Valuing Your Pest Control Business
Pest control companies have been an attractive business model for several years. This is 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. For instance, my brother-in-law fits into this category. He has been researching pest control companies for the past six months.
Firstly, the number one reason why individuals are looking to purchase rather than start a pest control company is due to licensing requirements. In many states, licensing requirements have created a seller’s market. As such, now is the time to look into exiting.
Now, let’s go over some numbers. 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. In addition, 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%.
Have you been thinking of selling your pest control company? If so, the first step is to understand the value of your business. Peak Business Valuation, business appraiser, would love to work with you and above all, answer any questions you might have. We value pest control businesses across the nation. For more information, schedule a free consultation below.
Market Multiples for Pest Control
Below are average market multiples for pest control companies. A valuation expert will use valuation multiples for pest control when determining the fair market value of a pest control business. Keep in mind the below averages are only a guide.
- 80.0 – 90.0% of annual sales, includes inventory
- 3.0 – 4.5x Sellers Discretionary Earnings, includes inventory
- 4.0 – 5.5x EBITDA
**Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
Success Factors for a Pest Control Business
With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of your pest control business. Going forward, I will touch on 3 ways in which you can increase the value of your business. For additional ideas, see Value Drivers for a Pest Control Company, How to Value a Pest Control Company, and Valuation Multiples for a Pest Control Business. There are countless factors to take into consideration. However, this will provide you with the basis of what your company is worth. If you are searching for a more extensive business valuation for pest control business, schedule your free consultation!
Annual Contracts
To begin, 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 potential buyer, repeat customers and recurring revenue equate to stabilized cash flow and a low-risk investment. Creating recurring revenue is one of the best ways to increase the value of a pest control company.
Marketing
Next, competition within the industry is based mainly on price, quality of service, and customer loyalty. However, repeat customers are derived through the quality of service. Loyalty is developed over time and results in favorable reviews through word-of-mouth and online reviews. In order to create loyalty, you need customers. A great way to find customers is through marketing techniques. Similarly, the average percentage of revenue devoted to marketing is 4.7%. For more information see The Value of Customer Loyalty.
Most marketing is online. Marketing campaigns result in new leads and customers if your company has and maintains a positive web presence. A robust website with a 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. In regards to pest control, several companies offer landscaping and pest extermination services to maintain a higher profit margin and a competitive edge.
Service Offering
Lastly, there are many service offerings within the pest control industry. By adding one or two more service offerings, you can increase cash flow and expand your customer base. In addition, one of the fastest-growing niche service offerings is bedbug extermination. For instance, bedbug exterminations for commercial buildings grew by 4.4% in 2016. Bedbug removal is costly for the average consumer. Therefore, targeting commercial businesses 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.
Summary
In conclusion, understanding 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 pest control business.
We at Peak Business Valuation, business appraiser, work with many pest control businesses. We are happy to address any questions that you may have about valuing a pest control company. Feel free to reach out by scheduling a free consultation.
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