Pest Control Industry Cost Study

Profitability:

The income statement is one of the major financial statements used by accountants, financial institutions and business owners to determine entity profitability.

The income statement is sometimes referred to as the profit and loss statement (P&L), statement of operations, or statement of income.

The income statement is important because it shows the profitability of a company during the time interval specified in its heading.

In the tables that follow, the medians of each market segment were taken and converted into percentages for presentation. Of the 157 companies that reported there were none that only reported working in one segment. Each participant provided 2 or more services with 82% of the respondents reporting at least 4 of the services.

Description  Commercial  Residential  Wood Destroying  Bed Bug  Others  Total
%of Income %of Income %of Income %of Income %of Income %of Income
Revenues 100.00% 100.0% 100.00% 100.00% 100.00% 100.00%
Direct Costs
Technician Labor 20.70% 21.7% 17.37% 22.30% 18.92% 20.20%
Payroll Taxes 1.98% 2.0% 1.74% 2.39% 2.22% 2.06%
Health Insurance Technicians 1.26% 1.58% 1.51% 2.61% 0.57% 1.50%
Employee Benefits 0.70% 0.7% 0.75% 0.78% 0.76% 0.74%
Subcontract Costs 2.00% 2.0% 1.75% 2.47% 1.95% 2.04%
Total Direct Payroll Cost 26.64% 27.98% 23.12% 30.55% 24.42% 26.54%
Vehicle Leasing 3.60% 3.60% 3.60% 3.60% 1.10% 3.11%
Vehicle Fuel 2.24% 2.13% 1.93% 2.70% 2.83% 2.37%
Vehicle Repair and Maint. 1.35% 1.30% 1.21% 1.80% 1.06% 1.34%
Vehicle Insurance 0.65% 1.0% 1.08% 1.21% 1.06% 0.99%
Total Auto Expense 7.84% 8.03% 7.82% 9.31% 6.05% 7.81%
Materials 8.00% 6.3% 15.40% 2.00% 10.72% 8.13%
Supplies – Direct 0.58% 0.7% 0.39% 0.99% 0.24% 0.57%
Materials – Other 0.57% 0.31% 0.34% 0.48% 0.43% 0.44%
Equipment Expense 0.08% 0.10% 0.06% 1.69% 0.08% 0.40%
Total Material Cost 9.23% 7.41% 16.19% 5.16% 11.47% 9.54%
Liability Insurance 1.10% 1.10% 1.44% 1.99% 1.73% 1.47%
Workers Comp Insurance 1.66% 1.28% 0.79% 1.76% 0.56% 1.20%
Other Direct Costs 0.75% 0.70% 0.62% 1.11% 0.54% 0.75%
Total Other Costs 3.51% 3.08% 2.85% 4.86% 2.83% 3.42%
Total Direct Costs Calculated 47.22% 46.50% 49.98% 49.88% 44.77% 47.31%
           
Gross Profit 52.78% 53.50% 50.02% 50.12% 55.23% 52.69%
Selling & Marketing:
Selling Expense
Wages – Sales 2.21%
Commissions – Sales 0.87%
Payroll Taxes – Sales 0.31%
Health Insurance – Sales 0.18%
Total Selling Expense 3.57%
Marketing Expense
Marketing – Traditional 1.70%
Marketing – Digital 3.50%
Marketing – Other 1.10%
Total Marketing Expense 6.30%
Total Selling & Marketing Expense 9.87%
 
General & Admin:
Officer Wages 5.00%
Office Wages 7.00%
Management Wages 4.00%
G&A Empl Benefits – Health 0.30%
G&A – Payroll Tax 1.22%
Total General & Admin Wages 17.52%
Office Rent 2.00%
Computer Expense 1.80%
Office Supplies 0.50%
Office Printing 0.20%
Office Postage 0.36%
Bank Service Charge 0.51%
Credit Card Charges 1.34%
Professional fees – Accounting/ Legal 0.94%
Recruiting Expenses 0.05%
Payroll Preparation Fee 0.13%
Dues & Subscriptions 0.30%
Donations 0.29%
Travel & Entertainment
Meals & Entertainment 0.27%
Travel 0.15%
Total Travel & Entertainment 0.42%
Utilities 0.34%
Rubbish Removal 0.02%
Telephone Expense 0.16%
Wireless Communications 0.57%
Depreciation 2.43%
Other General & Admin 2.73%
Total General & Admin 32.61%
   
Total Expense 42.48%
   
Operating Profit 10.21%

While the financial performance varied from company to company, the tables above depict the median company results for each category. These results are in line with the percentages we see for the various service lines in our portfolio of clients to whom we provide accounting services.

Profitability Ratios:

Profitability ratios reflect the overall effect of a firm’s managerial efficiency:

These are ratios that are indicators of a firm’s breakeven point and the amount of money that is made once breakeven is achieved given a certain level of sales.

They reflect the results of decisions that management has made in order to maximize profitability.

They are a class of financial metrics that are used to assess a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.

Gross Profit%

This ratio shows us how efficient a firm is at providing services before paying sales, marketing and fixed costs. In my opinion Gross Profit is the single most important financial ratio.

Operating Expense %

If Operating expenses exceed gross margin you will operate at a loss.  If they are truly fixed, the fixed cost percentage will fall as a firm grows.

Profit Margin

This is what you work for – net income

EBITDA

Earnings before interest taxes depreciation and amortization. This is cash flow!

Return on Assets

This is one that, for comparison purposes, works for companies that employ a high value of assets. From my prospective this ratio is better suited to looking at your portfolio of investments as opposed to fixed assets.  Our reasoning is that our biggest asset in the service business is our people.  With the exception of construction, most firms don’t employ high values of assets but rather they do use a high value of direct labor.

Return on Equity

This ratio answers the question: What is the return on that piece of the balance sheet called equity? Again, it is great to do comparisons with other firms, but equity is such loose concept in a small, privately held businesses.

Profitability                                                                    Formula

Gross Profit %                                                  GP / Revenue

Operating Expense %                                      Operating Expenses / Revenue

Profit Margin                                                     Net Income / Revenue

EBITDA                                                             Earnings before Interest, Taxes,                                                                                                            Depreciation / Amortization

Return on Assets                                              Net Income / Total Assets

Return on Equity                                              Net Income / Total Equity

Description Total Company Commercial Residential Wood Destroying Bed Bug Others
Gross Profit 52.69% 52.78% 53.50% 50.02% 50.12% 55.23%
Description Total Company
Operating Expense 42.48%
Profit Margin 10.21%
EBITDA 13.74%
Return on Assets 54.00%
Return on Equity 2.10%

General & Administrative Expenses

Selling Expense 4%
Marketing Expense 6%
General & Admin Wages 17%
Other General Admin Exp 15%

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