#103- Navigating Marketing Challenges and Expansion in Business

I'm John Wilson. Welcome to Owned and Operated. Twice a week we talk about home service businesses, and if you're a home service entrepreneur, then this is gonna be the show for you. We talk about our own business in residential plumbing, HVAC, and electric, and we also talk about business models that we just find interesting. Let's get into it.

This episode is sponsored by Service Scalers. They're a brand I've used personally, and after almost giving up on PPC altogether, I gave it one last shot with them. They were able to not only reduce my cost per click, but also drive consistent and high-quality leads. If you are a home service company, they specialize in PPC and digital media just for you. I would highly recommend giving them a call today.

Welcome back to Owned and Operated.

Welcome back. What's going on, John?

Welcome back, man. I'm back at it. Last week I was at a training. It was a marketing planning workshop. So that was pretty cool. We went to cold and snowy Minneapolis. We got instructed on marketing, which was really interesting. Honestly, marketing is obviously, we talk about it a lot on the show. And I've been getting like a feeling for where we are, which is we've capped out our demand channels. And I don't know if I've said it in that way on the show before, but we've capped out our demand channels, which means that like LSA won't spend anymore. And I think that's interesting. And when I've talked to other businesses that are larger than us, what we've been finding is that dollar for dollar, They're spending exactly what we're spending on LSA, which is like, okay, so there's basically a hard cap. That's really interesting. So one that's been borderline confirmed. So this, you know, training had companies from all over the US, bigger, smaller, and everyone was roughly spending the same amount dollar for dollar in LSA. No one was able to get above $40,000 or $50,000 a month. And that's companies that were doing $100 million or $50 or $30 or $20s. All of them were capped. Market didn't matter. So that was really interesting. And what that's pushing us to believe is that branding and other activities is going to be the key to the next stage. So then what we spent our time, and that's what we've been leaning towards.

Yeah. I mean, you've talked about this for a few weeks now in parts and pieces.

It's been on the brain a lot as we've started to really understand the scope of the problem. And now what we're trying to do is the cap on demand channels was kind of a surprise. So what we're trying to do is figure out what's the cap on the next thing. So as we dive into branding or more broadcast or whatever, you know, if demand channels cap at half a million, maybe 700 or 600 total. with PPC in there, does branded channels cap at a million of spend and then you've saturated the market. So right now we're trying to plan our advertising for this year and next at a $1.5 to $1.9 million advertising budget. And what do you do once you cap out branded spend? That's the current project. Because anything beyond mass media? Takes a while to get that partnership set up, like 6 to 12 months. So we have to start working this summer on the things that we'll put into place next summer to move us above the $1.5, $1.7 million range.

I like it. That's awesome. This is a bit off topic from what we're talking about today, but that's really awesome that you've actually hit that, like for an internal goal, you've hit the max cap on PPC, you've hit the cap on LSA, you've hit the cap on all these things. That's gotta feel good. No? Or it just feels shitty because you're like, damn, I wish I could just put another dollar in and get 6 out.

Yeah. So one, with PPC, there's no cap, right? It's just what's the cap on efficiency? And I find that the cap on efficiency is low. So we find that around 10 grand a month. Some people do more. We used to spend like 40 grand a month. So I think that there's a cap on efficiency for PPC, but I do think it's an interesting challenge. Like we're a few steps ahead, which was kind of, um, like a pat on the back, I guess, of we're starting to think about things that other people aren't thinking about. Um, a lot of businesses were built on the back of LSA in the past 4 years. So businesses don't know how else to drive demand outside of LSA. And we've talked about that here. Like they don't know how to run outbound to their own customers. They don't know how to run postcard campaigns. They don't know how to do a lot of the activities that we're doing. And they really don't know how to do anything outside of LSA because LSA was the easiest easy button ever. Like put in dollar, get phone call. Like it was so easy. So now all these companies are struggling and I mean $30 to $100 million companies that have built the majority of their lead gen through LSA. So we have declining demand. We have more competitors ever in LSA and people are just really desperate trying to figure out what to do. So we're maybe 4 months ahead to a year ahead of some of the larger players in the room of how we're thinking about navigating the next stage of our lead driving.

Yeah. I mean, I think we talked about it a while back. You told me to stay away from a business because that was their only lead source was LSA. And so they ran into that issue this year and ended up spending, like they matched last year to this year, they matched the same revenue total. But their net was like a million and lower because they had to dump another million to try and keep that line the same. And they just didn't have any other levers to pull 'cause they didn't understand it.

That's everyone's, you know, people are going from 10 to 15% in marketing spend for less leads.

Yeah.

Because LSA has gotten so much more competitive. But yeah, like, do I wish I could dump more into LSA?

Sure.

Like it's the easiest easy button in the world.

Mm-hmm.

And as far as like customer acquisition costs, it's low, like in comparison to branded activities.

Yeah.

Branded activities, it might be $300 to $500 to get that customer in the near term. You hope in the long term it's cheaper, but in the next year it's probably $300 to $500. LSA, you know, $50 to $80.

Which is why we tell smaller companies like $1 to $3 million that you shouldn't be trying branded plays because you do not have $500 per customer. To wait 2 years for. It just, that's terrible returns.

Yeah. I think Hoffman is a really good example of branding done well, where I talked to companies last week that were spending a full 10% and they were $30 to $50 million and they were in the same sort of cycle that we are, which is like, oh, we need leads. Oh, we need leads. Oh, we need leads. And they can't get out of spending 10%, desperately trying Angie's List and all these other things to keep busy. Whereas branded activities, those companies seem to spend 4%. So it just creates a bigger wave. So that was last week. It was good. We took a lot from it. Really good stuff for this year and really good stuff moving into next year as we think about marketing the business. If you like what we talk about on our social media, on Twitter, on this podcast, then you should be signed up for our newsletter. Go to ownedandoperated.com. Where every Friday we break down our business, we break down insights, things we're learning, things we're working on, and it's good stuff. Check it out. ownedandoperated.com. How about you? What have you been up to?

The week was good, man. We closed on a plumbing deal, so we're really excited about that. Yeah.

Yeah.

Uh, $1.6 million plumbing deal, which we're extremely excited about because plumbing has been doing amazing right now. Especially through the hellscape of terrible February HVAC. So plumbing has been awesome. We've been getting repipes and sewer jobs and water heaters, and it's just, it's beautiful. I love plumbing. I'm gonna keep saying that until I don't love plumbing, but so far it's been amazing. So we're really excited to expand that business, but definitely nervous because this is the first time that most of ours have been like small one-man, two-man shop tuck-ins. Like this is a business merge. Like it is technically still a tuck-in. We're keeping original brand, but it's gonna double, not double the size of our business, but it's gonna add a huge chunk. So we're really excited, but also nervous on what that looks like, what that process looks like, how to get them over onto ServiceTitan, how to do all the steps versus previous ones. It just was like, hey, grab the phone number, enter it into the system. Grab the GMB and then maybe hire one employee. Now it's like hire 6 employees, put a manager in place. I'm glad we have all the groundwork from having a plumbing like startup. Like we have it in ServiceTitan, we have the price book, we have everything there.

Yep.

But we still have to change like business models for 6 people. It's kind of a big deal. What did yours look like? Because I know you've purchased quite a few of these, right? I guess my big question today for you was what does week 1, month 1 look like from a really high level? Like what are you focusing on?

Yeah, I think there's 2 different ways to go about it. And maybe it's percentage of revenue, but we did a deal last year where it was like $1.3 million of revenue. So the way I attack that integration is very different than how I would attack a $10 million Deal. How big is it? So for us, the way we would attack a small deal as a percentage of revenue, and I think that's the important part, because like your deal would be small to us, but as a percentage of revenue to you.

Yeah, 30 to 40%.

Yeah, that's a lot. And I'm giving that caveat because I'm sure I've talked about it on here and I know I've talked about it elsewhere, but at this point, the way we integrate small companies is like, Day 1, you're just a Wilson employee. By the end of like day 10, the brand is gone and truck's potentially even rewrapped. So it's like kind of quick. So that's maybe like customer list, 5 or 6 employees. We just slide them in. If it's a large percentage of revenue, you go slower or you don't have to, but we would go slower. So I would argue that we usually ran it out too late. We used to let them run for a year or 2. But the big things that we focus on is one, just like paperwork. That first week is confusing and you just have to really accept that you're not going to have good data, which is tough to accept. And sometimes even the first month, depending on like what their current software is. So you're not going to have good data. You're not going to have good sales data, maybe not good cash data, definitely not good expense data. All that we care about in that first week is did we get the employees onboarded correctly? Did we get all of the logins? Do we have access to their softwares? Do we have access to their financials? Did we start communicating with vendors? The HR side of it and the purchasing side of it. And that's really most of the first month, depending on the size, just like getting your arms around the business.

And that's in particular for a business that you're going to let run as itself, as it has been versus an immediate conversion, correct?

Yeah.

Yeah. 'Cause part of me just wants to rip the bandaid off and run with it and say, nope, but your brand's gone, man. Let's Rock and roll.

You can. I really don't know that there's a wrong way.

Because you can avoid a lot of that, like vendor relations and letting them know like, hey, this is actually this company and da da da da. You just like, hey, tuck them in.

I think that's a viable way to do it. I really just think like, how big of a mess are you going to make running two separate brands, running different payrolls, running all that stuff is much more confusing than just running one. So I think you can transition it as fast as you want. Are you buying it inside the same entity?

Yeah.

All right. So that makes half the decisions for you. They're already gonna be on your payroll. They're already gonna be on your benefits. So at that point, it's just how fast do we wanna segue the brand? One of the mistakes I made a lot was I didn't communicate well enough with customers at the time. We thought we did cuz we sent out an email. Or 2, but like what we're finding is deals that we did 3 or 4 years ago, we're contacting their customers and they're like, who the heck are you guys? We're like, we've communicated with you like 5 times who we are at this point. So like maybe we should have done more mass media or maybe we should have done several individual letters. There's probably more that we could have or should have done.

That's funny you say that because even on some of our small tuck-ins we've had, like it's been One of our first little tuck-ins, Rue Mechanical. We still get like the message, hey Jeff, you did my HVAC 2 years ago or 3 years ago. And I'm just like, man, I can look back and see the 12 texts that we have sent you over the last 2 years letting you know, one, we're new, and two, it's time to schedule your maintenance with Rapid Respond. And now I know why you didn't respond, because you still think it's Jeff. So we are going to really be intentional about how to reach customers this time around to make sure that they all know.

I think a mailed letter. That's what we're doing next time is a mailed letter.

I'm gonna give that a try. I think that's probably the best way.

I'm gonna say it's not that much, but like, let's say it's $20 grand. And I know that $20 grand's a lot.

Mm-hmm.

But like, if you think of it as a marketing campaign, that makes it easier. So, um, that's $20 grand to introduce yourself and give coupons in a medium that people will likely open, sealed letter. So if you look at it like, and you don't need to do $20 grand all at once, it could be like, grand a month for a year and a half or something, or however you want to budget that out. But that's how we're planning on doing it next time. Yeah. And I think it's like 60 cents a letter, so maybe it's even less. It really depends on how big the customer list.

I think they have like 3,000 customers.

Oh yeah. So it's like $2,000, $2,500.

Why not? Yeah.

Yeah. You could send that a few times. We're still working through this. So the way we used to think about this is just like get the existing staff And the old data in, and then we were not very good at like using that customer data very well. So for us, like a big customer database didn't actually hold a lot of value, not because it didn't have value, but because we had no idea what to do with it. Now we have a lot more of an idea of what to do with it. So customer lists start to look a lot more attractive. If we were onboarding a new business today, we would be putting them on a 6 to 8, like letters a year. campaign similar to our lapsed customers and just continually communicating with them. One about the acquisition and 2 about whatever promos we currently have. So I think you could do something really interesting with it.

Yeah, I think that's great. That's great advice. Yeah.

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