Power Sweeping Competition:
Friend or Foe?
Take time to evaluate a few key questions.
by Gale Holsman, with Carol Ross
Gale Holsman, Jr. is President of American Sweeping, Inc. Headquartered in Kansas City, Missouri, his company sweeps in Missouri, Kansas and Illinois. During the past decade, Holsman has provided consulting services to sweeping contractors throughout the US, and has conducted seminars on the topic of sweeping in such venues as the National Pavement Exposition. We asked him to tell us what steps he recommends sweeping contractors should take to successfully develop and maintain their businesses.
In order to survive as a sweeping contractor in today's highly competitive market, there are several questions you need to consider. As in any business venture, taking time to evaluate a few key questions will provide a clearer picture of the direction to take to maximize your success.
The first question is: "Who is the competition?" This may sound insignificant, but many contractors don't realize who their biggest competitors are - and it's not necessarily the other sweeping companies in town. I recognize three categories of competition: in-house, competing sweeper companies, and others. Most people get hung up on the other contractors in town. The fact is, they're not really your tough competition. On the contrary, the guy who's doing what I'm doing is the easiest competition to contend with. Much more difficult are the retirees, the part-timers, and those handling sweeping in-house. With them, you have to know how to sell prospects on the benefits of spending the dollars necessary to bring in a professional sweeper operator, or on the advantages of not handling sweeping in-house.
The most challenging competitors are the ones you don't really know about. Prime examples are the retired people who are sweeping parking lots with one sweeper. Typically, they have no insurance and no support group to enable them to keep an account in good shape. However, once I become aware that they're the competitor, it's not that difficult to show prospects the many ways our professionally organized sweeping company offers better options.
Gale Holsman, president, in white teeshirt sitting front left. Clockwise from Gale's right are Vince Kearney, in-house CPA; Joe McCoy, general manager; Steve Davey, special crew manager; Todd Holsman, marketing manager; Steve Gilbreath, shop foreman; Steve Galler, construction manager; and Joyce Urdang, office manager.
Another important question contractors need to ask themselves is: "Should I compete with the competition?" In most cases, of course you should. But how you compete is the key ingredient. I ask myself, "Why would someone do business with American Sweeping rather than with my competitors?" The answer is where I build my case. That's also where you, as a company, need to set your sights in order to compete as the very best sweeping company possible.
Think of the various aspects of your company - your guidelines for management, equipment, communication, advertising, follow-up, account retention and everything else you do in your business - as creating a circle. Your job is to keep the circle tightly closed. There will always be gaps, but by running your company well, you can work to minimize them. Some gaps include machine breakdowns, lack of good employees or poor communications. In my case, I've always felt that if I could get more good people, I could probably be six times as big as I am today. Whatever the gaps are in your company's circle, it's the owner's job to keep on top of them. By doing so, you'll remain in a position to sell benefits to your customers, and that's the way to keep out of the low pricing game.
The next question to consider is: "What about pricing?" There are three basic ways to beat the competition in the pricing game: by offering more benefits, by giving false promises, or by offering lower prices. Benefits are positive, false promises are negative, and your ability to offer artificially low prices depends on how much money you have in the bank. However, in the long run, being a 'low price leader' will put you out of business.
One of the best ways to stay price competitive and still maintain a normal profit margin is to employ good scheduling and routing techniques. Larger accounts and closer stops can give you the ability to sweep for less than if you're running ten miles between servicing each of your accounts.
On a number of occasions, I've been confronted with competitors who charged low prices for awhile and then raised them. As a result, I've gotten back some of the same Wal*Mart accounts five times in the last fifteen years. Typically, a competitor will tell Wal*Mart, "Give me a try. I'm going to give you a really good price. If you like me and I do a good job, I'll raise your price later on." Invariably, I'll get these accounts back, because none of the companies that employ this tactic can continue to make good on their promises. Sometimes they quit showing up on schedule, or don't do a good job because they aren't getting enough money to do so. When you don't have the profit margin you need, you can't afford the other things you need, such as well-maintained equipment and the expensive insurance coverage.
Insurance is getting expensive because of the losses in our industry. There are a number of factors that have caused an increase over just the last three or four years. For example, someone recently fell in a parking lot we handle, three days after we'd been there. Their claim states that a rock they fell on is the reason for their broken knee. I've had a dozen claims of that type in the last two years. Without insurance, I can't do business. You must have insurance and pay taxes to be in business today. Because of the potential for huge liability claims, if you don't have the required insurance you'll be out of business before too long.
Yet, it's still very difficult to compete with someone who doesn't have insurance. It puts me at a great disadvantage. Customers have to take responsibility for only hiring sweeping companies that meet all the requirements. In my experience, with some education they'll do so. When you're competing with unethical companies, it's up to you to educate your prospects to the realities of what can happen if they use their services.
Another question to ask yourself is: "What is my plan?" To compete effectively, you must have one. And that plan has to consist of where you're going and how you're going to get there. If you're really savvy, you'll know how long it's going to take you to arrive. In order to do all that, you have to keep on top of what your competition is doing. At the same time, you need to develop good information gathering and flow within your own company. That's the only way you'll be able to know what you can and can't afford to do in any given competitive situation. How competitive you can become for a particular account always depends upon factors such as how your routes are laid out, what your wage costs are, what your combined overhead is, and what your other expense items are. When you have ongoing knowledge of these items, you know how far you can go in your pricing strategy for a given account. Before any truly effective business decisions can be made, however, you have to know what your guidelines are, and have a clear understanding of how to read and understand your Profit and Loss Statement.
At national seminars, I've been amazed to find so many contractors who didn't even know what 'P&L' stood for. Of course, this refers to your Profit and Loss Statement. Equally unfortunate were the contractors who were interested in just one figure - the one showing whether they had made or lost money in that particular month. For those with little planning or grasp of long-run costs, the answer often determined whether or not they were going to be in business the next month. They didn't even know how to tell if they were going to be in business in a year at their current rates.
A very important factor in whether or not a profit is being made is routing. In my company, we do complete route audits every six weeks. These tell us what we're making per sweep and per account. Whatever your company's size, you need to take the necessary steps to keep track of the amount of money you're generating from each customer on every route. That's the only way to bid effectively, or to give accurate price estimates to your customers and prospects.
When I talk about route audits, I'm not just talking to large companies. No matter what your size, you need to know what pricing and service guidelines to work within. You must know your costs and your overall profit margin.
For many, this latter figure is completely elusive. When I ask people, they'll tell me what they're making per sweeper, whether that's $20 an hour or $100 an hour. All too often, they can't tell me exactly what that means to their bottom line - how much money they are making out of that amount. They don't have a handle on how much is coming back to them, let alone the return on the substantial time and money they've invested. In many cases, especially where low pricing is the strategy for getting customers, the amount is simply not enough. For example, in 1989, there were fourteen sweeping companies in Kansas City. Now, ten years later, there are just five of us left. As a result, they'll no longer be reading this magazine!
Let's discuss what to do when a competitor comes in with a lower price quote. Should you agree to cut your current prices if they come in 5% lower? What if they quote 50% lower? In both cases, the answer is 'NO' and the reasoning is simple. If you reduce your current price by whatever the difference is, your customers are going to think you've been overcharging them for however long you've had that account. If you can afford to lower your price now, why couldn't - and didn't - you do it before? When you meet lowball bids the end result is that you lose credibility.
The best way to combat these situations without cutting your prices is by changing your level of service. There's always an out. If someone has to consider a price reduction to meet certain budget guidelines, or because of ramifications that your competitors brought in the door, here's what to do: Instead of cutting your price for the same services, you should negotiate a change in your level of services. Offer a different way of doing the sweeping, or suggest running a different schedule. Alternatively, you might quit cleaning the back of the center or something of that nature, to allow justification for changing the current arrangement. However, keep in mind that the key to this whole issue is to focus more on selling benefits than on the price you're charging. From a psychological point of view, as long as you change the deal you have with the customer, whatever modifications you make in the cost is not seen as a 'cut' in prices - even if that's what you do. This is an important strategy to understand.
This brings us to a discussion of adding services. When you compete for customers, the level of service you offer means everything. What is your company's definition of 'full service?' Do you have one? For example, if we take a Schwarze S-series and sweep a parking lot, that's one service. If the operator gets out of the cab and blows the sidewalk off (which is pretty standard), that's another service. If we're doing the back of the building, that's another service, and another if we're dumping trash cans. If we're asked to powerwash bubble gum off the entryway, that's another service.
That's why, when you are competing for accounts, you need to make sure you're selling the many benefits of using your company. The best way to do this is to truly sell your customers and prospects on the services they're requiring. Always be sure you don't promise things you can't afford to do, by making sure you stay within your pricing guidelines per service. This is a very key point. By defining each activity as a separate service, you gain more pricing flexibility, too. The net result is that you gain more options, and options are everything.
In some parts of the country, seasonal weather conditions are another consideration. In the Midwest, our busiest season is March, April and May, because of the winter sand removal. After a relative lull during July, August, and September, fall is here and we have leaves to deal with. We charge extra for leaf removal because it takes time, and time is money. We also have to pay dumping fees. We can't be expected to go out for free and remove all the excess debris that accumulates when the seasons change. One of the reasons companies go broke in this business is because they don't adjust seasonally. You must change your pricing to fit the seasonal activity in your geographical area. At the same time, you need to change the way you sell benefits, in order to meet the current needs of your prospects and customers. The bottom line to success is benefits. If we do nothing else, that's what we all have to preach. Benefits, benefits, benefits.
Here's another question to consider: "Is competition always bad?" Competition makes us all work harder and smarter, and I like that. My competitors also open up doors I haven't been able to open for myself. If another sweeping contractor is hitting on malls that are running their own sweeper, they'll convince some of them to go out to bid and I may be able to slide in the door. In that instance, my competitors are helping to promote the value of using professional sweeping services.
Another key thing to be careful of is your ego. Don't let it operate your purse strings. When I got into the business, I was only 26 years old. I thought I was going to sweep everything! As soon as I figured out that wasn't possible, I started making money. Your ego is your biggest enemy when it comes to competition. You're better off to grow slowly than to take on too much.
Decide which area you have a competitive advantage in and sell that first. Here, we have a sales and marketing meeting every Monday morning to go over where we're going and how we're going to get there, and I always say the same thing. "Tell the customers what you can do, not what you want to do." Making unrealistic promises will get you into trouble faster than anything else. You can have a great customer and the best intentions, but you'll destroy the relationship by promising something you can't deliver.
The final aspect of competing is: "How do I protect my company from the competition?" The most important factor, when it comes to competition and your business, is account retention. We spend thirty percent of our time growing the business, and seventy percent taking care of the customers we now have. By using those same percentages in your business, you'll be amazed at your retention and growth. Although growth is good, taking good care of your existing customers is more important. If you do, you'll be in business long enough to experience the growth you want and need.
The techniques I use to maintain my customer base include survey cards, follow-up calls, and in-person checks. From working with contractors around the country, I've learned that many are afraid to have their salesmen contact a current account to see how they're doing, because they're afraid they might lose them! I disagree completely. If your company is giving good service, you'll often end up with even more business by maintaining the personal contact. You must invest time in current customers, and always be ready to make an extra effort for them. Besides, why wouldn't you want to hear what your customers think: Isn't that much better than having them tell everyone except you?!
Again, we go back to the circle. You have to keep it closed, and maintaining a high level of customer contact and service is how you do so. You'd be amazed by how many customers will pay more money to do business with a company they know they're getting value from. On the other hand, if you're not giving them value, it's easy for them to change. A competitor will come in and be from ten to seventy percent cheaper than you are, and you're going to lose that account if you haven't done your homework. Employing good account retention techniques is the only real defense you have against the competition: constant follow-up and communications.
We send out survey cards about three times a year. We've learned that if we send them out more often than that people get used to seeing them and won't fill them out. I'm always amazed at what I gain from the comments I get back, and they more than cover the cost of production because I get requests, too. "Oh by the way, have your salesman call me"
The Internet is now becoming an important resource. We're working on having our customer survey available online. We make sure our customers know how to get to our website. Then, if they ever have a question, or comment, they can get in touch with us quickly. Plus, we send periodic emails asking them to fill out our online survey form. It saves us money by eliminating typesetting and mailing costs. We're also considering emailing our invoices. People can still print them out for their records if they'd like, and it'll save us a lot on postage and time.
As we've gotten larger, we're no longer able to contact everyone on a personal basis. It was more fun when we could, but once your company reaches a certain size, you have to depend on other mechanisms for customer contact.
The best way to ensure customer retention and profitable growth is to keep your circle closed. That means keeping the rhythm of your business going strong. If you have equipment breakdowns, or weak follow-up, that gap in your circle allows your competition to gain an advantage. Communication, pricing, properly trained employees with good equipment and safety techniques, promising only what you can do, and keeping promises; all critical factors for maintaining your circle of business.
However, the most important factor is understanding your P&L - knowing whether you can afford to do the job or not - and what the components are to your actual costs, i.e. labor, fuel, insurance, maintenance, fixed overhead, shop, phones, etc. You'd be amazed at how many contractors lack that information. That's all I spend my time on now. It doesn't matter how many new accounts we can get, the bottom line is: "Can we do it?" That's how I make my decisions. If I'm considering buying a new sweeper, I take a look at the accounts I currently have and say, "Can I afford to pay for it?"
Remember, competition is motivating. Competition provides inspiration to keep your circle tight. It encourages you to set and achieve goals. It encourages you to become the best company possible, and that's good business.
If you have questions or need more information about meeting your competition, Gale Holsman may be reached at (816) 966-1161. You may also contact him via email sent to: gholsman@americansweeping.com.
This article is reprinted from American Sweeper magazine, Volume 7 Number 2.
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