H2O Pro

Topics: Marginal cost, Variable cost, Costs Pages: 5 (1535 words) Published: March 31, 2013
H2O Pro Pool Services, LLC “One-Time Clean”

Jessica Clemens

University of Phoenix

ECO/561: Economics

Dr. Jerry King

February 25, 2013


There are many opportunities for pool cleaning companies in Arizona; with nearly 615,000 estimated pools, there is definitely a chance to make money. H2O Pro Pool Services, LLC seized upon this chance in 2011 and is currently servicing about 65 pools in the Scottsdale area. Looking to increase revenues and profits, H2O Pro developed a plan to create a new service called a “One-Time Clean” in which the company would provide a clean-up service to customers on a one time basis. With the housing market currently turning around, people are purchasing homes that have been vacant for months or years. The pools are in terrible condition, but the homeowner does not necessarily want the added expense of monthly pool cleaning. This is where H2O Pro can help. The purpose of this paper is to introduce the idea and review the potential costs and rewards of implementing this service.

Increasing Revenue

Because the variable costs would be minimal (travel, labor, and advertising) and fixed costs are already covered, the company has all the tools needed to implement this service. By promoting this as a “One Time Clean”, a slightly higher fee could be assessed as customers would view this as a one-time expense as opposed to something they needed to factor into their long-term, monthly budget. Additionally, the customer would then have H2O Pro’s contact information for any future repair issues that may arise, which in the pool industry, is where a lot of the money is actually made.

Profit-Maximizing Quantity

Determining profit-maximizing quantity requires an understanding that “as a business owner increases sales, so do expenses. When expenses increase to an amount that no longer maximizes profits, marginal profit becomes negative” (Hunter, 2013). However, because of the structure of H2O Pro, increasing the amount of one-time pool cleans does not really affect the overall expenses. No new equipment or training is needed-the biggest financial risk will come in acquiring so many one-time clean accounts, that an additional staff person may be needed to service all the requests.

Marginal Cost and Revenue

Marginal cost is “the extra cost of producing one additional unit of output [which] can be found by dividing the total cost and the production details on that unit” (annmarierm, 2012). Marginal revenue “is the total revenue that is changed when one or more unit of output is produced; [this] is determined by multiplying the unit price by what quantity the company can sell” (annmarierm, 2012). To make decisions for H2O Pro regarding this concept, the company would need to factor the total cost of the service (travel, labor, and advertising) and the potential revenue which would be determined based on each pool need. There would be few instances in which the potential revenue would not be worth the cost of the work, making this a profitable, potentially very lucrative, additional service for the company.

Pricing and Non-Pricing Strategies

“Pricing strategies use the price of the product to draw in new customers while maximizing profit from current customers. Non-pricing strategies use other methods such as branding to maintain market share without altering price” (Mullin, 2013). For pricing strategies with H2O Pro, not a lot would have to change, as the company already bills itself as having competitive pricing with great customer service. In fact, customer service is an area in which they really shine, and can be considered a non-pricing strategy. Using traditional advertising and marketing such as the low-cost website they already have, the logo magnets they use on every company vehicle, Craigslist for free advertising, and business cards given out all over town; the company is already using a...
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