Diversified Services Prove Profitable for California Company

Just like the crew at McDonald’s offers fries with that burger, California’s Hanson & Fitch lets customers know they can add temporary fencing to every restroom order.
Diversified Services Prove Profitable for California Company
Working in the office, Todd Fitch is flanked by operations manager Susan Russell, left, and office manager Betsy Koegler.

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The power of diversified services is vividly evident at Hanson & Fitch Inc., a site services company in Danville, Calif., that offers customers a one-stop shop for portable restrooms, temporary fencing and cooking oil collection and rendering.

Owners Todd and Kristin Fitch bought the former Dick Hanson Fencing Inc., in 2006, and their diversification strategy has yielded impressive results: 30 to 40 percent annual growth in gross sales revenue; 35 employees, up from five initially; and a stable of equipment including almost three dozen trucks and trailers, more than 1,000 portable restrooms, and 500,000 feet of temporary chain-link fence.

The numbers look even better considering that the company didn't branch into portable sanitation until 2009, and did $217 in gross sales for the first month. But within 18 months, that new end of the business was on "solid footing," says Todd Fitch. The company's business volume breaks down into roughly one-third each for fencing, restrooms and grease collection.

"We wanted to grow, and we already had staff in our office to help manage the businesses," Fitch says, explaining why diversification made sense. "It's also easier to offer two things than one thing, when your existing customer base already needs both services. If someone needs fencing, they usually need restrooms, too. It's an easy cross-sell.

"Our customers are pleased when we ask them if they want a restroom delivered at the same time as their fencing," he continues. "General contractors would much rather deal with fewer points of contact, as long as they're good service providers."

PRICING FOR PROFITABILITY

Fitch says he did not attempt to grow the restroom business by "buying" market through lowball pricing. Nor does he cave in to customer demands for lower pricing. Instead, Fitch tries to educate customers about the value they receive for the money spent.

"The price we quote is the price on the invoice," he notes. "There are no loss leaders. We tell customers we appreciate that they want to save money, but help them recognize the things they'll get from us, like clean restrooms, two-ply toilet paper—things customer value.

"Besides, customers that want lower prices tend to be less loyal and tend not to pay their bills," he adds. "We ask them to respect that we can't operate below profit, just as they can't."

Fitch offers proof that restroom operators can raise prices without losing customers, as long as they provide good service and emphasize the value they add to those services. Hanson & Fitch raised its restroom prices in early 2011 and customers barely reacted; the company received only one phone call, and that was to verify the increase, which Fitch termed as "significant, but commensurate with our costs.

"It was difficult to do, but every small business needs to do it to survive," he notes. "In terms of prices, we're still in the 1970s ... our market generally charges about $60 or $70 per month with weekly service. It costs us a lot more than that to do what we do."

Time to add fencing?

For portable restroom operators looking to diversify their services, temporary fencing can be a good complementary business. But there are important things to consider before sinking money into fencing panels and equipment, says Todd Fitch, the owner of Hanson & Fitch Inc., a site services provider in Danville, Calif.

“Any time you can offer an additional service to the same customer, you have a distinct advantage over the competition,” says Fitch, whose company offers portable restroom, temporary fencing and grease rendering services. “Customers love a single point of contact for installation and removal of site services. If you’re an event coordinator and one company can bring in both restrooms and temporary fencing, it’s much easier … especially since more often than not, the fencing can’t go in until the restrooms arrive, or vice-versa.”

Multiple-service providers also know a lot more about what’s going on with customers because they “have more feet on the ground and more eyes on the customer … more touch points” than competitors. They also enjoy more leverage for things like obtaining payment, he notes.

“If the customer refuses to pay you, you just don’t pick up your restrooms until you get the money,” Fitch says.

On the other hand, it’s more expensive to start up a fencing business. A typical 12-foot long fencing panel costs $70 to $100. And in many cases, wholesalers won’t sell anything less than a full shipping container, which holds

about 275 panels and can cost up to $20,000. Then there’s the cost of ancillary items such as air compressors, post-driving tools, a flatbed truck or trailer, and a crew of two to three for installations, he explains.

In terms of return on investment, a typical contractor might rent panels for $2 per foot-or $24 per 12-foot panel—for six months. If the cost per panel is about $70, it might take 18 to 36 months to pay off a panel, depending on how quickly inventory turns over, Fitch says.

“One problem with fencing is you’re constantly running out of product,” Fitch says. “Unless all you do is special events, whatever you rent might be out there for six months to two years. And it’s hard work, too. Anyone thinking about getting into the fence business should first install some fence. Panels weigh 50 to 60 pounds each. Many times you can’t take a truck to where fence lines need to go, so you have to carry the panels.

“You also have to keep your crews busy,” he continues. “Once you set up fencing, you may not touch it again for six months … fencing requires no regular (maintenance) component. So what do you do with that crew? You need a lot of customers to keep them busy.”

Fitch, who bought a fencing business and added restroom service later, suggests that portable restroom operators partner with a fencing contractor. That could involve simply referring customers to that contractor, or forging a formal agreement where the contractor gets hired as a subcontractor on projects.

“Then you could either mark up the cost by 10 percent, or just pass it through,” he says.

TIME FOR A CHANGE

Fitch made quite a career switch when he and his wife bought the temporary fencing company. Before that, he spent 11 years working in sales for a global insurance company. But he realized that although he was making a nice living, he needed to make a change. As he puts it, "There was something missing, but I didn't know quite what it was."

He spent 18 months searching for the right business fit, with the help of a business broker who identified businesses that met his criteria. Fitch figured a small, lower-technology business with a good long-term track record would have more growth potential than a high-tech startup business. A service business with recurring revenue is less volatile and offers more predictable cash flow, plus the ability to better withstand market ups and downs.

With so many baby boomers retiring, Fitch concentrated on small businesses with no family waiting in the wings to take over. He found his match in the fencing company, which had been in business for almost 30 years, offered a low-tech service and consistent revenue, and had established a solid reputation for great customer service.

Fitch also saw growth potential. The business served a small market south of the San Francisco Bay area—with a major market of seven million people just two hours north. The previous owner ran the business from his home in Texas, so there was not a lot of customer contact. Over the last six years, the business has steadily expanded north, he notes.

Word-of-mouth referrals helped build business, along with Fitch's willingness to ask anyone for their business.

AGGRESSIVE MARKETER

"If I see a competitor's single restroom unit on my way home from work, I pull over, take out a business card and try to meet a contractor who I've never met before," he explains. "That's how you do it, one at a time. You have to go into every opportunity confident that you can do a better job than a competitor, and convey that. We explain that a little guy has unique advantages ... they can do things the big guys can't, in terms of agility and moving faster and providing uncommon service.

"There are lots of competitors in our area, and lots of people doing things below their cost," he adds. "But our whole philosophy is to serve customers and do it profitably. A lot of my previous business experience involved bringing in new customers. You either pick up the phone or knock on the door with a business card—there's no magic to it. But it's amazing how lucky you get when you ask event coordinators and construction contractors what their businesses are up to and tell them what you do and see if there's a fit."

As the company grew, so did its equipment needs. To service portable restroom customers, Hanson & Fitch now owns more than 1,000 units from Five Peaks; six NuConcepts solar-powered restroom trailers, ranging from 17 to 25 feet long; and eight restroom service vehicles (mostly Hinos), featuring stainless steel and steel tanks built primarily by Best Enterprises Inc., and ranging in size from 750 to 1,500 gallons wastewater and 300 to 400 gallons freshwater.

For cleaning grease traps, the company relies on two vacuum trucks built on Hino chassis and featuring 1,000-gallon steel tanks. In addition, the company owns six Hino flatbed trucks for the fencing business; two Ford F-350 dually pickups; a forklift made by Princeton Delivery Systems; a Freightliner tractor cab; and three 7,000-gallon tanker trailers (two steel tankers for serving restrooms and one stainless steel unit for transporting grease).

All of Hanson & Fitch's inventory of temporary fencing came with purchases of existing companies.

MORE DIVERSIFICATION

In January 2011, Fitch decided to expand into pumping grease traps when he realized he had underutilized expensive capital assets—vacuum trucks—and a major market nearby. That led the company into pumping restaurant grease traps at night, maximizing the trucks' revenue-generating capability.

Later, that service mush-roomed into a much larger and more lucrative market: collecting used cooking oil. The company now services about 1,100 restaurants, mostly by collecting cooking oil, and also collects cooking oil at special events.

"We consider ourselves in the used cooking oil business, not the grease trap pumping business," Fitch explains. "We're a licensed used cooking oil collector and renderer. We recently built a large industrial plant to handle cooking oil.

"We didn't want to be too dependent on the other two businesses," he continues. "Fencing and restrooms are like ice cream and cake—they go together. But we were looking for a third leg of the stool that had nothing to do with special events and construction, just to diversify the business."

PEOPLE POWER

Two of the biggest challenges the company faces are adhering to its business model amid the multiple distractions caused by rapid growth, and hiring and retaining quality employees.

"You're only as good as your people, and from the guys who wash restrooms to the people who count the money, we've got some very good people," Fitch says. "It's the number one reason why we're successful. It's not about one guy with an idea."

No matter how much or how fast the company grows, staying in touch with customers is critical. Fitch says he makes time every week to randomly call two to four customers—both new and established—to ask them about their recent experiences with the company.

If a customer has a need or a gripe, he ensures it's dealt with quickly.

"If something's not right, you have to fix it," he says. "You have to educate customers and be patient, even when you don't feel like it. We're not a perfect company by any means, but we try to put customers first all the time. We focus on service and the customer, not the money."



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