Roadmap to Profitability: 10 Tips for Enhancing Your Company's Bottom Line

Which costs most negatively impact a company’s profitability? Which can most positively affect it? How can you take your bottom line to the next level?

In addressing these and similar questions in interviews and a PCT e-mail survey of pest management business owners, presidents and other corporate officers, one theme came through time and again: It is the employees themselves who can most impact profitability — positively and negatively. The greatest cost is employee wages and benefits; the greatest improvements can be made through employee productivity; and, in general, field sales, service and management do not really understand profitability or the impact of their own day-to-day productivity.

On the plus side, however, the interviews and survey elicited ideas for improving individual profitability and generated tips for enhancing the company’s bottom line. From understanding and planning for profitability to marketing the value of your services, what follows are 10 tips for improving your profitability.

1. Understand and plan for profitability

Rick Rogers, vice president of Myers Pest & Termite Services, Euless, Texas, has conducted several presentations on industry finance. He explains that making a profit is a matter of first understanding what constitutes profit and second, planning for it. In this industry, Rogers said, "most of us don’t understand this. Most have no idea how to measure gross margin." Briefly stated, profit is what is left after expenses. (For more in-depth definitions and recommendations, see "The Circle of Profitability" on page 46.)

The third step toward profitability is the creation of a roadmap — a business plan detailing:

• Where am I/my company now?

• What am I trying to accomplish?/Where do I want to be?

• What steps do I need to take to get there?

2. Believe that profitability is good

Paradoxically, it can be those who are the most successful in achieving their strategic goals that are the most reticent to admit they are making a profit. "We should not apologize for profitability. Profits are what create opportunity," said Russ Ives, president, Rose Pest Solutions, Troy, Mich. "Profits provide opportunity for employees to improve their own position. The alternative is a declining spiral."

One of the key difficulties, as noted by survey respondents, is that few field managers, technicians or sales representatives really understand profitability, and company owners consider this lack of understanding to be one of the primary areas of need. For example, to the question, "What is the one thing you wish every employee understood about company finances?" survey respondents replied:

• "That we deserve to make a profit."

• "That the better we do as a whole, the more their living condition will improve."

• "That the more profitably a company operates, the more pay and benefits they get."

• "That it is the most important reason we are in business." (Visit www.pctonline.com for a related story "What do your managers wish you understood? … and other survey responses" for a complete review of profitability survey responses.)

"If everyone in the organization recognized that corporate profitability creates opportunity for them," Rogers said, "we’d have greater buy-in and greater opportunity for collective prosperity."

3. Share information

With such statements in mind, the third tip for profitability is to share information with employees so that they better understand the importance — and individual benefits — of profitability.

"Everyone can say I wish it were better this way or that," Ives said, citing benefits and 401(k)s as examples. "But the only way those are possible is if our company results in profits to support it." For this reason, Ives believes there are benefits in being open to employees about how the company is really doing and the effect each person has on its profitability. "I think a certain amount of transparency helps. If people have a sense of how a company is doing, if they feel management is being honest with them about those things, I think they are more likely to see their own role."

Even open companies will vary, however, on the extent of information provided, to whom and how. Some will hold open meetings, providing a breakdown of current financials for all employees; others will share details with managers, then allow them to pass on and discuss the information as is appropriate to each employee. Regardless of the precise amount of information a company is comfortable disclosing, all employees should at least understand what it costs the company to put them in the field on a daily basis. If this is not done, Rogers said, employees will often believe that if they generate $100, the company makes $100.

This assessment of the employees’ lack of understanding is supported by survey responses, in which:

• Less than 35 percent of respondents believe their technicians understand profitability or costs of doing business.

• Less than 60 percent believe their field managers understand both the profitability and costs involved in doing business.

• Almost 50 percent believe their sales representatives understand profitability, but only 44 percent believe they understand the costs of doing business.

4. Reward technician profitability

If technicians are able to perceive the personal advantages of company profit, they will generally be more motivated to do the things that contribute to this profitability, owners and managers agree. To bring profit to this personal level, many companies structure compensation to reward the proficiencies which most positively impact the bottom line. Clegg’s Termite and Pest Control, Durham, N.C., does this by compensating pest technicians on a productivity basis and termite technicians with hourly wages, said Clegg’s President Phil Clegg, as these methods best promote the quality aspects needed for each job.

If employees can see the advantage for themselves, Ives said, they are more motivated toward a sense of quality production. Rose includes productivity-based incentive programs as well as improvement rewards, and encourages technicians to share ideas with their supervisors. "If we just move this account, it will save me 15 minutes per day," a technician might recommend. Such a suggestion would not only save that technician time and increase his productivity, it could open a slot for a new account, providing additional compensation.

Many companies compensate employees with year-end bonuses, profit sharing or award programs, providing incentives for the field to maintain productive and profitable routes. As Clegg tells employees: "If we get it at the end of the year, you get it."

5. Reward field management profitability

Productivity incentives also are geared toward field managers in many of the respondents’ companies, but most also go a step further, sharing regular profit and loss statements with the managers and compensating or providing bonuses based on these results. Managers are expected to understand the costs of doing business in their areas of responsibility and manage these costs to budget. "Every month we sit down with each manager and go over all expenses they have to control," Rogers said. Managers then receive quarterly bonuses based on those results. When the company added this program to its management pay structure, Rogers said, "it (positively) changed everything."

6. Reroute regularly

"The longer it’s been since you rerouted, the less efficient it will be," Ives said. Routes should be reviewed at least once a year, and more often if affected by seasonal changes. Teamwork between the technician and supervisor becomes exceptionally important in these reviews, Ives added, as it is the technician who is most familiar with the demands, restrictions and best hours for each account, and the field manager who can integrate big-picture expertise. "It’s more than just geography," Ives said. "You generally cannot simply set up a route by putting dots on a GPS." As much as possible without impacting the client relationship, however, geography and drive time should be taken into consideration — less time spent driving between accounts means more time earning money, for both the technician and the company.

7. Be aware — Don’t expect what you don’t inspect.

Be aware of your technicians’ activity. Particularly in companies that do not regularly share information (Tip #3) or reroute regularly (#6), technicians may negatively impact profitability without realizing it. A technician will generally recognize that skipping a stop, having to reschedule or being disorganized takes extra time and effort, but he often does not realize the financial impact this has on the company. While some self-governance and independence is essential in this industry, it is also critical that supervisors know where technicians are and what they are doing during their day. Myers does not expect constant hands-on supervision of its technicians, but technicians are expected to check in with their service manager three times each day, Rogers said. If the technician is running behind, an account can be moved over to another technician who is in the area and has a bit of extra time that day. And with everyone checking in three times daily, the manager knows exactly which technicians are available to assist.

Clegg’s uses GPS technology to monitor the productivity of its technicians — and help reduce overtime and non-productive hours. "Labor has to be the key element (in profitability). It’s one of the most expensive things we’ve got," he said. By knowing where technicians are on their routes, managers can better track and control labor costs by both increasing productivity and reducing unnecessary overtime.

Be aware of the materials being used in each account. While the amounts and types will vary according to the needs, size and geography of each account, Ives said, material usage can signify a greater need. "By being attentive to what those costs are, you have the opportunity to evaluate who your better employees are, and who needs training to improve those percentages," Ives said.

8. Know your costs (Pennies add up to dollars)

Two things that are important for profitability, Rogers said, are knowing how much everything costs, then calculating how much revenue is needed per technician per day to bring in a profit. Pricing itself is not necessarily the key, he said, "but how do you know how to price if you don’t know how much it costs?"

Just like routing, costs should be analyzed on a regular basis. The rising price of gas continues to increase vehicle expenses and may make some geographical realignments more advantageous or necessitate price increases. Chemical costs also have increased and if a technician hasn’t been well trained in or is wasteful in mixing or applying, costs can rise even faster, Clegg said.

9. Reward safety

Safety is another area which Clegg emphasizes — and compensates. His company not only offers regular safe driving programs, it provides rewards to those who participate in them, and gives safety bonuses at year-end to those who had no vehicle accidents or worker’s compensation claims during the year. With the continual increases in costs of insurance, health care, worker’s compensation and auto claims, Clegg said, "You’ve got to get them to buy in to the idea of safe driving and accident costs."

10. Market your value — to retain and sell

Whether you operate separate sales and service forces or your service team also sells, the technician can market the company’s value and contribute to increased sales through the active seeking of additional opportunities within current accounts. By doing so, the technician actually benefits both the customer and his company — proactive observation and communication of pest or sanitation issues can mean prevention of a bigger problem down the road for the customer, and the added services provide added income for both the technician and the company. "I don’t care if the technician sells it," Rogers said, "but I want him to be generating leads — looking for opportunities, extra things that we can provide. That’s where profit really comes in."

Because pest management is a retention business, adding value to current customers also means adding value to your bottom line. "It costs an awful lot more to get a new client than to retain one you have," Ives said. When you consider sales commission, materials and getting pest problems under control, many new accounts do not generate a profit until at least the second year of service, he explained. "A little bit of extra effort to salvage an account is well worth it (compared) to the cost of replacing (the business)."

CONCLUSION. Know where your company is headed. Plan how you will get there. Inspire employees to understand the goals, buy into the plan and fulfill their individual roles in profitability. While there are no guarantees of success, there is something to be said for integrating strategies which have led other industry businesses to profitability — successfully enhancing the bottom line for companies across the industry.

The author is a frequent contributor to PCT magazine. She can be reached at llupo@giemedia.com.