Orkin Canada President Gary Muldoon swapped his usual management tasks for frontline duties for a recent episode of W Network's “Undercover Boss Canada.” Hear from Muldon about this experience in the following podcast.
January PCT’s cover story “Middle Class” includes data from a December 2012 survey about customer payment. In addition to the data that appeared in that story, below are charts with data about (1) Customer payment terms; and (2) getting customers back on a "regular" payment schedule/program.
A few years ago, residential customers were calling Critter Control in Fort Lauderdale, Fla., to cut back or cancel services. These were middle-class customers — the “sweet spot” for PMPs and their businesses. But in addition to being the industry’s bread and butter for many years, they are also the squeezed, stressed and dwindling population that mainstream media has pushed on to the front page. They’re target customers for many pest control firms, and they’re feeling the burn.
A Pew Research Center study made headlines in 2012 when it showed a continuing decline of the population defined as middle class. That’s household incomes ranging from $39,000 to $118,000 and includes about 50 percent of adults in the United States. These are goods-and-services buying adults who have watched their discretionary income fade, and this emptying of the wallet has been going on for some time. Pew’s report is an update of a four-decade long study of the middle class’s share of income, says Rakesh Kochhar, a social economic researcher there.
Money’s tight. At least it was three years ago when Joe Felegi says his revenue stream began to choke. And the middle class is the target customer base for many pest control companies, Critter Control included. “They weren’t buying,” says Felegi, manager of the Fort Lauderdale location.
So Critter Control got creative and started financing services for customers — giving them payment terms so they could shell out the total bill over a six-month (and no longer) period rather than footing a hefty bill for a higher-dollar job all at once.
The plan worked. Customers didn’t want to forgo services, they just needed a hand. “We were noticing cash flow drop so fast that by offering payment terms, we were getting some type of revenue in vs. nothing,” Felegi says.
Some customers post-dated checks, others put a portion of the payment on a credit card. And now, those customers have bounced back and are buying without terms. Business is back to where it was four years ago, Felegi reports. He also believes his economy experienced the burst first and the recovery sooner.
Felegi’s experience underscores a few key points that hold true regardless of how middle-class families are faring: “If you’re not selling you’re dying,” he says, reciting the old business adage. And, no matter what’s going on in the economy, pest control services are often prioritized by homeowners — and, yes, that includes the “dwindling” middle class.
Indeed, there are fewer middle class customers out there today — and 85 percent of the middle class find it difficult to maintain their lifestyles, according to the Pew study. But the good news is, there is also a great deal of untapped potential in the pest control industry, points out Cindy Mannes, chief marketing and strategy officer at Arrow Exterminators, headquartered in Atlanta, Ga. Today, about 28 percent of people in the country currently use pest control services, she says. While there is a group of people — maybe as many as 40 percent — who never will buy the services, that still leaves a sizable unreached pot of potential customers.
“We have so much opportunity in terms of growth and really being able to get out there and help people,” Mannes says, emphasizing that pest control firms that emphasize value survived the recession and will thrive regardless of what studies say about the middle class. “We are selling protection,” she says simply.
And people are happy to pay for that.
A Slow Squeeze. Gene Chafe at Senske Pest Control, headquartered in Kennewick, Wash., says business from customers in the $60,000 to $70,000-plus income bracket, or upper-middle class, has been “tough” depending on the market. The company operates from Washington state to Las Vegas. “We get a good cross-section of the economy and the effect the recession has had on these populations,” says Chafe, general manager and CFO of the family-owned firm.
Some areas Senske serves have helped boost the company’s revenues, namely Washington’s Tri-Cities metroplex. “In the height of the recession when the housing market was crashing and unemployment rates were high, we were carrying on, business as usual,” Chafe says.
On the other hand, Las Vegas hit the bottom of the barrel and Senske Pest Control saw its business decline there. Having a presence in resilient and rough regions provides a healthy balance for the company. When middle-class customers in Vegas were decreasing or canceling services, those clients in the same income bracket in Washington were paying bills without flinching.
But for the most part, middle-class customers have held on to their pest control contracts, Chafe says. “It’s almost an essential service,” he relates, adding that Senske does tailor its programs to meet clients’ financial needs. “We have seen customers scale back to three or two services a year, but they still keep the service. Our focus has been on keeping the customer, so we’ll modify services to keep that person when times get tough, and then, well, they’re back to their former services.”
In contrast with what national headlines imply about the middle class being squeezed and spending less, Chafe says the pest control industry is fairly sheltered from this and other economic headwinds. “It’s like being an undertaker — you’ve always got business,” he remarks.
That said, Chafe acknowledges that everybody — class aside — is still watching their wallets. “I’m watching my money, and I’m sure you’re watching where you spend yours,” he says. Kochhar of Pew confirms this reality. “Everyone’s income has declined, not just the middle class,” he says.
“The Lost Decade of the Middle Class,” the study by the Pew Research Center, “takes a fresh look at the public attitudes through the prism of income tiers and self-defined economic class,” Kochhar says. It’s a how-are-we-doing measure. Or, to cue up a popular question of the 2012 election cycle: Are we better off today than we were four years ago?
“A lot of what we reported three to four years ago is still going on,” Kochhar says. “The principle effect of the last four years is a general decline,” Kocchar explains. In other words, the middle-class shrinkage occurring now is exacerbated by the fact that the economy has been in a big, nasty rut, the unemployment rate reached record highs, and real estate tanked in many markets. The “squeeze” on the middle class (and every class) is caused by multiple economic forces.
In fact, the hollowing out of the middle class has been taking place during the last four decades, Kocchar says. The Pew study updates research that began in the 1970s. “In each decade, there was a decline (of the middle class), and no single decade stood out as having driven this movement,” he says. “It has been a pretty steady process.”
What’s causing the movement of people out of the middle class to higher or lower income statuses? “The economy is creating higher rewards for those who are more skilled and more educated, and fewer rewards for those who are less skilled — who don’t have a college degree, for example,” Kochhar says. “The middle class is hollowing as a result of movement up, and movement down.”
But what service businesses want to know is this: Does this smaller middle-class population mean fewer people to buy services?
“If you have less income, you spend less, but that is an aggregate economic effect,” Kochhar says, not wanting to make a direct connection between the declining middle-class population and their spending power.
And perhaps there is no direct connection given that feedback from a number of pest control operators in different markets reflects a healthy industry and growing revenues. Plus, people will pay to get rid of bugs. Mannes says in the region where Arrow Exterminators operates, “It’s not a question of if you will have termites, it’s when you will have them.”
Plus, customers today are better educated about pests and pest control services, Mannes adds. Following NPMA PestWorld in 2012, “I didn’t talk to anyone who was having a really bad year,” she says.
However, there are a finite number of customers. That’s reality. “And if you are not selling value, you will not be able to sell your services to the middle class,” Mannes says. “We are talking to the middle class about the importance of pest control services to your life, your family, and protecting your home, which is your No. 1 investment.”
That’s why marketing has never been more important. Chafe says, “There is always some drop-off in customer base during any recession or blip in the economy, so our objective is to overcome that drop-off, provide outstanding services and work with current customers to maintain that customer base.”
Marketing out of a Rut. Critter Control’s customers who accepted payment plans or whittled down their service packages are more willing to sign up for pest control services now that “there is extra cash flowing into the household,” Felegi reports.
Felegi says Critter Control has “definitely pushed more in our marketing.” The company stepped up its email and Internet efforts and dedicated resources to sales training for technicians. “We worked to help them understand the customer point of view,” Felegi says. The overriding message Critter Control has pushed is this: “We provide all types of pest control services — we do more than just catch wildlife.”
Felegi adds that constant contact with customers keeps them close so they won’t stray. “We are focused on better service and better communication with our customers,” he says. “All of our technicians have tablets so they can communicate with customers on a daily basis through emails and pictures.”
Customer retention is business security. “Once you lose a customer, it’s very difficult to get them back,” Chafe says. “And we spend a lot of money in our marketing trying to attain customers, so it’s essential that we maintain relationships with them.”
Chafe says the company increased its marketing dollars during the past couple of years. “And it has paid off,” he reports. “Revenues are up. Sales are up. And we have overcome many of the cancellations we had.”
The squeezed middle class is spending more on pest control services today than a few years ago, according to the sources we talked to. So while America’s middle is reportedly getting smaller, their dollars are still going toward services they value, and that includes pest control.
“People of any class at this point are looking for value,” says June Van Klaveren, owner of Compelling Communications, St. Louis, Mo. “They are looking to get the most from their dollar.” Pest control operators can fulfill this demand by packaging their services in bronze, silver and gold-type levels to give customers more choice, she says. Or, by pairing services such as tree pest control with a termite contract. “It’s important to really educate consumers on the benefits of each package and what they get,” Van Klaveren says, relating that pest control companies should not assume a customer understands what’s included.
John Wilson, president of Orkin USA at Rollins, says the economy has not made an impact on sales to new customers in any demographic, middle class or otherwise. And, customers aren’t resistant to prices. “(We lose customers) when we don’t deliver the service the way we say we will or the way they feel they need to have it for that price,” he says.
“In our industry, services are needed and wanted by homeowners,” Wilson says. “Especially in tough times, they seem to stop spending on that trip to Europe and put money into their homes instead.”
Again, the key is to underscore the value customers realize when they buy pest control services. And there’s no better audience to focus on than the one that’s already paying the bills. “Mining your current customers takes more time than just shooting out an ad to the public because it means keeping in touch with them,” Van Klaveren says. Write hand-written thank-yous. Send out e-newsletters with relevant pest updates. Pick up the phone and ask customers, “Is there anything else we can be doing for you?” Nurture that relationship — no one wants to feel “stuck in the middle” of a stack of clients. “The goldmine is really within your own customer base,” she says.
Felegi says Critter Control continues to build its business by getting back in touch with customers who declined services in the past because of budget constraints. “We are calling them back now and they are buying our estimates from two years ago,” he says, adding that the company will give clients a 10 percent discount for doing so.
“We are definitely seeing people buy more today than they did three years ago,” Felegi continues. “This year, our pest control sales are increasing and the middle class customers who didn’t have jobs two years ago seem to have jobs now and want professional services. We are trending up.”
The author is a frequent contributor to PCT magazine. She can be reached at email@example.com.
More Data on Customers’ Payments
In December 2012 and January 2013, PCT conducted a survey of its readers via the third-party research firm Insight Express. The data for the chart on page 50 came from this research. To access more data from this survey, including exactly how fellow PMPs have adjusted customers’ payment terms, visit www.pctonline.com and click on “online extras.”
One of the emerging pest control businesses in the Sun Belt is Bulwark Exterminating, a $20-million-plus company based in Mesa, Ariz. While the company has not been a major player on the M&A scene, it has made some strategic purchases, including the 2012 acquisition of Premier Pest Management, a company based in the Phoenix area that generates close to $1 million in yearly revenues.
Bulwark CEO Adam Seever said this acquisition will help the company build route density in an area of metro Phoenix where Bulwark had few customers. “The combined customer base yields geographically small technician routes. Customers will see our trucks very frequently,” said Seever. “When a pest professional delivers real quality, route density gives you more than lower gas expenses — it yields exponential referrals. Premier employees have great customer service skills.”
Under the agreement, Premier Owners Sandra Hellems and Becky Garr receive a large percentage of total receipts monthly for three years on every customer Premier provided to Bulwark and, subsequently, 7% of receipts in perpetuity after the first three years. This type of payout-over-time arrangement can benefit both the buyer and seller, according to Jeff Liebel, partner at CounterPoint Consulting, Williamsville, N.Y., who advises business owners on growth strategies and the people side of mergers and acquisitions. “From a structural standpoint, it is favorable to the buyer because they are essentially funding the deal out of the current revenue they are getting from the acquired business,” he said.
From the seller’s perspective, Liebel said, there is often this belief that “a 53-foot trailer will back up to their door with pallets of money, they turn over the keys and off they go. That is rarely the case these days as buyers are not inclined to pay ‘full value’ in a lump sum. The buyer can reduce their real risk by paying out a percentage of the actual post-sale performance to the seller. So if the organization and accounts are healthy they could continue to grow, and this increase in performance may result in a larger payout to the seller over time. The risk, of course, is if the new owners drive it in to the ground, but that is why the sellers have to conduct their own due diligence of the buyer.”
While the payout-over-time structure of the Bulwark-Premier deal is not unusual, the payment in perpetuity is interesting because this type of arrangement is mostly found in family business situations (e.g., generational succession). Seever said the payment-in-perpetuity component was important for these two reasons:
The Transition. Seever likes the fact that sellers have a contractual right to the revenue stream they bring to Bulwark, and thus have a stake in the successful retention of the transitioned business. “They remain active in giving feedback to our management of the newly acquired customers even though they are not on the payroll technically,” he said. “This was their business and they personally know most of their customers. When there is a problem, their customers usually will go through the proper channels; however, sometimes misunderstandings or gaps develop.
“It is nice for the customers in transition to be able to contact the former owners. The former owners are not involved so much in the solution, but rather can give decision makers information. Former owners are not required to do this, but they do have a vested interest in solving misunderstandings to keep retention of future revenue streams.”
To Sweeten the Pot. As Liebel noted, sellers usually don’t get the premium they think they’re entitled to; Seever and his team believe offering payment in perpetuity was an opportunity to “mathematically convince business owners that we would pay as much as the big boys [if not more],” he said. “In many cases, we believe that our systems and processes yield enough additional value, to pay both the seller handsomely and the buyer sufficiently.”
Moving forward. Seever says Bulwark will structure future acquisitions similarly. “We are opposed to growing on loans or borrowed money,” he said. “We feel it makes an organization lazy. Our business process is strong enough to operate out of cash flow when acquiring these partners when they agree to a longer term relationship.”
The author can be reached at firstname.lastname@example.org.
As a trade magazine journalist, I’m naturally interested in public perceptions about a wide range of subjects, including consumer attitudes about the structural pest control industry. That’s why I was both intrigued and amused when a recent study by Public Policy Polling (PPP) indicated that the 112th Congress, which battled over a wide range of contentious issues during the past two years, was less popular than root canals, head lice, NFL replacement refs, the rock band Nickelback, colonoscopies, France, Genghis Khan, cockroaches, used-car salesmen and Brussels sprouts. Ouch!
Before I poke too much fun at our country’s elected representatives, however, the media doesn’t fare much better, according to a recent Gallup survey. Gallup reported that Americans’ distrust of the “Fourth Estate” hit an all-time high in 2012, with 60 percent saying they have little or no trust in the mass media to report the news fully, accurately and fairly. I feel your pain, John Boehner and Nancy Pelosi.
On a more positive note, according to the PPP survey, Congress did manage to beat out telemarketers (45% for Congress and 35% for the most annoying job in America), North Korea (61-26), the ebola virus (53-25), Lindsay Lohan (45-41), playground bullies (43-38), meth labs (60-21) and the Kardashians (49-36), sans Bruce Jenner, I presume.
“We all know Congress is unpopular,” said Dean Debnam, president of Public Policy Polling, Raleigh, N.C. “But the fact that voters like it even less than cockroaches, lice and Genghis Khan really shows how far its esteem has fallen with the American public over the last few weeks.”
You think? By the way, what’s wrong with Brussels sprouts?
The author is publisher of PCT magazine.