Fitting the Pieces Together: A Guide to Office Operations for the Liquid Waste, Portable Toilet & Septic Pumping Industries

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When The Competition Hits - "Don't Panic"

 

When competition comes to your business, many companies’ response is not necessarily in their best interest. Usually, you find out about the competition when one of your customers switches from your service to your new competition. Your stomach tightens and images of wholesale price reductions, lost profit and longer hours are a few of the things that could immediately come to mind.

 

These images are not necessary real. Everyone must pay the rent, taxes and put fuel in the trucks, including your competition. To enter into a price war will only hurt everyone, including the customer. If you cannot make a fair return on your investment and time, eventually the service to the customer will degrade and he/she will also suffer. Your customer usually has other work that generates income, and forcing the last nickel out of their portable toilet services is not necessarily their top priority. Your own priority is to get a handle on the situation so you can make informed decisions on how to compete without sinking the boat. We will look at a few of the areas that, if you invest some time and effort, you can position your company well in competitive situations. The areas we will look at include:

 

 

Cost savings -Know your Costs

Since it is very difficult to know the financial status of your competition, it is a good idea to know your own financial condition. If you understand where you are spending your money, it will help you understand what changes you can make to keep your company profitable. Before going out and creating a lot of work, it is best to look at existing sources of financial information. Some ready sources are:

 

 

Add up all your fixed expenses, moneys you will have to spend even if you do not service a single unit or do a single delivery or pickup. This is your fixed cost of doing business. To get your average monthly costs, you divide by 12. You can divide this number by the number of units to get you fixed expenses per unit. Since you are rarely "sold out of units", it is a good idea to use the average number of units being billed. If you have 600 units and on the average have 400 rented to contract services and specials then you need to divide you expenses by 400 to get a fixed cost per unit per month.

 

Now do the same thing for your direct expenses associated with servicing, pickup and delivering units. This gives you your direct expense ratio for running your business. The combination of these to numbers is your cost to supply a unit to a customer and keep it clean "on the average". If you have your total direct labor hours or miles driven, you can get similar ratios for each mile or hour maintaining your units. You can combine these rations by using the fixed cost per unit and the direct cost based upon labor hours or miles. This combined ratio can be used to see which locations are generating profit and, more important, which areas because of your location give you have a "competitive cost advantage over your competition" who may have to travel farther. Most important is that you can look at each item that was added up into your costs and spend some time seeing if these expenses can be reduced. Some big savings can be found by:

 

Treat competition as an opportunity to review your cost structure to keep your profit margins up. It is tempting to spend money so you have a feeling that you are doing something to combat the competition. Think cost savings and cost reduction first and spending last.

 

Minimize Direct Costs

Another tool is to use your extra units in place of twice a week service to reduce your costs and maintain a competitive position. A units costs you about $5.00 per month. A second service requires a truck, driver and office staff to coordinate and runs you about $40.00-$60.00 per hour. If this adds 30 minutes per week for 4.3 weeks per month you end up spending $215.00 per month in support of the extra service vs. $5.00 for the second unit.

 

Service routing accounts for 60+% of your expenses of doing business. A 10% improvement drives 6% to your bottom line. Review your service routes to see if by rearranging service stops you can increase the number of units serviced within an 8 hour service route.

 

Start a program of trouble free running time for your trucks. It is a big expense category and by offering bonus, points, days off, prizes to drivers with lowest or zero downtime due to vehicle problems, you save in two big ways: 1) lower costs because trucks are up and running 2) higher driver productivity.

 

Offer Special Billing Arrangements

Cash flow is always a challenge in the building industry. By changing your billing arrangement, it could be a better way of doing business. Some alternatives are:

 

Focused Marketing Efforts

If the competition is taking a piece of your pie, expand the pie, i.e., expand your market share. Many companies depend upon word of mouth, repeat customers and the yellow pages to keep them in customers. Some other alternatives to improve your market share are focused marketing efforts. This is advertising at specific groups where you have a competitive advantage over you competition:

 

 

If you expand the market, you win on all counts. If you try to get business through bumping and price reductions, it only means you are feeding off each other’s customers, which eventually will lead to lower profit.

 

Special Contracts

Eventually, you will be faced with a customer who either starts shopping you or is offered a "deal". You can work this issue by offering "Special Contracts" to keep the customer from shopping you. Some benefits you can give your customers are:

 

 

What the customer can give your company in exchange is:

 

 

 

You can see that you have options that go beyond "lowering your price" when competition enters your market. When it comes down to it, it is the profit, not the price that makes the difference.