Are you monitoring these twelve important key performance indicators (KPIs)?
The pest control industry operates on universal KPIs applicable to any sized enterprise
Our industry has varying-sized players ranging from one-person businesses to multi-country multi-billion-dollar companies. However, whatever the size of a pest control enterprise, it operates in the same industry and with the same business parameters.
Key Performance Indicators (KPIs) are the vital parameters that highlight the health of a business.
They are independent of age and size of business, nature of services or products, and other variables.
As every commercial enterprise aims to generate a surplus or profit, each PCO must focus on our industry’s universal KPIs that we share in today’s PCO Mentor.
We have divided the following KPIs into four categories, and they apply to every PCO, as we have illustrated in the graphic and described in this issue.
Leads: Every sale starts with a lead. Leads are the trigger that leads to other steps and ultimately to a sale. Leads can originate from the company website, employees, customers, and even vendors. The number of leads is always much higher than the orders they generate. Therefore, it is very important to track each lead to its conclusion, either to a successful or lost order. A healthy business generates easily and cheaply through its reputation and word-of-mouth publicity.
Quotations: PMPs may refer to quotes as offers, and these follow leads. Though it is customary for the pest control industry to inspect premises before a quote, the COVID-19 pandemic has shown the possibility of using customer data to generate quotes without physical assessments. If the insurance industry can switch to underwriting policies without paperwork or in-person meeting, our industry can evolve to making offers without elaborate checks. In addition, we can ask customers for pictures and videos to help us determine the pest issues at their premises.
Orders: Leads are successful only as orders. The higher the lead conversion to orders, the better the enterprise. Apart from the number of leads that become orders, PCOs must track the value of quotes as a % of orders. Getting orders close to the value quoted is a sign of success. In contrast, wide divergence in quotation to order indicates inflated quotes or wrong choice of customers, or possibly low or negative margin orders.
Pending renewals: The customer’s renewal cycles vary, but a two-month advance process leaves room for ensuring the process is successful. Renewals become difficult after the expiry of the order, and such delayed renewals create service and accounting challenges. With the advent of messaging apps and online landing pages, renewals, like orders, are now a smooth and quick possibility not relying on paper or courier agencies. Ideally, the pending renewals must be zero at the end of a month.
Completed renewals: Though there can be a loss of customers at renewal, the higher the renewal percent, the better a PCOs commercial success. Acquiring and servicing a new customer is often higher than such costs concerning an old customer. Successful PCOs boast of high renewal percentages in the eighties and nineties.
Lost renewals: A PCO growing feebly likely has a poor renewal rate. Loss at renewals could be from many factors, including not following up with the customer, poor service quality, unreasonable hike in service charges, or the customer switching to a better service provider. I use the analogy of a leaky bucket to customer loss – if we keep adding water (new customers) into a bucket with leaks (customer loss), the bucket will never fill up (or the business doesn’t grow). Likewise, a business losing customers at renewal won’t grow fast enough or significantly.
Scheduled services: The scheduled services at the start of the month and each day indicate the likely revenue. As the month progresses, the cancellation and completion of services reduce the scheduled services. Therefore, a PCO’s goal must be to maximize the completion of the scheduled services.
Canceled services: Cancelled services that customers don’t avail of or the PCO didn’t provide are a revenue loss. Unless this category of services is in the single digits, generating revenue each month becomes a challenge despite the high value of scheduled services.
Completed services: As completed pest control services are our industry’s currency, every PCO focuses on maximizing completed services. Routing, re-routing, flexible planning, and a company-wide focus on increasing service completion result in this category being ninety percent or more of the scheduled services.
Collections: Classical accounts consider only collections as sales and not the value of orders or even invoicing. As our industry does have a challenge of timely collection, the amount customers pay a PCO daily is very important. With the easy availability of electronic transfers and software to reconcile payments, it is now possible to track the receivables continually from customers. One of the most common reasons for the failure of Indian PCOs is collection laxity. New enterprises focus excessively on getting orders and providing services, neglecting collection, and eventually closing when cash flows dry up.
Operating margin: The cost of materials and technicians in providing service determines the operating margin, and it must be around 50%. Poor-priced contracts quickly expose the low operating margin as a PCO can’t hide the expense they incur in providing service. You can easily estimate the basic profitability of any PCO just by dividing their invoicing by the number of technicians. When the technician cost exceeds 30-33% of the invoicing value, generating a good operating margin becomes difficult.
Net margin: The goal of every business enterprise is to generate a surplus or profit after considering all costs. Investors and new-age investment bankers mask unprofitability by relying on measures like Earnings before interest, depreciation, taxation, and amortization (EBITDA). However, our industry has a low need for capital, and we must measure net profit to determine the commercial success of a PCO. The net margin determines the profit after considering overhead and all other costs not covered by the operating costs. Even a single-digit profit margin % is better than a loss. Unfortunately, PCOs will be unable to generate double-digit % margins in the current business environment as they experienced in India some decades ago.
Driving with a dashboard: The PCO KPIs are the dashboard parameters for the company’s owner or leader to monitor and take action to keep the enterprise on track. ERP software easily generates these dashboards for smartphone and computer screens by continually pooling employees’ data. The entrepreneurs operating their business without tracking KPIs are driving without using a dashboard, just looking at what is visible outside their vehicle windscreen.