to be validated by the current flurry of activity.

Conclusion

Many of the observations mentioned above will continue to influence the industry.  As the economy improves it would appear that some of the belt tightening we learned during this downturn may have become part of our fabric and will survive into the next era of prosperity, making us more profitable than ever.

Daniel S. Gordon is a CPA in New Jersey and owns an accounting firm that caters to PCOs throughout the U.S.  He can be reached at info@pcobookkepers.com

See how the economy has changed in 2013!



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