$120K on Marketing… and still PROFITABLE???

Hey, everyone. My name is Mike Andes, but Today I am Dr. Diagnosis. We are looking at a real profit and loss statement for a business that is spending $120,000 a year on marketing. And they don't own any of their trucks, they just leased them. And yet they're doing almost $2 million in revenue. Mowing lawns, washing windows, landscaping, toilet scrubbing, whatever it took. Let's see how that's possible. Because last year before this profit and loss statement, they lost money and failed to start a second location. We called it a disaster year. Let's jump into the profit loss statement now. So the very first thing I'm going to look for on a profit and loss statement is your top line and your bottom line revenue. So top line revenue is usually going to be at the top of the P and L. Very good. So if I look here, I can see, okay, total income was right around $1.8 million. So just shy of $2 million in total revenue. What's kind of cool about this one in QuickBooks, they actually have where the percentage of the income or the expenses is actually in the right hand column. One thing I'm looking at when it comes to the breakdown of income is the fact that 61% of the revenue comes from fertilizer and weed control. Then we have 21% that comes from cinch bug and 18% from aeration and seeding. Now less than 10% comes from soil enhancements. I'm not saying they should cut that out, but if you're looking at your distribution of revenue across different services and one specific type of service has less than 10% of revenue, that is sometimes going to be on the chopping block for whether or not I can take that out and simplify services. Why? Because is it adding more than 10% of the business's complexity? The 80, 20% rule really applies when it comes to services. In your home service business, a lot of times 20% of the homes of your services really make up 80% of your profits. And so I don't know this business and I don't know if soil enhancements is where they make all their money. It could be, and in that case I'd keep it in, but it's definitely something I'm looking for. And is it less than 10% of revenue? Can I axe that service? And by doing that, simplify the services and simplify the business so I can focus more of my attention on the real money maker, which in this case is fertilization and weed control. That being said, soil enhancements might be an upsell that's really, really profitable. I'm not taking that away from them. But anything that's making less than 10% of revenue I'm looking at as a way to chop out and simplify the business so that I can then make more money on the services that are most important. Alright, so we got basically $1.9 million in annual revenue. And what I'm looking for here is the fact that if I look at their direct labor and it's 239,000 or about 13% of revenue, that's direct labor. That's going to be the wages out in the field. I have some overhead in terms of wages for their customer service and their sales. Quite a bit of cost in the office. They're looking around 9% in just over 9% in just wages for their office. However, given the fact that they are extremely heavy on marketing for this specific fertilization, weed control service, it's going to tend to have a higher admin and advertising cost compared to another business where you might do more projects or recurring work that you don't need to advertise as much and you don't have as many phone calls coming in because you're not like when you advertise more, you're getting more leads. When you get more leads you have to have more admin staff. So they're spending almost 10% of their revenue just on admin staff and sales staff. That's a lot. But for this line of business, not bad because their direct labor is, is literally only 13%. That's really good. In the vast majority of home service businesses, I want everyone under 50%. If you're over 50% of your revenue is going out the door to direct wages like people out in the field doing the work, you almost never make money. If you can get that under 20%, you're almost always making a great profit margin. So we'll see what their profits are at the end of this. But I can already tell that that they're going to be profitable based on simply one fact and that is the fact that only 13% of revenue is going out the door to direct wages. So quite a bit of expense when it comes to admin. Now the other thing that I'm looking for is let's see what the actual cost of admin. Yeah, there it is. Rent. That's going to be a killer because we got $70,000 in rent. So we're looking at about what, five, almost $6,000 a month just for their rent. Then you got to add in the heating, wi fi and electricity, another 10 grand. So 80 grand there. Plus we got sales, marketing, we got an operations manager, we got a general manager. There's quite a bit of overhead. Look at all this overhead labor. Their overhead labor is 18% of revenue. That's a lot. That's a lot of wages. But again, they run this much more like a sales and marketing company. And that's why their frontline team or their direct labor, those wages are pretty low. But then they have a ton, a ton of overhead labor wages. This is why it's so important to know the context of the industry. Because if someone was spending 18% of revenue on just overhead labor wages, I'd be freaking out. If they also paid $80,000 or another 5% of revenue going out the door to just their rent and their utilities, I would also be freaking out. But again, they have very high margin services where they don't have to spend a lot of money on direct labor for their frontline team. They, as I keep going on, let's see what their actual bottom line is. Oh, wow, look at that. We're running almost a 23% profit margin. That's fantastic margins. Anything above 20%. Very happy with. Now. A big reason they've been able to grow relatively quickly over the past five to 10 years is the fact that they use this vehicle lease program. So about, what is it, 9% or so of their revenue is going towards their trucks. They, that they do not own. They lease them. And this is a big reason why yard dogs has been able to grow fast. And this, in this case, they use it very well. They use the debt, they use the leases very well. So instead of going out and buying 15 trucks, they're all 30, 40 grand a pop. They would need, let's just call it, say they have to get 15 trucks for the business, and let's say that every Single one is $30,000. Just for the sake of, of numbers, that's gonna be $450,000 of cash. Now is the more conservative thing to not get a lease, therefore reduce your insurance and be able to own all the trucks outright? Yeah, that's probably the most conservative thing to do. But also, how long is it gonna take you to get $450,000 in cash? And so they've taken a very pro growth approach. Why do I know that? Well, first off, they're profitable. That's fantastic. But they are growing very quickly. And they've done that by doing two things. Number one, they lease their equipment. So Their assets on their balance sheet might look like they're less because they don't actually own the actual trucks. They're leasing them. That's why 9% of their revenue goes out just to leasing their trucks. Another way that I can tell that they're extremely pro growth and they're growing very fast is the fact that they are spending 60, 70, 80, more than 90,100. They're spending 120,000. There it is, $120,000 almost every single year in marketing. That's a lot. That's over 6% of gross revenue is being spent on just marketing. In most businesses where you're trying to optimize for profit, you've been in business for a long time, you're not gonna be spending that much on marketing. Maybe 3%, 2%. Those are the most profitable businesses. And I generally believe the real opportunity is if they want to be able to get over 25% or 30% in terms of profitability is going to be how do we do two things. One, we reduce the cost of our marketing spend. By doing that, we're going to be able to have to spend less on our admin staff. So we want to spend 18% of our revenue just on admin and sales related activities for our admin staff in the office. By doing that, reducing marketing, reducing admin. Well, how are they gonna still grow their business? Yes, it'll reduce costs and yes, they'll drive more money to the bottom line. But what about the growth of the business? What about top line revenue? Well, that's where it comes into play is the fact that you'll have to constantly be upselling and marketing to your existing database. They already have tens of thousands of people in their database. If they can somehow figure out an engine to remarket, re engage, get cold customers to come back, get customers that are buying from them to spend more with them. If they can figure that out and eliminate 120,000 in marketing, $350,000 in admin and all the cost of having people answer the phone for new leads, they could really make this business special by getting over 30% in profitability. Is it bad to have leases? No, you're going to be able to grow much faster. Instead of spending $450,000 in buying trucks like metal, they spent that money on the marketing in order to be able to grow quickly. So shout out to yard dogs. They great business, great margins. They're growing still. And it's because they've leveraged this business in a way where they have low cost of goods. They have low cogs, it's called out in the field with the labor being low and spent a bunch of money on marketing and leveraged their business by making sure they're leasing the trucks instead of owning them. If you want to watch the actual in person their shop, see all the trucks, everything we just talked about, click this video here where we went and actually did the turnaround and made sure their business went from this to the next level in 2022 yard dogs lost $250,000.

None of that 2023 $400,000 in profit. If you want me to turn around your business, go to mikeandys.com turnaround today.