Pest control companies have been an attractive business model for several years due in part to high profits and growth predictions. It is no surprise that there are more individuals looking to buy into pest control businesses than to start their own. My brother-in-law fits into this category. He has been researching pest control companies for the past six months.
The number one reason why individuals are looking to purchase rather than start a pest control company is due to licensing requirements. Licensing requirements in many states have created a seller’s market. As such, now is the time to look into exiting.
Within the United States, revenue is around $14.2 billion with profit floating around $1.5 billion. There are currently 24,966 pest control companies operating in the United States. Profit margins range from 7.0% to 20.0% depending on how successful the business is. Success is a result of several factors, especially when there are roughly 25,000 companies competing in this space. Competition has been one of the primary drivers for the slowdown in projected annualized growth from 2018 to 2023 of 1.7%. Over the five years to 2018, revenue increased at an annualized rate of 2.8%. Want a copy of this industry report, send me an email.
If you have been thinking about selling your pest control company, the first step is to understand the value of your business.
Market Multiples for Pest Control:
- 80.0 – 90.0% of annual sales, includes inventory
- 3.0 – 4.5x Sellers Discretionary Earnings, includes inventory
- 4.0 – 5.5x EBITDA
There are countless more factors to take into consideration, but this will provide you the basis of what your company is worth. If you are searching for a more extensive valuation, reach out to a valuation professional like myself.
With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of your pest control business. I will touch on 3 ways in which you can increase the value of your business.
Residential and commercial pest control customers sign a one-year contract. As a result, a significant share of revenue is driven by repeat customers. For a potentially buyer, repeat customers and recurring revenue equate to stabilized cash flow and a low-risk investment.
Competition within the industry is based mainly on price, quality of service and customer loyalty. Repeat customers are derived through the quality of service. Loyalty is developed overtime and results in favorable reviews through word-of-mouth and online reviews. In order to create loyalty, you need customers. The average percentage of revenue devoted to marketing is 4.7%.
Most marketing spend is online. Marketing campaigns result in new leads and customers if your company has and maintains a positive web presence. A robust website with call to action, blog service descriptions and contact information provides the basis for your web presence.
Lastly, understand how to market your range of services in a bundle package. Several of the companies offer landscaping and pest extermination services maintain a higher profit margin and a competitive edge.
There are many service offerings within the pest control industry. By adding one or two more service offerings, you could increase cash flow and expand your customer base. One of the fastest growing niche service offerings is bedbug exterminations. Bedbug exterminations for commercial buildings grew by 4.4% in 2016. Bedbug removal is costly for the average consumer, so targeting commercial would result in additional revenue.
In addition to bedbugs, providing pest control services to the commercial side, will always be in strong demand. For example, restaurants and hotels are regulated by health and safety codes. You can learn more by emailing me and receiving a 2018 industry report.
Understand the value of your pest control business is important, regardless of any near future transactions. By implementing some of the points discussed above, you can increase the value of your business.