Small Hauler Strategies

Allison Rajala Ahcan

They might not be giants, but small haulers can be just as competitive as their larger solid waste industry brethren. In fact, by paying attention to four basic areas - competition; incentive programs; telemarketing; and market coverage - small haulers can watch their profits soar, according to Russ Schweihs, former owner of two hauling businesses and founder of United Marketing Partners Inc., a company designed to help solid waste operators improve their bottom line.

The first step to improving financials - even before discussing strategy - is to conduct an in-depth analysis of your market or one you're considering entering, Schweihs says. This analysis and search for a competitive advantage includes many considerations, such as identifying your competitors and their market shares.

Know Your Competition "If you want to compete against any of the national companies, you need to realize that they are well-capitalized and can pretty well be the low-cost provider," Schweihs says.

Consequently, he suggests that potential small haulers should study local haulers that command a loyal following from their customers and examine their operations in detail. For example, if you sell in a commercial market, find out whether your competitors include industrial waste disposal and what types of operation they have. If a competitor has good market share with reasonable prices and is totally automated, then competing with them on price will be tough, he says.

It's important to consider whether your competitors have service issues, such as a shortage of help or service or route pickup problems. Find out whether they provide walk-up or curb service for residential customers. Also, look for niche markets - do your competitors provide carts, or offer composting or other services?

Find out the factors that might affect your pricing:

*Have there been increases at the disposal site?

* If your competitors have experienced operational price increases, when did they last raise their prices?

* Do they charge for recycling services or does the city provide that service?

In addition, it's important to know whether competitors use contracts for residential or commercial business and if these contracts include regulations.

"In Minnesota, if you are going door-to-door, you need a second, separate form signed by the customer saying that they understand that they have three days to cancel the order," Schweihs explains.

And, know your disposal options. "Because of Commerce Clause rulings, you can generally take your waste anywhere you want to these days," Schweihs says. "This is an obvious issue to explore."

Incentive Programs According to Schweihs, one of the best ways to grow residential business is to start a "new-movers" program. New movers usually are looking for a relationship and not just a low price, he says. Consequently, they can be good customers.

"It's a huge advantage to find those people at the point of purchase," he says. "They typically have a lot of boxes and paper that they need to get rid of after they move in. It's a perfect time ... because you are solving a problem for them."

Then, adding value to client relationships becomes important. To accomplish this, Schweihs created a "Let's Talk Trash" incentive marketing program, which incorporates free products and services from local merchants as well as free hauling for a month or two.

Randy's Sanitation, a Delano, Minn.-based hauler with 115 employees and revenues of $12 million, has used this incentive program successfully for five years. "Randy and Sandy built this company over the past 20 years on service," explains Jim Wollschlager, director of sales and human resources. "Five of their six children are involved in the business; they want to be in business for a long time."

To do that, the company must protect the integrity of its service and get paid for it. Randy's charges $16.95 a month for 90-gallon residential service - a price that commands premium service and value, Wollschlager says.

In addition to offering great service, Randy's offers prospective customers any or all of 13 additional services when they sign up. These services include theater tickets, dry cleaning, diaper service, newspaper subscription and food delivery. For Randy's, the value added through extra effort has paid big dividends.

"It works," Wollschlager says. "We can maintain margins and don't contribute to the volatility of the market."

Of course, the customer can perceive service itself as added value. Schweihs suggests using programs such as walk-up service, senior discounts or a credit-referral program to win customers. Consider giving customers an extra month free if they pay for the entire year. "That's a two-pronged benefit," he says. "You get the use of their money and it gets the customer to stay with you a full year."

Telemarketing Tips Communicating through direct mail can warm up prospective clients so that telemarketing is more successful, Schweihs says. "This turns a cold call into a warm call," he says. "And if you send direct mail and for some reason can't get hold of the prospect to follow up, there's still a 1 percent to 2 percent chance that they will call or sign up."

Schweihs says you can't replace the value of telemarketing, but it won't work without "some strategic thought." Some areas to consider include:

* Will your telemarketers call from their home or your office?

* Do you already have assets that you can use?

* How big is your target market and how fast do you need to cover the area?

If your telemarketers work simultaneously from your office, consider an auto-dialer, Schweihs suggests. "You need probably three to four salespeople in one spot and a large project to justify its cost," he cautions. "Also, be sure you or the firm you use is well-versed regarding applicable Federal Communications Commission regulations."

Schweihs suggests starting with a reverse directory to develop prospecting lists. Look at your target market, find the city and streets you want to target, and then remove your existing customers from the list, he says. Next, prepare scripts with standard language - not a sales pitch - for your salespeople. Schweihs suggests that you prepare your sales team by discussing common objections and providing closing ideas that will increase their efficiency and close ratios.

It's critical to support telemarketers with good fact sheets that explain pricing, policies, pick-up days and services such as recycling, Schweihs adds. Telemarketers also need daily contact and coaching. "If they are working from home, they need to hear from you so you can measure progress toward their goals, coach them through role-playing or three-way calling, or do post-call analysis," he explains. "What I typically do is make a call and let the salesperson listen in. Then, after we hang up, we discuss it; then we reverse our roles."

Because "you can't manage what you can't measure," Schweihs suggests giving telemarketers a consistent number of assigned names to call. "Gradually work up to an optimum number that they can handle as their close ratios improve," he says. "The last thing that you want to do is inundate your new salesperson to the point where they are buried and get frustrated."

Realistic expectations also are important. "Close ratios vary based on packages you are offering, by competitor and also by telemarketer," Schweihs says. "I've experienced anywhere between 5 percent and 30 percent close ratios offering the same package from the same client."

Finally, says Schweihs, pick your people well. "I have found over the years that a good salesperson develops a quick rapport with people, and finds and satisfies the needs of their customers," he says.

In addition, find out what's important to your customers because people will not buy something unless they think they need it, for example compost service, co-mingled recycling or walk-up service.

Covering Your Market As with residential marketing, you need to evaluate the commercial market, consider your price structure and find the best disposal options. Then, focus your sales approach to enable you to land good commercial contracts. Schweihs says companies traditionally hire field reps to "go out and knock on doors and bring business back," but he considers this an inefficient way to cover your marketplace.

In today's commercial marketplace, the competitive advantage is knowledge - knowing when a self-renewing contract is coming up, knowing where and when new businesses are opening, and knowing a particular customer's needs.

Schweihs says the best way to keep track of this information is to develop an accurate database and use telemarketing in combination with field sales reps.

Setting these steps in motion can be challenging, Schweihs says, noting it usually takes a change in mindset. But the first lesson is to compete on value, not price, he says.

"If you get a customer because of price, you likely will lose that customer because of price. But if you win them because of service and a sense of value, then they are yours to lose."

Wondering which route you should take? Consider this example.

Assuming you have 15,000 potential customers, one telemarketer can usually make 8 calls per hour or 320 per week. A telemarketer will reach your 15,000 prospects in about 47 weeks. At $600 per week (gross salary only), the total cost is $28,200.

One field sales rep generally can make 10 calls per day or 60 calls per week. He will reach your 15,000 prospects in about 250 weeks. At an average rate of $1,000 per week, the total cost is $250,000.

In general, field sales reps cost 10 times more and take five times longer than telemarketers to reach the same number of customers.

Begin by building a commercial database using a reverse directory with computer software that will help you keep track of contacts, information and when to follow-up, suggests Russ Schweihs, founder of United Marketing Partners, Woodbury, Minn. "Contracts make commercial business more technical, more complicated," he says. "A good software program can keep track of things like contract renewal dates."

Then, telemarketer training becomes essential. "Because of the different systems and various needs of the customer, the rep needs to know what he's selling," he explains. To train his telemarketing staff, Schweihs uses ride-alongs with drivers and field reps, three-way calling and role-playing.

He also suggests haulers take exacting measures to build a field sales force. Before you hire, decide what your goals are, he says. "Do you want this guy just to hammer on new business? Are cancellations an issue? Do you need contracts signed with your existing customers?"

Once you have a sales force and you know what your field rep will be doing, be clear about the area he should be calling on, Schweihs says. "Even if you have one sales rep, grid out your territory so that he or she is making the most efficient use of time," he says.

Your sales staff should be well-trained. They should have a "sales kit" with contracts, proposal sheets, satisfied customer lists and company fact sheets. Focus on needs-based selling and less on price, Schweihs suggests, because sales people have a tendency to gravitate toward the lowest acceptable price."

Then, make your sales reps accountable. Schweihs suggests tracking their activity with weekly call reports. Sales quotas also must be planned and measured in dollars, accounts or profitability. And stay in touch with your reps weekly to check their progress and gather any marketing information they learned on sales calls.

Know your profit source and maximize it, says Russ Schweihs of United Marketing Partners Inc., Woodbury, Minn.

To do this, haulers should understand what their costs and profits are for each customer. Find out whether residential customers are more profitable than commercial ones, Schweihs says. Consider whether your price sheets relate to your general ledger. Then, look at your client list to see whether customers are below or above cost.

Additionally, find out your "dump time" and account for container amortization, maintenance and sales costs, both general and administrative, he adds. Then, decide whether to measure your profits on margins or by return on investment. "You may have a 20 percent margin, but a small return on your investment," he says.

Deb Starman of Starman Waste Removal, Owatonna, Minn., was surprised when she looked at her company's costs vs. its pricing. After a weight assessment for each client, she found that in several cases, Starman was losing money on commercial accounts.

"We should have been charging a customer $385, but we were charging $235," she says. Starman adds that most customers with whom you have a relationship with will accept a price adjustment if you explain it well.

Finally, don't underestimate the value of your business. As an acquisition advisor, Schweihs often helps haulers negotiate. "Universally, haulers relate to the sale price of their company on a 'multiple of revenue' basis," he says. "However, while most owners know what the going multiple should be, it's the small things that can make a good deal a great deal."