State Of The Industry Survey: Service Sector Stays Strong

A Limited Prosperity

In 2010 the service sector remained the strongest element of the pool and spa industry by several different measures, according to AQUA's annual survey. A plurality of respondents reported increased profits — nearly half said this — as opposed to 28 percent that recorded a drop. Beyond that, a wide majority, nearly seven in ten respondents, expect even bigger revenues in 2011.

In general, fees for service were raised in 2010, and hiring was up, too — while most service companies surveyed maintained their current rosters, more companies added employees than laid them off.

The poor general economy continues to help pool and spa service by inclining consumers away from buying new, and toward maintaining their existing equipment. As equipment ages, that adds up to more and more service calls as consumers put off buying a new spa or perhaps a completely new pool. This paradigm has been evident throughout the recession.

And maintenance of pools and spas on foreclosed properties has become a staple of businesses in affected areas, according to the survey.

Of course, in a more straightforward sense, the persistent recession has hurt pool and spa service as laid-off workers and cautious consumers close maintenance accounts.

As for revenues driven by legislation, while proceeds from VGB retrofits were winding down in 2010, energy-efficiency laws enacted in California continued to make pump sales more lucrative, as two-speed and variable-speed units replaced less-profitable single-speed pumps (where state regulations are enforced). Florida's new energy law goes into effect on July 1, and should have a helpful effect there. Texas appears poised to follow suit when the legislature meets this summer.

It remains to be seen what effect the ADA's new rules for public swimming pools with have on the service industry; that is, whether service companies will see much profitable work from it. This should become clear in 2011.

BUMPS IN THE ROAD

Taken as a whole, the service sector remains healthy. Despite the headaches that beset a service company owner, "At least we have work," as one respondent put it.

Perhaps the most telling economic indicator in the service sector is the fact that significant numbers of people continue to enter the business — something which is not happening in the builder or retailer side.

There are other reasons for this beyond the perception that service is a good way to make a living in a sour economy, and these reasons were spelled out clearly by respondents. They boil down to low barriers to entry in terms of capital, and the notion, common among those with no real experience running a service company, that it's fairly easy money. Or at least easier than anything else they could do.

"Anybody can just pick up a pole and call themselves a pool man," said one respondent, "and sometimes it's the guy you trained yourself."

Another put it bluntly, "It's amazing how many unemployed carpenters, plumbers, electricians, realtors, auto salesmen and teachers are now all of a sudden 'pool professionals.'"

This influx of new service companies clearly dampened profitability in some places. Many respondents spoke of losing clients and downward pressure on service fees due to new competitors in their service areas.

So while the sector as a whole can be said to be in good shape, financial progress is clearly uneven heading into the summer of 2011. That is, an apparent majority of companies are doing well, while some others saw flat revenues and a few are struggling.

California's licensing problems were a particularly trenchant concern in this survey. While the state requires a contractor's license to work on pools, by all accounts, enforcement is either poor or non-existent. This leads to a competitive disadvantage for licensed operators, who must follow expensive state mandates while their unlicensed competitors do not.

In 2010, did your revenue increase, decrease or stay the same?

Forty-six percent said revenues were up in 2010 from 2009, while 28 percent reported a decrease. A quarter of respondents remained flat in 2010.

Another government-related issue affecting profitability that emerged from the survey was the new federal health care law's mandate on small businesses to expand employee health coverage at the expense of business owners. With children of covered employees now remaining on the insurance rolls up to the age of 25, the overall health care cost to employers went up.

And Internet competition remains a thorny problem which frustrates service people across the country. "My customer can buy a pump cheaper on the Internet that I can buy it from my distributor," is a comment seen throughout the survey.

Even Distribution

For the first time, this year we asked questions about relationships with distributors, and found relative contentment in the service sector, with some caveats.

POOLCORP and its network of suppliers Superior Pool Products, SCP and Horizon made up the lion's share of the distributors used by survey respondents, along with Leisure Supply, General Pool and Spa and Proline. Overall, nearly nine out of ten service people in our survey were either very satisfied or somewhat satisfied with the performance of their primary distributor.

Of the ten percent that registered dissatisfaction, most mentioned purchase price as the chief concern, while others mentioned a lack of sufficient inventory and service-related complaints such as bad attitudes by representatives and a failure to return phone calls.

One said, "Price is everything in the Florida market. Five percent at the end of the year is a lot in the small-markup market that I'm in."

Another summed his feelings this way: "They are a bunch guys that don't care they have dropped the ball on special orders, but they are close and we don't have time to drive around."

The Old Fashioned Way

Reading the commentary from service professionals around the U.S. and Canada was inspiring in the sense that, clearly, most of them are successful due to uncomplicated work ethics and business virtues like accountability and dedication.

Overwhelmingly, when asked to list the precise reason why a particular service business grew in 2010, the respondents came back with the simple fact that they do a good job.

"My consistent good service" and "good reputation" were typical secrets of success. As for the reason his company was enjoying growth in this difficult period, one respondent said simply, "I work harder to please my customers."

SERVICE PROFILES

It was a diverse group that answered AQUA's annual call to broaden awareness of the service industry and discuss its most pressing issues. Some respondents are very experienced, with more than two decades in the business, while others are just starting out. Some come from small operations making less than $50,000 per year, and others making more than a million. Over 60 percent were in the $0 to 200,000 range.

How many years have you been in business?

Our sample group is heavy on experience, with 62 percent in business more than 15 years. Only 20 percent have been in business less than 10 years.

What kind of service do you do?

There's great diversity in size and scope of operations — practically everybody is doing equipment replacement, with two thirds doing salt system installation, and almost half doing "pool renovation (everything from liner replacement on up)."

Which is most important to your bottom line?

Most revenue is coming from water balance and cleaning, followed by maintenance and repair of equipment, equipment replacement, overall pool renovation and finally, salt system installation. But which is the most profitable service per hour of work? From their comments, that would be equipment replacement.

YEAR ON YEAR

In general, the industry appeared strong and vibrant in 2010, with hiring, revenues and fees all headed upward.

Did you hire or lay off any employees this past year?

More hired than laid off last year, but 62 percent kept the same staff.

Compared to 2009, were your fees higher or lower in 2010?

There was a wide variance in the actual numbers, but 25 percent raised rates in 2010 from the year before. Only 5.8 percent dropped. The rest kept roughly the same prices for service.

What was your gross service revenue for 2010?

The sampling of respondents was evenly spread in terms of revenues for 2010, with more than 10 percent in every category. Seventeen percent made less than $50,000, and more than 60 percent made less than $200,000 as a business.

PRODUCTS OR SERVICES THAT SURPRISED YOU WITH THEIR POPULARITY LAST YEAR ...

• LED lights
• Phosphate removal and/or floccingproducts
• Energy saving equipment
• Jandy 9300 Cleaners
• Leaf eaters
• SVRS pool pumps
• Solar-powered pool pumps
• Spa covers
• Firepits
• Moss treatment systems
• Chlorine generators
• Salt systems
• Variable-speed pumps
• AquaCal heat pumps
• Filter savers - skim basket liners
• Automation and two-speed pumps
• Robotic cleaners
• Leak detection
• Nature II
• Business software
• Mineral feeders
• DE filters
• Battery-powered vacuum systems
• Automation
• Ozone oxidation
• RIDGID hand-held clog finder-locater
• The selection of interior surfaces for pools

WORKING WHEELS

Service techs spend a lot of time with their trucks and vans. It's not just a crucial tool of service, real affection and trust develops for the brand and model that carries them through the day.

Favorite work truck nameplates

Ford took a commanding lead in the race for most-popular vehicle among service techs this year, at 40 percent. That's a 10 percent increase on last year. Its Ranger and F-150 models are particularly well liked, although for entirely different reasons as the two are vastly different machines.

Chevy came in second at 18 percent with strong competition from Toyota and its much-appreciated Tacoma.

"I currently have an '02 Avalanche. It has lockable compartments for chems and parts, and is as reliable a rig as I have ever owned. It has over 150,000 miles on it and runs like new. Gets 16 to 18 MPG depending on how it's loaded down. And with fuel costing what it now does, and the U.S. not drilling for our own oil, it's only going up, and up, and up, and up."

SERVICE LIFE

Certain issues dominate discussions among service professionals. Due to the continuing instability in the Middle East, gas prices rose to the top of the list this year for the first time.

Biggest concern

The prospect of gas prices rising over $4 per gallon has the service industry concerned.

Compared to the previous year, has the competition for customers in your area ...

Competition was up significantly this year. Forty-one percent reported increased competition for customers in their area, while 48 percent said it was the same as the year before.

"Higher gas prices are a real problem for me. If I increase my prices, I could lose customers. If I don't, I make less money."

"There are too many people worried about their own job to spend money."

"There are no restrictions for unlicensed pool guys here. But some of the customers get what they pay for. We may get some back in the long run. We lost 50 weekly maintenance accounts due to fly-by-night pool guys with super-low prices."

Technology and new products continue to reshape the service tech's role. Here are some of the things respondents noted as having a noticeable effect on their daily working lives.

NEW PRODUCTS IMPACTING YOUR BUSINESS

• The "pill" line. Spring pill, winter pill, etc.
• Going "green" — variable-speed pumps, chlorine generators, natural chemistry, energy-efficient heaters, controls, etc.
• Glass tile — clients seem to love the fresh clean look for their waterline tile.
• Online stuff, like getting product schematics while on customer's site to explain to customers what's going on. It really helps and makes us look very professional.
• Pool RX System
• Salt Generators — People want them and they don't know why or what it even does. We spend a lot of time educating people.
• Energy audits for commercial pools
• Electronic pool controls

DISTRIBUTORS IN THE MIX

Product distribution is a critical link between the manufacturer and the service person. On the whole, with over half of respondents very satisfied, and over 90 percent at least somewhat satisfied, distribution is getting good marks.

Distributors in the Mix

LOOKING TO THE FUTURE

A firm optimism about prospects for the future is evident in this year's State of the Industry survey. Respondents have all kinds of ideas on how to improve revenue and build strength in their companies.

Marketing and advertising topped the projected investments for 2011

• Less standard advertising, i.e. radio and print. More website and social media.
• Working more hours and dumping unproductive customers.
• Hope to get another employee CPO certified.
• Mid winter pool inspection.
• Pressure washing and deck painting.
• Plan on purchasing another service vehicle.
• More common pumps and parts as well as chemicals, ozonators and cover lifters stocked in the van to reduce be-backs and sell more stuff.
• We may replace some employees. And look into GPS.
• I'll be slowing down a bit. I'm 62.
• Do snow plowing and salting for customers in winter.

It's clear that the industry is braced for the possibility of a very long recession or at least a very slow economic thaw. More than 3 in 4 respondents either predict a turnaround beyond 2012 or are not even ready to hazard a guess.

OLD HANDS VS. NEW FACES

AQUA compared the responses of service people with more than 15 years (old hands) in the business with those just starting out, in their first few years (new faces).

Investment Priorities

The biggest difference in investment priorities was in marketing and advertising, where new businesses are spending more heavily to establish themselves.

BIGGEST CONCERNS

The two groups differed significantly over the biggest concern for the industry, with the old hands more focused on new laws and regulations and insurance costs, and the new faces thinking about energy and/or water conservation issues.