July 14, 2021
Among the many ongoing debates in pest control, one that comes up often is whether or not operators should require service agreements.
At first glance, it’s easy to believe a month-to-month arrangement is more customer-friendly than asking people to sign a service agreement. This method provides a simple, no-hassle way to do business and can be a great way to separate yourself from competitors. But the more you think about it, the more you may come to realize that perhaps there’s some wisdom in the pro-agreement camp after all.
Service agreements do more than just protect your bottom line. They offer a transparent way to lay your cards on the table and spell out exactly what you and your customers can expect from the relationship. They reveal, loud and clear, the pricing, frequency of service, which pests are covered, and more. They also set well-defined expectations that can protect both you and your customers alike in case anything goes wrong. Perhaps most important of all, they can have a major impact on your business’ cash flow, sustainability, and overall growth potential.
Leading your business to its next growth phase takes capital—and plenty of it. But unless you have a substantial war chest of cash on hand, you’re probably going to need to ask a bank or some sort of financial institution for a loan at some point. Securing funding this way really comes into play when you’re looking to execute a leveraged buyout—where you acquire a competing pest control company using borrowed money. This is one of the quickest ways to grow, but you’ll have to move quickly before someone else steps in.
Securing the loan is next to impossible without showing proof that you have some form of recurring revenue. You may have all the integrity in the world, but they aren’t just going to take your word for it that you have thousands of returning customers—they’re going to want to see some proof. Having a stack of signed service agreements at the ready can certainly open those doors for you.
If you’re looking to sell your business at some point, service agreement-based recurring revenues can go a long way toward improving your valuation. Even if you’re not currently looking to cash out any time soon, you never know when an opportunity will come knocking on your door. Shrewd business owners know that it’s better to be prepared if and when the time comes. And just because it’s not on your agenda today doesn’t mean that will always be the case.
As we enter a post-COVID economy, surely the large, nationally recognized pest control companies and regional players will once again be looking to scoop up profitable companies to help them achieve their growth goals—not to mention the international firms looking to expand into the U.S. market. One of the key items they’ll want to see is recurring revenue in the form of service agreements.
Benefits to Your Customers
In addition to all the previously mentioned benefits, service agreements can also help with your forecasting and budget planning. That may not seem like a big deal. But anyone who’s struggled with heavy workloads or cash flow issues can tell you how important it is to have a general idea of where you’ll be over the next few months.
Sadly, many businesses shut down simply because they can’t accurately predict their capacity or revenue in the months ahead. You may think you’re doing your customers a favor by not utilizing agreements, but it doesn’t help anyone if your team is overworked or you can’t pay your bills. If your main concern is that you don’t want to hassle your customers, simply make it easy for them to cancel the agreement—perhaps by implementing a “no questions asked” type of policy or something to that effect.
What Should Your Pest Control Agreements Address?
Here’s a quick overview of some of the items a standard service agreement should include and why.
Scope of Work: Clearly identifying what your service does and does not cover can save some misunderstandings down the road. Flying insects, termites, second-story wasps’ nests? What about carpenter ants or grubs? Often, customers have unrealistic expectations about what is considered a covered pest. Make sure both you and the customer are on the same page about the difference between controlling pests and never seeing an insect on the property.
Re-treats: Does your company offer free re-treats for stubborn issues? If so, how often? Are there any stipulations—like if the customer has trash lying around the floor and unsealed food in the kitchen, for example? Setting the proper expectations up front lets your customer know you’re committed to solving issues while also helping them understand that pest control is a cooperative effort that takes time in order to be effective.
Agreement Length: How long is the agreement in effect? Does it automatically renew when the time is up, or is it set to expire at the conclusion? Including this key information can help eliminate uncertainty for your customers and—as mentioned earlier—can help with your forecasting.
Cancellation Terms: Sometimes, despite the best intentions, things simply don’t work out. What happens if a customer wants to cancel services? How about if they decide to relocate to a different area—one that may be outside your service area? Things inevitably happen, and when they do, it’s important to have a protocol in place to handle them. If you have a cancellation fee, knowing that in advance can take the sting off the bad news and keep customers from being blindsided.
State Regulations: As you know, pest control is regulated at the state level. So, it’s vital to check with your state about any specific terms or language that needs to be included. The fines for neglecting these items can be just as pesky as those pests you go to battle with every day and can severely hurt your business.
While it’s easy to struggle with the idea of pushing agreements on customers, when you evaluate all the facts, you can see they actually benefit everyone involved. At the end of the day, pest control operators are all trying to provide a valuable service to people who need it—and service agreements help you do it in a fiscally responsible way.