Building sustainable latrine businesses

Key Operational Support

In the Pilot and first years of the program, demand for latrines was being effectively managed by iDE’s affiliated network of Latrine Business Owners (LBOs). However, faced with a rapidly increasing level of customer demand, the program identified a critical need to sustainably improve the efficiency of the supply chain.

Early in the program, LBO retention in the sanitation market was an issue, as business owners will generally prefer to invest in a stable source of income. In order to stabilize LBO workloads and help mitigate some of this volatility in the supply chain, the program developed a supply chain management tool and process that would match demand (orders) with available supply (production, delivery, and installation) which we called Load Balancing. A more predictable flow of orders translates into more predictable profits for LBOs. However, profit potential alone may not be a strong enough incentive to continue with the latrine business. Qualitative research suggests possible reasons for this:

• Latrine sales are seasonal, peaking twice a year: after the Cambodian New Year in April and after harvest season (this varies depending on the region). Some LBOs are only interested in producing heavily at those times, focusing on other more profitable activities during the rest of the year.
• Some LBOs were supported through subsidized sales, usually through an NGO-run project, with sales guaranteed at a fixed (generally high) price. Once the subsidy project is over, LBOs find it difficult to turn a profit, which often leads to the discontinuation of sales to focus on other business activities.
• Some LBOs may have found other, possibly more sustainable sources of cash income (i.e., diversifying their portfolio with multi-season products/services). iDE’s sanitation marketing value to the LBOs is that latrine sales provided them with consistent, easy access to cash. Once LBOs find new sources of sustainable income, the value of continuing latrine sales begins to diminish.

As latrine coverage continues to improve, LBOs can anticipate fewer latrine sales, and thus latrines making up a smaller proportion of their overall business profits. The challenge for iDE going forward is to help LBOs identify additional market opportunities, such that the supply chain remains in place for everyone who wants to purchase an affordable latrine, even in the most rural locations. One such possibility is by keeping LBOs in the sanitation market by training them to address a broader customer segment, including those in need of rural fecal sludge management solutions; another is to expand LBOs’ role in home improvements to provide other products based around improved sanitation.

LBO Coaching and Training

In the second phase of the program, iDE expanded its tiered coaching system to include the entire program team, not just sales staff. Beyond coaching LBOs on the technical aspects of latrine production and installation, iDE offers LBOs the opportunity to enhance their business skills in response to emerging trends, such as customers increasingly cancelling their latrine orders before delivery. To reduce client cancellations, we focused on building LBO capacity to skillfully handle customer interactions and prevent them from needing to cancel. In order to support businesses to communicate the value of their products better when customers expressed willingness to cancel their orders, iDE staff trained business owners on selling techniques using similar frameworks taught to our sales agents. We also implemented a pilot to train LBOs to address financial-related customer cancellations by offering payment installment plan options. Building LBOs skills in response to changing market conditions is critical to their overall business sustainability.

Quality over Quantity

At the end of 2014, 138 LBOs were identified as “active,” which means they had fulfilled at least one delivery in last six months. By June 2018, 108 LBOs were active. In light of the changes in the market during those years, this decline in LBOs makes sense. When latrine demand was at its peak, the program engaged as many LBOs as possible to fulfill orders. As the supply chain became more efficient and the demand for latrines declined, the program recognized that current levels of demand can be met by fewer, high-performing LBOs rather than many, variably-performing LBOs. As the program continues to broaden its product offerings, the need for flexible, entrepreneurial, and technically capable LBOs is greater than ever. As such, iDE has chosen to focus energy on supporting its highest performing LBOs and discontinue its relationship with businesses that show low commitment to producing sanitation products.

As intended, the smaller amount of LBOs that are working with iDE are those with stronger businesses skills, which often translates to a greater capacity and willingness to expand the scope and scale of their operations. Generally, active LBOs at the current time have already begun to diversify their sanitation product offerings, and many are now selling at least one shelter product in addition to the Easy Latrine. These LBOs appear likely to persist longer in the sanitation market, despite market saturation, as they continue to offer products that can serve users besides first-latrine buyers. At this stage in the program, in order to ensure the sustainability of the market, iDE is investing more resources into capacity building for program-affiliated LBOs. In its second phase, the program trained LBOs on topics including financial management, offering/collecting payment installment plans, and marketing. These training curriculums, among others, are being scaled to iDE’s entire LBO network in the current phase. LBOs also have received installation training for new products like the Alternating Dual Pit and our three shelter models.

As mass production capacity has become less of a critical priority now that latrine orders have begun to decline, iDE is increasingly prioritizing the quality over the quantity of businesses it supports.

In addition to the latrine sales made by latrine business owners (LBOs) connected to iDE, we also evaluate how the broader market is reacting to our sanitation marketing activities. In the table below, we see that the non-project-connected ratio of sales has decreased over the last few years, from 1.1 to 0.8, indicating that iDE connected LBOs are grabbing a greater share of the market. In both instances, Kandal is the province with the highest ratio of project connected to non-project connected sales. That is, for roughly every one iDE latrine sold in Kandal approximately 2.9 other latrines are sold. Notably, in Kampong Thom, the ratio is almost 0, meaning that iDE project-connected sales account for almost every new latrine in Kampong Thom.

We believe this decline in non-project-connected activity is due to a rapidly maturing market. Year-after-year, iDE has seen a decline in the overall number of individual latrine businesses, even though we train additional businesses every year. Some of this attrition is due to the evaluation of opportunity costs. That is, since latrine businesses were initially concrete producers, they may have more opportunity supplying concrete products for other uses rather than supporting the latrine market (see “Understanding opportunity cost for latrine suppliers“).

The program cost per delivery of “first toilets” has been steadily increasing as a result of the well-documented diminishing returns associated with the saturated market. To a certain extent, increasing direct LBO deliveries by developing their capability to promote and market products themselves may be increasingly cost effective in a saturating market. However, insights into LBO skills and interests from previous programs are still relevant. In the early years of sanitation marketing, we learned that most LBOs have limited interest and inclination in managing a professional direct sales team. We believe that this is still the case today. However, we are seeing a change in LBOs behavior as they become more familiar with the market.