The Big Squeeze - The Tale of Two Contractors

Hey everybody, welcome back to the Contractor Training Room and our series on the big squeeze. This thing that's happening to our profit margins in the contracting industry, especially if you're in insurance restoration and retail roofing, you have seen a decline. There's been a decline in our businesses. And so let's talk about that for just a second and what that might look like. When it comes to your business. We'll just kind of do an example. And so what everybody did last year is they came up and they said, hey, this is where we're going to be. We're going to be right there. That's $7.5 million. Let's say that, right? And in order to get there, we had to do some things. And the things that we had to do entailed bringing on overhead. And that entails dollars, lots of dollars, because we're going to do this big number up here of $7.5 million. But what actually happened, what actually happened is this right here. We actually did $5 million. That's a $2.5 million overshoot. And now that overhead is pushing down. On your $5 million business. So you have a choice. You have a choice of what you're going to do with your business. Are you going to continue to set false expectations and hope that everything works out? Or are you going to ensure that no matter what happens, you are a healthy, sustainable business? So let's talk about that for just a second. We've got two different kinds of contractors, and we're going to talk about first what we call the victim. The victim doesn't know what to do at this point. Their revenue, $5 million. Their COGS, I'm just referring to my notes over here just to make sure I stay on track, $3 million. That's their cost of goods, material and labor. That's 60%. That's what we're seeing right now in a lot of cases is 60% of their overall revenue, leaving us with a gross profit or commissions, $2 million, $2 million leftover. Then an overhead of $1.875 million. You built it to get to $7.5 million, but you only achieved $5 million. So you have a net profit after all of this, $125 million. You worked for nothing. Whole bunch of work, whole bunch of effort, whole bunch of stress and fear and all of that good stuff. And we ended up with $125,000 left over. That's not nearly where we want to be in this business. Should have at least been at $500,000, if not $600,000, $700,000 in profit. So this type of path right here, it ends up in bankruptcy. It ends up in lost friendships. It ends up in not serviced clients. It ends up in all of those types of things. So let's talk about the other side of the equation. I'm going to move this over just so everybody can see. And this is the victor. This person's a little bit different. This person says, hey, I'm going to do something about all this. And they're the victor. So what does the victor do? Well, they make a profit mind shift. They say profit first. They say, I have to protect my people, my business, and the clients that I serve. So what does he do first? Or she? What do they do first? Well, the first thing he does, or she does, is they improve their sales. So, or she fixes sales. And what do they do? They make sure they get to a 40% minimum close rate. That's minimum. They've got to get there. And so what do they do to get to that 40% minimum close rate? They install a system that they know works and has been proven to work over and over again, like the Neuro Story Selling System. They can install some other one or make their own, but they know they have to get to that 40% number because if we don't, we're cutting our own throats in our top line revenue. His revenue, if he moves it that much, if he just moves from his 30 to 40, What does it do to his business? It takes him to $7.3 million. Didn't quite get to $7.5, but he gets to $7.3 million. Same leads, same amount of opportunities, but he went from 30 to 40%, which raised his number $2.3 million. That's a huge difference. The next thing he does is he or she fixes their overhead. In other words, they dismantle the local office and the way it works. They revise it. They implement a global workforce and they start to reduce their overhead. They start to automate things. They use AI agents that cost pennies on the dollar for them to still get the work done with high quality. Great customer experience, and funny enough, perfection where there was deficiency before. Starts to save them money on their materials, starts to take phone calls that weren't taken before. They do a million different things that make just little tweaks that make a massive difference. And he reduces his overhead by $1.3 million, significantly cutting the overhead. Imagine what that would do if you drove it up to $7.3 million, dropped it $0.3 million, and then the next thing they do, we'll use they this time, they fix cost of goods and say, no more. We're going to only spend up to 50% in cost of goods. No more 55%, no more 60%, none of that. The most I can go is 50%. And so they're going to add another 10%. Right to the bottom line. How much of a difference does that make for that business? So let's do a little final math here so that we get an understanding of exactly what's going to happen. And I am going to refer to my notes because that's important for me to stay accurate in my numbers. So this is what it looks like. The revenue is now with a 40% close rate. $7,320,000 from $5 million to that, just increasing closing percentages. That was all that had to happen. To me, that's amazing. Cost of goods reduces down to that 50% number, bringing this to $3,663,000, leaving a gross profit of that same number. I cut it in half, $1,000, and I've reduced my overhead. Don't forget about that one, overhead, down to $1.3 million. Remember that number up there was $125,000 that you ended up with after all was said and done. If you continue down the same path that you're on, this net profit this big number, this number that changes the way that you do business, the way that you can take care of people, the way you can give back to your community, $2 million. So which one do you want to make? You want to make $125,000 for a year's worth of work, or do you want to make $2 million? And even if you cut that number in half and it was a million, because you couldn't quite move it just that much. Would $1.15 million be okay? You'd be running about a 13% margin. But at this, Contractor A, Contractor A was $125K and B, $2.63 million. That is 19X on the profit. You want to make 19 times more than you made this past year? Get into our virtual workshop, get the salespeople up to speed to close more deals. And I will be shocked if they're not more like 45% or 50% if you train to it, if you practice it, if you enforce it, if you're disciplined to it. And then get into our workshop on how we're gonna save you on your cost of goods, how we're gonna save you on your overhead, and how we're gonna automate the system for you. And create AI agents that allow the work to get done for you. So this is my final call. All right. This is my last time I'm going to ask. I promise you're not going to hear from me anymore, but if you want to change the outcome for your business this year, click that QR code, find out more about what it is that we're going to be doing in this virtual Profit Mindshift Workshop. It's 1 day, 3 hours for your salespeople, 3, maybe 4 if you have a bunch of questions, hours in the afternoon for you, that's the owner, your technical person or operations person. And it's not rocket science. We can help you with this. We can solve these problems. We wanna see you make a bunch of money this coming year. We also wanna see you take care of your people this year. We also want to see you create great client experience for your customers this year. I want to see you let go of all the stress, all the burden, and get your business back on track in 2026. We'll see you inside in the virtual Profit Mindshift workshop, and I'll be there helping everybody out along the way. Don't forget about all the assets that you're going to get. You're going to get the field guide for your sales team. You're going to get objection cards to practice. You're going to get all of the tools, sales scripts and talking tracks, presentation, everything you need to do it, to get out there and go kick butt with it. And then the afternoon, we're going to give you all of the tools that you need to do to implement a global workforce, automations for your business, and AI tools to enhance your business so that you're always doing the right thing at the right time by pulling the right levers. We'll see you at the virtual workshop. I'm Jim Johnson, and thanks for hanging out here at the Contractor Training Room and watching our series on the Big Squeeze. Let's widen that gap again.