- January 28, 2019
- Posted by: admin
- Category: Accounting Advice
For most of the new economic era where businesses have learned to do more with less the pest business industry has been a beacon of steady returns. More specifically when the world was ending and the banking industry was crushed, a blood sucking parasitic insect known as the bedbug provided an injection of revenue that customers had no choice but to treat, recession or not. The bed bug pandemic eased the effects of the recession and has helped to provide a smoother return to prosperity then many other industries as the economy continues to slowly mend.
So how has the PCO faired over the past year? And what does the future hold? As accountants and consultants to the Pest Industry, our firm works with PCO’s from all over the country compiling and presenting to our PCO clients’ financial and operational data needed to manage their firms for growth and profit. The following article is my annual observations looking at monthly data from our client base as a whole from across the country.
The economy as a whole
While housing appears to be in an uptrend it has a long way to go to reach its peak. Most areas of the country fell pretty significantly so the climb is long and will be filled with fits and starts as mortgage rates normalize. Overall, rising home prices are helping to relieve some of the pain felt by home owners that are underwater in their mortgages.
The stock market has had a tremendous resurgence and while most Americans don’t directly participate, many do as many Americans have pensions that are invested in the markets. Even though pensions for the most part cannot be distributed until retirement, there is a wealth effect that many Americans feel when their retirement accounts are increasing. This is actually how we came out of the last economic slowdown. It was the wealth effect of the rising stock market and increase in Real Estate that allowed the consumer to borrow their way to a feeling of prosperity. This is the way economic cycles work. They heat up and they cool down. While there are many headwinds ahead, we appear to be warming up.
Two other items that deserve mention. Obamacare and the unemployment rate. With the passage of Obamacare and the subsequent decision by the Supreme Court that it was in fact constitutional the business community as a whole became cautious in hiring as there was quite a bit of uncertainty as to how it would impact bottom lines. While most business leaders are not fans of the national health care plan, Americans have a unique way of figuring things out once the rules are laid out. While the plan will take its toll on hiring especially at the lower salary ranges we have become used to the idea and understand that compliance is mandatory and life goes on.
On the subject of unemployment, we as business people have learned to do more with less and have become much more efficient at what we do. This has been partially born as a result of the economic meltdown that began in 2008 but has also been fueled by technology. We now have mobile technology that allows us to access information while in the field as well as complete many of the administrative tasks that used to take time by hand and now is done with the push of a button both in the office and out in the field. For these reasons, in my opinion there will be no turning back and it will be a long time until we see 5% unemployment again. However, the new norm will be a non-recessionary economy with a higher unemployment rate. Having pointed this out for the economy as a whole, we still see PCO firms continue to hire.
The Pest Control Industry
In general we’ve seen modest growth in pest and termite control. The year didn’t start off as robust as it did in 2012. Most clients are blaming the weather but as spring turned to summer there was a compressed demand that resulted in increased revenues for the summer. Contracts signed last year are also fueling quite a bit of growth.
Profit margins continue to get better as PCO’s are paying attention to expenditures more and more as a result of the lessons learned during “The Great Recession.”
The other thing we are seeing is that in an environment where price increases aren’t always feasible efficiency is taking over. Meaning that in a technician day where 50% of the time was spent on travel we’ve been able to move that down to 30%. This has the same effect as raising prices. This efficiency is a direct result of the improvements in routing software that PCO’s are using. While the software has been available for the last few years, users are becoming much savvier in the way they use these programs.
Pest Business Residential Services
Years ago it was almost taboo to mix a pest control contract with a termite contract as the two services were so different in terms of skill set needed, schedule of required service and potential liability. Years ago the termite pressure seemed greater and many businesses made great returns from the termite work they secured just by termite swarms. It seems today that the swarms aren’t as prevalent and the materials and baits available are much more effective. This is a case of be careful what you wish for. We wanted better materials. The result is that because what we are doing seems to be working better, the potential customer base is shrinking. With better treatment results, there are less termite jobs to be had as seen by the decrease in termite revenues over the past decade. This is not to say that consumers don’t want termite protection, and this has given way too many PCO’s bundling termite coverage in their premium pest programs.
For firms that are doing this, we are seeing greater overall retention as customers who have pest coverage don’t want to lose termite coverage. In fact the effect is to create increasing termite revenue (embedded in the total price for the premium contract), in a shrinking pool of termite work. Those clients that offer these premium programs are selling them at a brisk pace.
Pest Business Commercial Services
The commercial end of the business is alive and well. However, pricing is probably the largest challenge. Commercial pest business customers need to be tended to, service schedules reduced while still maintaining a pest free environment. Just as in the past we also see very large commercial cleanouts that come as a result of the customer pushing the cost cutting too far and ending up with emergency situations.
While commercial work is steady, in general with most of our pest business clients, the commercial work is yielding a lower dollar per hour than residential work. Therefore the efficiency in routing needs to be optimal reducing drive time in order to ensure profits on commercial work.
Pest Business Economy Outlook Conclusion
The theme this year has been doing more with less and still prospering. We are seeing this in every area of the pest business. While the past few years have been difficult for the overall economy, as the saying goes “What doesn’t kill you, makes you stronger.”