Buying a pest control business sounds simple; until you start digging into the numbers.
In this episode of Jackquisitions, Jack breaks down exactly how he would evaluate a pest control company before making an acquisition. From recurring revenue and customer churn to route density, technician productivity, and owner dependency, he walks through the key diligence items that separate a scalable business from an expensive mistake.
Jack explains why customer counts can be misleading, how to properly analyze recurring revenue, and why route economics often matter more than top-line sales. He also shares the biggest acquisition traps buyers fall into, including overvaluing project-based revenue, ignoring churn, and buying businesses that rely too heavily on the owner.
Whether you're looking at pest control, HVAC, plumbing, or any route-based home service business, these are the metrics that determine what a company is actually worth.
━━━━━━━━━━━━━━
In This Episode, We Cover:
→ Why "1,200 recurring customers" doesn't mean what most buyers think it means
→ How to evaluate recurring revenue versus one-time project revenue
→ The importance of customer churn and what it reveals about a business
→ Route density, revenue per stop, and the economics that drive profitability
→ How callback rates impact margins and operational efficiency
━━━━━━━━━━━━━━
Follow Jack for More Acquisition Insights
━━━━━━━━━━━━━━
💼 Special Thanks to First Internet Bank
Looking to buy or grow a business? First Internet Bank is a National Preferred SBA lender focused on skilled trades acquisitions. Get up to 90% financing for acquisitions, partner buyouts, and commercial real estate—plus optional lines of credit for growth.
They take a “how can we” approach, helping both first-time buyers and experienced operators get deals done.
👉 Special Offer: Mention Owned and Operated for a reduced good faith deposit + free deal review & buyside prequalification.
Connect with Alan Peterson
Jackquisitions Newsletter — Your favorite source for how to buy small businesses. Real insights, smart strategies, zero gurus.
🖊️ Sign up HERE for more insights
📢 Enjoyed the episode?
✅ Like, Comment & Subscribe for weekly insights on business acquisitions, deal flow, marketing, and growth strategies!
📌 Disclaimer: Some links may include UTM parameters or affiliate relationships, meaning we may earn a commission if you make a purchase. Episodes may feature sponsors, but all opinions expressed are our own.
Pest control. Pest control can be one of the coolest, one of the best businesses to own. But this one you have to be extremely careful with if you're buying this business. Because there's lots of pitfalls, and one of the biggest pitfalls is understanding the business, but also understanding recurring revenue. So that's where we're gonna start because it's one of the biggest pitfalls when buying a pest control business. So you have a pest control business you find on buy biz buy sell, and the seller says, We have 1200 recurring customers. Something I see all the time. And that sentence means nothing. It means absolutely nothing until you know, are these customers active? How often are they serviced? How much do they pay per completed stop? Completed stop is kind of a key word here. How many, what's your turn? How many cancel within the first year? Are they on auto pay? How dense are these routes? Are these 1200 customers all over the state of Arizona? Or are they in this little pocketed neighborhood? How many callbacks do they receive, or how much do they create? And how much of the EBITDA depends on the owner personally, right? Um, because two pest controls can both show 1 million in revenue, 250 in SDE, but one might actually be worth real money, and the other might just be a scattered customer list of under underpriced routes and weak billing and just absolute nightmarish headaches. This is how I would actually underwrite a pest control company before I buy it, buy it if it was me. Um, not uh pest control is boring and fragmented, everybody knows that there's actual real diligence that needs
to happen. So, first is rebuild the revenue by service line, right? So, just like everything else in home services, there isn't just like pest control, isn't just this one thing. Like pest control total revenue is too vague for that. I need it broken down into buckets. Uh, is this residential uh reoccurring? Is it commercial reoccurring? Is it one-time residential jobs? Is it termite treatments? Is it termite renewals? Is it mosquitoes treatments? Like you're going up against mosquito joes here, is it wildlife? Is it bed bugs? Is it rodent exclusion? Is it other kind of project-based work? Because they're those are not all the same assets, right? If you if this business did $1.2 million last year, I want to know exactly how that $1.2 million was made. And um, I want to know where that's at. Is it recurring or singular um project base? Because if $800,000 is residential recurring general pest control, that's some high quality revenue with maybe like a spattering of $300,000 in wildlife projects. Uh, that may be profitable, there's some big one-time revenue uh events, which is sometimes a good thing for businesses. But I don't I I don't want to pretend like it's the business isn't what it is, because if you think it's 800k and reoccurring and you get there and it's a million of this is singular jobs that's based on the owner's connections to commercial contractors or to an HVAC company that's giving them all their rodent work, then once you take over the business, you're gonna have issues because you don't have that connection with this HVAC contract, you're not buying what you think you're buying. So I always start with semi the last 12 months revenue by service line, customer type, and recurring versus non-reoccurring, and then that's where I generally assign like the value and the score if we're gonna continue or not. Because like residential recurring general pest is where I put the highest weight, right? That's what my industry is. That's from from an HVAC plumbing side, like that's where I would do best. But re recurring commercial can be good too. Uh, you just have to check on margins, customer concentration, and uh the potential for you know churn post-owner sale because most of the time a lot of these commercial jobs are connected to the owner personally. Termite renewals, you know, they can be good, but I would definitely check for liability depending on your state. Mosquitoes fine, but you know, I just don't value it the same because depending on where you're geolocated, right? You could have certain spots that have huge winters that just don't get mosquitoes for three months out of the year. And then wildlife and bed bugs can be profitable, but there's kind of generally more project revenue based. Um, so it's trying to understand exactly what kind of business you're buying because you don't want to pay recurring revenue multiples for project revenue, uh, wearing like a subscription costume or LARPing as a subscription company. You just want to make sure you're paying for what you actually
have. If you're buying a business, financing can make or break a deal, which is why I work with Alan Peterson from First Internet Bank. Not only is he a good friend, but he is the best in the business. He's closed over 90 million in SBA loans specifically in the skilled trades and manufacturing industries in the last year alone. He's the kind of banker that works with how to get this done, not if it can get done. Hit the link in the description below to get a good faith deposit plus a free deal review. He also does pre-buyer qualifications as well. Click it, Alan Peterson, first internet bank. The second thing, so now that we've got revenue out of the way, is define what active customers is. So this is across every single home service company. I love seeing this because it's always a point of contention, is you have to rebuild the customer count. The sellers of every home service business, and in this case pest control, love saying we have 1200, we have 2,000, we have 3,000 customers. What does that mean? Because that could mean that, hey, you have canceled customers, are they customers from three years ago, or are they customers that paid for a one-time project fee this year, but are not in any renewal subscription service? So when somebody says that they have a customer, you need to define what that customer is. And usually I just ask for the customer export. Again, if you're not under LOI and you don't have an NDA and all this kind of non-competes, uh, sometimes it's hard to get. So, but what you're looking for is hey, what's a customer name, address, service type, billing frequency, service frequency? Uh, like what are they charging people monthly on average? I mean, you could ask for this time kind of in generalizations as well. Like, there's ways around it. Just be careful because you don't want to spook a seller because you're asking, like, hey, give me your customer list. Like, you don't actually want their customer list, you just need the customer data to understand, like, hey, are they on auto payment? Like, that's a huge one. Auto payment, how many of those 1500 customers are on auto payment? Because if it's 200 out of 1500, I would say they don't have 1500 customers, at least if they're claiming to be a residential recurring service company, like you're not, or you're gonna have a high churn rate, and then look back at cancellations, look at past due balances, like these are all really important due diligence items to show you how good the quality of their list is. Because saying I have 1500 customers means nothing if you're basing any kind of valuation on customers, which you should base some valuation on customers, right? There's a customer acquisition cost that you can utilize to base uh the value of some said customers, um, not just goodwill. So that is part definitely part of it, and then for quarterly customers, like active service, does that mean like they've been serviced in 90 days, 120 days?
You know, if it's a bi-monthly customer, or how you know what I mean? Like you want to understand like how regularly are they servicing their customers, or what term rate does that generate, how many of them are reoccurring, and that's that's really the big part. And then you can utilize that data a little bit later to do route-based, which we'll talk about here in a second. Because an active customer is not the name in the database. The active customer is someone who's going to you can rely to call on you for service in the next few months, and that you're gonna be able to bill and retain and route with. So making sure that you have good customers going into buying a business is the key. Number three is gonna be separating MRR from revenues per stop. So this is where math can kind of get messy and why that customer data is so valuable. Because a customer who's paying $50 a month or $49 a month is not the same as somebody who's paying for a $49 service call. If they pay $49 a month but get serviced quarterly, that's something worth like what, $147 per completed stop. And this distinction matters because MRR tells you that on subscription base, uh, or it tells you the subscription base, but it the revenue per stop tells you the route economics. For example, if a customer has like uh our company has 800 active residential recurring customers and the average billing is that $50 a month, then that's $40k of MRR annualized about $480 half a million dollars. If those customers are serviced quarterly, that force that's four stops per year, 800 customers times four stops times 150 per stop. Now I can underwrite the truck production, right? Uh, because if one of the tech completes eight stops per 150 per stop, the truck produces 1,200 per day. But at 20 working days per month, that's 24,000 per month. But if the tech does only six stops per day, then that truck produces $18,000 per month. So same customer pricing, same technician, different route economics.
So I know I got really into the weeds there, but like it's extremely important to understand route economics because, and we'll talk about it here in a second, but like this business is route, like that's it. It is a route and marketing business. You have those two economics, it's acquire customer efficient routes, acquire customer efficient routes. So when you're taking a look at route economics, you're looking at average revenue per stop, stops per tech per day, and revenue per truck per day. If the seller can't provide these, that's a that's a first big red flag, and that's where I would stop from there. Well, I wouldn't stop that, but like you have you have to be able to get those numbers somehow. Um, those are key to their business. Number four is again, like we talked about, route density. Um, mapping out where the customers are, or at least talking to and understanding from the seller's point of view how much window time, how much real window time is there? Because the seller might fudge these numbers a little bit because again, route density is extremely important in this business. It's not an operational improvement after you close, like this is the diligence item before closing that you need. Average window time per month, or I need to have be able to map all the active customers' addresses myself. Like the you have to give me something to be able to fully understand how efficient this company is currently running. I mean, if it's not efficient and you think you can make it more efficient, great. Like there's some opportunity, just don't pay for a streamlined, high efficient company that's just doing crazy numbers or doing poor poor route economics and paying them like they're doing great route economics. So, I mean, you'd group customers by zip code, neighborhood, subdivision. I mean, you can group group them by historical routes, uh, technician routes, how like average time at how many jobs they're running per day, by the their overtime usage, something like that. You want all that data, and then you're gonna start looking for clusters, like hey, a pest control company with 900 customers and a tight zip code, like one zip code that's really small, sweet, is different than a customer or a seller with 900 customers across three, five, ten zip codes, 100 miles, right? Vastly different. I think we understand why. Um, it's just because, like, hey, the more stops you can do per day, the higher and keeping the revenue per stop the same, you have a higher daily production. So the the reason. So I'm I'm asking the seller, I'm saying, hey, what's the average time between stops? How many customers are outside the core service area, how many routes routes are full, you know, how many days are technicians driving too far for too few revenue, or you can ask them how many days can you show me uh some sample a few days and pick three random dates and then actually look through their CRM and see what their average truck uh take home is at the end of that day. Uh you can ask if there's zip codes that produce that are poorly poor producers or zip codes that produce the least profit. That's generally pretty valuable um items. And then from there it's just it's again you're understanding like, hey, I'm not just buying customers. We've we've decided that they're real customers uh now, right? Or they're not real customers, but hopefully they're real customers. Now we're just deciding, hey, are they real customers that we want? Are they in in a close geographical area? Um, and maybe if they're not in in like the greatest geographical area, but like can you build strategy around that and then just don't pay for don't pay for it up front? Um, sweet. Number five is is understand churn. It's not necessarily a need business, it's not, hey, my downstairs bathroom is overflowing with sewage. This is like, hey, I have some bugs outside, my wife's really grumpy about it. Like, can you spray around the house? Um, so it's understanding like, hey, how do we reduce churn as much as possible so that we can market and bring on enough new customers to outweigh any kind of churn that we currently have. When I think about this, I usually start like say you start with 850 active customers. You go through and you say, Hey, okay, how many new customers did you add this year? You added 320 new recurring customers. The year ended with 910 active customers. So, again, this is why that customer piece was so important in the beginning because we need to understand our actual customers first before we do anything else. Uh, but so we have now we we understand actual customers, we have a definition on it. We we started the year with 850, we added 320, we ended the year with 910. That means that we lost 260 customers. So, usually what you'll get is you'll get a seller that brags, hey, we added 320 customers this year, which great. Like, you added 320 customers, but you still lost 260. So, like net growth on that 60 customers, understanding like looking past some of the the um backpatting of the seller and saying, like, hey, okay, what's the real number? What's the the active customer? What are you actively adding uh due to loss and churn? And then it's understanding where the churn came from, like just talking to them, understanding why are they churning, where are they churning. Uh, we talked about auto payments, that's a huge point to reduce churn. Uh, like there's a lot of things uh that causes churn. This is a great option to build some value into the business as well. Is if you can figure out where's the churn and why is the churn, then you can easily, easily jack said it here first, easily, um, you can easily stop the churn. So focusing on that, um, and you just want to understand more about it. Like, hey, are they canceling within the first 30 days? Are you running a promotion that is within 30 days? Like, first month's 9.99, and then oh, we have a high churn rate in the in the first month. Surprise, surprise. So it's understanding like where this churn is coming from. Is it after the first service? Is it after the second
service or before the second service, after the first year? Is it uh from a certain marketing campaign? So once you understand where the churn's coming from, uh, or if it's coming from a certain technician or whatever the case may be, maybe it's low quality on your team's part. I don't know. Uh, it's just understanding this because you don't want to get blinded by the new customer vanity. Like, we have so many more new customers when in reality, like, well, you churned the equal amount in the first year. So, congrats, good job. Um, so yeah, understanding churn is extremely important for the business. It can be a huge opportunity as long as you're not paying for it up front. Again, don't pay for that. Next is callbacks, part of churn. It's like, hey, it's part of actually all home services, to be honest. Like, callbacks are somewhat normal, it happens, like it's part of the business. It's un not necessarily unhappy customers, but things are missed. You know, it's a service business where the customer didn't necessarily get the exact service they were hoping for or wanting, and so there's a little more work that needs to happen. But unmeasured callbacks are not normal. So I know exactly how many callbacks we get every month in our HVAC business. I know, just because it's it's an important metric to understand how many times are we having to go back out to sites because we didn't do everything right the first time. So when I'm looking at buying a business, and if I was looking at buying a pest control business, I would make sure that I understand I want the total number of completed service calls in 12 months, and then I want the total callbacks, and that's how I calculate the callback rate. So, like if you have 10,000 services and 700 callbacks, you have a 7% callback rate. Super easy math. And then what you want to do with that is you want to transform that into labor numbers, right? So you need to understand what's the value of that or what is the the current seller spending on that because it's a potential another point of opportunity. It's also how good is the team that you're buying, because you're buying the opportunity to run a team that doesn't necessarily need or have to work there. And so you need to understand how valuable the team is before you come in. Are they a great team that has 1% callback, 0.5% callback, or do they have 20% callback? Um, especially if you start getting into like singular item, singular revenue source, project-based revenue, whatever you want to call it, jobs, callback becomes even more important because again, it that's where your margins get eaten, is if you're doing a job for a thousand bucks, but you have to go back out there for six times to do X, Y, or Z, you're losing money. Like that's where all your margin goes. So we have 10,000 service calls, uh, 700 callbacks, 7% callback rate. Uh, assuming each callback takes an hour and includes drive time, treatment, notes, customer communication, 700 call callbacks at well, we'll say an hour, an hour and a quarter. Uh, that would equal 875 labor hours. So 875 labor hours divided by a total person's salary of 2080 annual hours. That's a 42% of just under 40 50. So, like, yeah, 40, 42 percent of someone's a singular person's job full time. So you have to pay somebody half the year to just do callbacks. So look at callback rate, look at by technician, by service line, by maybe pest type, so that you can maybe even by neighborhood, so that you understand, like, is this a is where's the issue coming from? Again, it's part of due diligence. This isn't the biggest one, but this will be an absolute something that eats your bottom line if you don't get ahead of it. These next two kind of go hand in hand. It's like the next two is is billing quality, like how clean is the revenue, how is there arr ARRR AP, what's going on with that? Pretty simple there. Like, I want to know those things just because great, if you make a ton of money, uh, but it's all in AR, like you didn't you don't have the cash. And half the time you're gonna lose some of that anyway to people just never ever gonna pay you. So making sure that that the revenue coming in is good, billing quality is good, you're collecting on time, that your annual subscription or your monthly subscription is actually going through, and that you have a good process to can or they have a good process to renew those subscriptions. Um, and then again, next is technician productivity. Like, are are the techs doing low? Are they producing revenue? Are they how much revenue are they completing per stop? Again, everything we've talked about, but uh what I want you to focus on here is as you can as you combined all that data and you truly understand, start to understand the business, you'll get a picture of how great this technician is. Um are are they producing you know $17,000 a month or are they producing $25,000 a month? How much window time, how much is them, how much is it that how much is of that is them just hanging out at a gas station for two hours a day? Sorry, boss couldn't make that eighth call, ninth call a day, but was too busy, something came up. So these these things will start to trend, but once you have that revenue per truck data, once you understand the routes, hey no, this this guy makes only 17 because he does the the outer routes, so he picks up all these outer calls. Um, like great, okay, that makes a lot of sense, but you need to understand that before day one, and then the last and probably the most important thing is uh ownership dependency. So understand how much the owner is doing versus how much is done some by somebody else, either a management team or by the technicians. Because if you know, again, great, if you're buying off of an SDE number and the SDE number is huge, well, it could be just the owner does everything, so the margins are huge because he doesn't have somebody answering, he answers the calls, he's the one in the truck, he's the one doing the callbacks, he's the one estimating jobs, he's the one doing billing and financing, he's the one doing AR and AP. And if that's the case, like you're not buying a business, you're buying a job. Might be right for you if this is your industry. I'm not, you know, buy the book. Uh, but just make sure that you are adequately pricing that so that you don't get screwed over in the lawn. That's my big buyer's uh buyer's trap watch out. And the reason I'm so adamant on that is because I fell for the buyer's trap and way overpaid for my first business. So hopefully it helps someone out there not do the same thing. And so before you get hypnotized by pest control, as sexy as pest control is, uh, make sure that you understand the economics of the business, make sure you're understanding routes and churn and calculating revenue per stop and understanding the customer accounts and knowing what service line you're actually getting into, making sure you're verifying, licensing, and scoring some technicians before day one, so that once you start the business, A, you didn't overpay, and then B, you have a plan. You have a plan coming into this because you have a general idea of what this business is. If you like what you heard, like, subscribe, share, send your mom when she asks why the heck are you buying a pest control business? You said because Jack told me to, and then she can call me and yell at me. Um, yeah. Uh let us know which other kind of businesses you want us to break down, and we'll go from there. Appreciate it, guys.
