Knowing Your Cost of Service & Conquering Low-Balling Competitors

Pinning down cost of service, modernizing equipment and boosting driver professionalism helped California’s A-Throne grow from an inventory of a few hundred to several thousand restrooms.
Knowing Your Cost of Service & Conquering Low-Balling Competitors
Yard workers Francisco Ojeda (left) and Edgar Salazar restock paper products and put the final cleaning touches on several NuConcepts restrooms before sending them out on the job.

Interested in Safety?

Get Safety articles, news and videos right in your inbox! Sign up now.

Safety + Get Alerts

It takes a savvy manager to admit when there are deficiencies in your business – that it's not being run the way you would like it to be ­­– and then to come to the realization that only one person can turn it around: You.


That is exactly what Mike Rice – owner of A-Throne, a portable restroom business based in Long Beach, Calif. – did in 1996, when he and his partner (his father, George) decided to get serious about revamping the image of their then-16-year-old company. They brought in new portable restroom units (and cycled out the old) and worked to get the company's drivers spiffed up and professional.


And voila! The changes worked. The company grew quickly, from about 500 restroom units in 1996 to about 4,000 today. But Rice's accomplishments come with a price.


Rice is challenged daily with an incessant onslaught of new startup or add-on businesses that undercut his prices, causing cost-conscious, ill-informed customers to jump ship. Often, those same customers return when the competing restroom operators fail or don't offer sufficient service. Rice has even coined a term for the frustrating phenomenon – "the passing parade" – and every day makes sure customers understand that a lower price isn't always a better price.

LOWBALL BATTLES


"Most people just don't understand the cost of doing business, and so being at this business for over 30 years now, I just call it 'the passing parade,'" Rice says. "There's easy entry into the business and we just always have people coming in and finding a way to lowball prices. They take the business away from you, and it's usually just a matter of time before they're out of business."


Rice recalls a car wash down the street that rented a portable restroom from A-Throne. A competitor came in and offered the manager a price that was below A-Throne's cost to supply and service the unit, so A-Throne gave up the account. Two vendors later, the manager of the car wash called back, saying her unit hadn't been serviced in nearly three weeks and that the company wouldn't return her calls.


"And that's 'the passing parade,' " Rice says. "It seems like when one goes, another one or two come back."


So what does an established company do to combat a constant turnstile of lowball competitors, lost business and then customers' eventual return?
It's not always possible to prevent customers from leaving, especially when they're leaving for a competitor's price at which your company wouldn't even break even. However, professionalism and a consistent, high-value experience are what A-Throne must practice and promote.


"We'll do anything for anyone, if it's profitable," Rice explains. "We're fortunate that in our area there are a lot of customers. Not all the customers are for us. Sometimes, we'd just rather have someone else lose money on these customers."

KNOW YOUR COST OF SERVICE


Knowing the cost of service is an essential business strategy, Rice explains. He stays on top of the issue in a few ways.


"Sometimes we'll take a particular special event or job and cost it out when it's over to see if we truly understand our costs," Rice says. "If it's not profitable – unless it's a special case – we're not going to do it."


There are generally two kinds of lowball companies that spring up, Rice says. It may be a driver who strikes out on his own after managing to put together the capital for a truck. Or it's the bigger outfits, who use portable restrooms as a loss leader in their service menu. Rice observes that the latter example has been less common in recent years.


"What most people don't understand when they start a business is that there are going to be problems, accidents and major breakdowns. It's not a question of if, it's a question of when," Rice says.


"To be in business, you need to make a profit or stay home," he adds.


Yet he admits that knowing if any given job – whether a special event or a construction customer – will be profitable is an inexact science; experience is a big help in that regard.


"From time to time when our competitors quote an absurdly low price, we will share with our customers what our labor cost is, including benefits, direct cost of service equipment, units and trucks, and our indirect expenses," Rice explains. "By doing this, it helps explain to the customer that, in reality, we're not overcharging."


Rice recommends using formulas available through Portable Sanitation Association International to help determine direct costs. "It is only through knowing their cost that they can determine the price to charge to guarantee profitability," he adds.

RETAINING CUSTOMERS


A-Throne does not hang its hat on rock-bottom prices. On the contrary, Rice says the company's pricing is on the higher end of the spectrum.


"We charge more than most of our competitors because we are supplying a superior product and service," Rice explains. Customers who appreciate and recognize those high levels of service are A-Throne's bread and butter.


Rice admits the economy has made the environment tougher, but he won't compromise on price. "We sell on the design of the unit, the ventilation, the designs of the tank, the air freshener. We just really push the value."


Rice shares an example: When Disneyland was building its California Adventure theme park, his company secured the business of one of the many contractors on site. Eventually, because the level of service required by Disney was so strict, all other contractors at the site hired A-Throne to supply and service their portable restrooms as well.


"In keeping the units clean, responding on time, taking care of graffiti, and just responding when they called," he explains how the company sought to stand out. "They were very demanding and we did just what they wanted at a profitable price. What that ended up doing was opening the door to a lot of the larger contractors, which helped us grow."


From the glass-is-half-full perspective, you have an established and successful business if there are a whole host of competitors biting your ankles with lowball prices. Now with 36 employees and thousands of restrooms (mainly from Satellite Industries), and also some units from NuConcepts, Rice recalls his own struggles during A-Throne's infancy.


"I can remember in the beginning, every single day was very stressful. There would be times I'd be delivering units on Sundays because we didn't have trucks and men to get the Monday deliveries done. And if there were days when there wasn't work, I worried how we were going to pay the bills. Over two or three years, I realized that this is how business cycles work."

BOOSTING PROFESSIONALISM


Having run the company somewhat informally during its first few years, even sprinkling other jobs and ventures into the mix (including truck driving), Rice realized he was ready to make a change when the family sold the restaurant it owned and operated in 1996. He had attended a handful of annual PSAI conventions in the 1980s, but in 1996, he went to the Pumper & Cleaner Environmental Expo International and made contacts that convinced him to go to both shows.


"And I really started learning," Rice explains. "The PSAI was a lot about image – they're very image-conscious – and we kind of had an image problem. Our units were old and they weren't always cleaned the best."


Rice leaned heavily on PSAI for networking and advice, and even went on to become president of the association in 2004. "We got serious about doing things more professionally. The first thing we did was try to clean up our drivers. We put them in uniforms and got our units cleaned up and started replacing inventory with new units."


The company first automated its systems in 1989 with a DOS-based program call GMF. Later, the company updated recordkeeping through Clear Computing, which they still use today for billing, inventory, routing and reporting.


Beginning in 1998, they also bought new trucks and started replacing the entire fleet. In 2004, Rice's father, George, sold him his share of the business.


The fleet today includes 16 vacuum trucks (mostly Peterbilt, International, Kenworth, Ford and Isuzu) built out by Keith Huber, Inc., Coleman, FMI Truck Sales & Service and Satellite Industries. Those built by Coleman, FMI and Satellite have tanks from Progress VacTruck. The majority of the tanks are aluminum, with four stainless steel and two steel. Sizes range from the biggest, outfitted with a 3,500-gallon stainless steel tank, to one with a 100-gallon wastewater/25-gallon freshwater tank. All pumps are from Armstrong Equipment, Inc.


Three pickup trucks hold two or three portable restrooms. The company has six trailers, three from Carson Trailer and three from McKee Technologies, which carry 10 to 14 units apiece. Three flatbed trailers are used to haul fencing and carry 100 psi air compressors.


When the company started adding hand-sanitizer units to all of its restrooms, customers took notice. Construction customers appreciated the addition, word got out, and that helped to generate new customers. A-Throne's business is now 60 percent construction, 25 percent special events and 15 percent fence rental.

PARTING ADVICE


Reflecting on his long career in portable sanitation, what does Rice recommend for others in the industry? Know your cost of service like the back of your hand. Make sure you make a profit on your work, and that it's enough to cover unforeseen hiccups, such as breakdowns and accidents. Institute a price increase, if needed.
"In this economy it's tougher than ever," Rice adds. "But we're still not going to do it if it isn't profitable."



Discussion

Comments on this site are submitted by users and are not endorsed by nor do they reflect the views or opinions of COLE Publishing, Inc. Comments are moderated before being posted.