Broke, and Google Ads Weren’t Helping… Then I Found This

Time to focus. Now. This is the one video that if you're gonna get anything out of and you really need to focus, this is the video. This is the secret sauce to building your business in the landscaping and lawn care industry. And that is your hourly rate. It's the cornerstone that everything else is built upon, and it will determine your profitability, which will determine how much money you have for marketing and how much money you can pay your employees, thus the quality of your employees. And so this is what everything else is built upon, your hourly rate.

In the video in the past, I talked about hourly rate, et cetera, and how it's your secret sauce. It's something that you don't necessarily tell the customer what your hourly rate is because we're giving the customer the job, the quote, based upon budget hours, and we are determining how many hours we're allocating towards the job and multiplying it by some number. However, we don't tell that number to the customer. We don't tell them how much we charge per hour. It doesn't really matter to them. They're just looking at the dollar amount for the job being completed. But the thing that I never really talked about is, well, how do you determine your hourly rate? In my opinion, this should correlate directly with pay for performance. Because with pay per performance, what you're doing is you are basically taking a number that is typically fluid, and that is the percentage of your revenue that goes towards wages, and you're making that fixed number by giving a percentage of that revenue to the employees. So in the past, if it rains, bad luck happens, customers pick you, whatever it might be. You might spend 50, 60% of your labor. Revenue that you charge for labor on that job might go to the wages of the employee. Whereas if you just crush it, the weather's perfect, everything goes well, you might be able to pay 10, 15% of your labor. Revenue that you charge for that job might go to wages for the team. By fixing that number, you take a variable expense of labor based upon weather and whether or not people feel good or whatever, and you fix it, you can make your profits much more dependable. And also it should really come into how you determine your hourly rate. So this is what I want you to think about. That you hourly rate that you pay employees on base pay of P4P. And we'll talk about base pay and P4P in the future. But basically, when it comes to P4P, they get a base pay that they cannot make less than per hour. That amount right here Divided by the hourly rate to customer that we're charging the customer. I want this to be less than, less than 25%. Okay. I've seen this across the board in service based businesses. Be something that is a good benchmark for. Some people are going to scream at me, oh, 20%. Oh, it should be 35%. Whatever it is, this is a really good benchmark. What do you have to pay your employees on base pay? And then what are you charging the customer per hour? Should be less than 25%. So for example, if I am charging, if I am paying my employees $20 per hour on base pay of P4P and I'm dividing that by what I am charging the customer, let's just say it's $80 per hour. That equals 25%. Let's change the math up a little bit though and say, alright, well I'm able to get away with $15 per hour and I'm able to still attract talent. $15 per hour is my base pay in P4P and divided by 80. Guess what, I'm like 20%. What is that, 20? It's like right around 20% now is my percentage here. So it's less than 25. Great. The lower I can get this number the better. Usually means I'm gonna have better margins. And it's also meaning that on P4P, the majority of their pay is gonna come from performance dollars instead of just their base pay. And you might be saying, well that's so bad for the employees. No, I'm giving them a percentage of this revenue here. But my base pay is, is right here. Now this number right here is going to be determined usually by your local labor market. If you can get employees at $15 per hour base pay, that's the number you should have as base pay on P4P. Now you might give them say a third of labor revenue, which means they're going to make a lot more than $15 per hour as long as they're half decent. But that number needs to be less than 25% of the number you're charging the customer. So in this case passes the litmus test. Now what does not pass the litmus test is if you're charging, let's just say $60 per hour to the customer and then in order to get employees, because your labor market's really hot, you've got literally offer $20 per hour as a base pay on P4P. If you do that now all of a sudden you run the math here. 20 divided by 30. We're gonna come up with 33%. Very bad news. I consistently see this, and I see this as being a very hard business to make any money and any.

Not less than 25%. We'll talk more about P4P in the future. But ultimately you need this base pay per hour that you're paying employees to be less than 25% of what you're charging customers. So the question is, well, how do I determine hourly rate? Very simple. Ask yourself what's the kind of average going rate for labor in your market? If it's $20 per hour, that means in order for this equation to work where I'm going to be at 25% or less, it means that my hourly rate to the customer needs to be $80 or greater. And if I can't do that, I've got to figure out either A, I'm going to lower my base pay or B, I've got to increase the value to my customer, have a great website, have great customer service, have someone answer the phone that's live, have a web chat on my website, have a great truck that's painted uniforms, trained employees. My marketing's got to be in point. That all generates value to the customer where I can increase my hourly rate to the customer to where this equation works out. So in my opinion, your hourly rate to the customer, that's always the golden question. What should I be charging per hour? Should be determined by your biggest variable cost, which you are basically reselling to the customer, which is labor. You are selling an hour's worth of someone's labor at a marked up rate. And I want that rate to be at least a 4x. Alright? So at least a 4x is the equivalent of saying this ratio 20 divided by 80 equals less than 25%. Now the greater this number can be in terms of right here, if I went if so I had $20 as my base pay and I was able to make this 90. Well now guess what? This is now going to be like 22, 23% and that's great. The lower this percentage can be, usually the higher your profit margins are going to be. And Most importantly on P4P, the more their base pay is going to be further away from what they're actually making on P4P and there's going to be a more and more bigger piece of their paycheck that's constituted by performance dollars instead of their base pay. We'll talk more about that when it comes to P4P pay for performance. But this is what you are going to use to determine your hourly rate. Your hourly rate needs to be determined by the going hourly rate for employees just to get them onboarded. I believe that in this case, for example, this is a local shop right here. Let me show you what we have at our local shop. Now and again, this always goes up. But 18 is what we get for employees locally in terms of their base pay. And we charge $90 per hour to the customer. So that's like 20%. Very good. Passes the litmus test. Very profitable. Awesome. And you've got to realize that this number here is probably gonna go up with time. $18 per hour. Just what you need to attract them. You want that number to be high enough to attract talent, but low enough to make sure that this number still works. Because guess what? On pay for performance, I'm gonna give 33% of labor revenue to the employee. So they're not gonna make 18. The average employee at the local shop makes like 23, 24, $25 an hour. But I wanna keep this base pay as low as I can while still attracting talent. Because this base pay is gonna be what attracts talent. And by raising this number, I'm really only giving more money to my lowest performers. Cause the highest performers are already making way above $18 per hour.

On P4P. Doesn't really help your best performers. We'll talk more about that when it comes to P4P. But that's the first thing is determining your hourly rate should really be determined by what's your going rate for labor in your market. Making sure that this equation equals less than 25%. So you can literally work this backwards. Oh, you know what, Mike? In my market, I don't know what I need to charge per hour. What should I be charging to my customers? Go on Craigslist, go on Facebook, look at all the landscaping and long hair companies. What are they offering per hour underneath hourly wages? Just as an average. So that's $15. I need to be charging my customers per hour in order for this to work. At least $60 is what's going to allow this equation to still work. Ideally it's 65, 70, 75. And this number gets. This percentage gets even lower. Next thing I want to talk about, cause I talked about price quite a bit there. But what I want to talk about is in general, in your business, there's something called levers. And levers are something in your lawn care and landscaping business, any business really, that allows you to make a small change and have a massive impact in another part of the business. So if you look at this, this is what's called a fulcrum. And then we're gonna have this kind of like a teeter totter thing here.

Boom. Like this. Okay? This is the fulcrum. And you have two different weights, right? So you might have a weight here and a weight here. Okay. Now, when you have this kind of dynamic, what happens if I move this side of the equation by, say, 2 inches to right here? If I do that, it's going to move the fulcrum, or the other side of the equation, I should say, is probably going to move it by like 4 inches. So if I move this by 2 inches, literally has a 2x impact over here because the distribution is so great with this lever. This is the lever. So the question is, in your business, what can you do that is small changes that leads to massive results. And the two levers or three levers I want to talk about today are gonna be the things that in your business you can make small changes on, and they're gonna make massive impacts on your bottom line and in your profit. The first thing I wanna talk about is retention. Retention is simply the opposite of attrition. So If I lose 10% of my customers every single year, that would mean that I retain 90%. I lose 10%, that just means I retain, I keep 90% of them on. If your retention is really low and it's like 20, 30, 40%, well, let's just say it's 50%. If your retention is 50%, that literally means that one out of two customers leave your business every single year. That is bad in the lawn care and landscaping industry. What's typical in our industry is about.

20% attrition. Or I'd say 80% retention. Why? Because about 20% of your customers are gonna leave every single year because they pass away. They move, they sell their house, they go, they downsize, whatever it might be, and you lose a customer. So about 20% is going to be inferred. Now, this is why it's so impactful. Because if I have a 50% retention rate, 50% of my customers I keep. Every year I lose, lose the other ones, I lose half. There's a 50% attrition, 50% retention. That would mean that the average lifespan of a customer is two years. Now, if I take that same business, but instead of having a 50% retention, where I lose half my customers every year, I only retain 50%. Instead of my retention being 50%, let's have a retention rate of 80% kind of average for the industry. How can you improve that number? Well, you can have better customer service. You can make sure that you make the customers happy, you have great office staff, you answer the phones, you take care of your customers. Those are all ways to increase retention. Have a credit card on file. That's how you can increase retention. So instead of having 50% which would assume imply a two year average lifespan of a customer, if I change the retention to now being 80% where I only have an attrition of 20%, that would now lead to an assumption of five year lifespan of a customer. Okay, so just by changing my retention, I'm able to increase the lifespan of a customer by literally more than doubling it. I'm more than doubling the lifespan of my customer. So if I make $1,000 per year on each customer, I go from 2,000.

Per customer. That's the value of the customer, the lifetime value of a customer. Or Sometimes you do LTV lifetime value of the customer at $1,000 per year, two years is the average. I made $2,000 on that customer. I can literally turn that into $5,000 simply by making sure that I increase my retention. I keep the customer. So I'm going to more than 2x my profits just by retaining my customers. And Instead of losing 50% a year, I lose 20%. Little changes in the business, improving the way that you communicate, having automations, having credit cards on file, having where you talk to the customers, sending monthly newsletters, all of this allows you to increase your retention. Little things in the business that lead to dramatic results and profitability. The second thing I want to talk about is click close ratio. I talked a little bit about it in the previous video. But when we talk about close ratio, this is a massive, massive lever in your business. Especially when you're first getting started. I truly believe this is the only thing you should care about when you're scaling your business from 0 to 250,000 in revenue. Now in my opinion, you should have a 30 to 50% close ratio. If you are in profit mode. Remember, go back to the previous videos I talked about about the two different directions you can go with your business. Either profit or growth. If you are in profit mode, you are going to be thinking about 50 to 30% margins. If you have higher than that number, it means that you can raise your prices. If you have lower than that number, you probably have a serious flaw with your business or your prices are too high. Whereas if I'm going for growth, I'm going to have 50 to 70% close ratio. If I'm trying to grow the business fast, and the reason I'm gonna do that is because my prices are gonna be a little bit lower in order for me to have a higher rate of growth. I'm getting more customers now. Why do I not want over 70%? Because if I'm over 70%, I'm literally leaving money on the table. My prices are too low and I need to increase them. So for everyone out there that bragging that they close every single job or 95%, you are leaving money on the table. And the next thing is gonna scare you by what, what you're leaving on the table in terms of price. But this is the general rule of thumb that I'd be using if I was you. I'd be trying to use this to at least 250,000 revenue. Assuming you want to grow a million dollar business, if you want to grow to a million faster, you might literally use this 50 to 70% close ratio until you hit a million. If that's really a big goal of yours, is growth, that's what you want to be at. Not higher than this, because then you're leaving a ton of money on the table, but not less than this because you're gonna really inhibit the rate of growth and you're gonna really not grow as quickly as you possibly would want to. So again, you've gotta determine do I wanna profit and have a higher margin, increase my prices, charge estimate fees, charge dump fees, really increase my hourly rate back to what we just talked about, increasing the hourly rate to the customer, or do I wanna go into growth mode and have a higher close ratio. And close ratio is simple. Simply one estimate divided by total total estimates, okay? That's how you're coming up with this number. The number of estimates that you won divided by the total number of estimates is going to give you the percentage that you've closed or your close ratio. Okay, now the third lever in your business again, these are the things that make massive impacts in your business. Because literally you could run the math on this over the course of four or five years. If you have a 30% close ratio versus a 70% close ratio, your business will literally be a third of the size in a few years if you just have a close ratio of 30 versus 70%. So trust me, close ratio, very important. How can you improve close ratio? Have a better response time to get the estimate to the customer? Maybe you do it over the phone instead of meeting them in person. How can you make sure that once you do meet them in person for a project. The estimate gets back to them within a day or two instead of a week or two. All of these little things that you can do to improve your close ratio, your communication skills when you're on the property with the customer, your online reviews that you send with the proposal so they get that feedback, that social proof that they need to make the buying decision, all of that increases your close ratio. These are three things that you must be focused on. And the last one is most relevant to what we're talking about today, and that is price. Changing the price on your work is going to dramatically improve and affect your profitability. Let's assume real quickly that we have a $40 per cut lawn that we are charging on all of our lawns. As an average, we're charging $40 per cut, and we're going to just assume that we are making 25% profit margin. So not bad, right? You could scale this up as big of a business. You have 100 customers, 1,000 customers, whatever. Let's just assume we're making it. We're doing an average cut price of $40 per cut at 25% profit margins. That would assume that we're making $10 per cut. Now let's assume that we have 100 mowing customers and we mow everyone's lawns four times per week. So let's just do the math on this. So four cuts per week times 40 equals 160, and that's the amount of revenue per customer. Multiply that by 100, going to equal $16,000 in monthly revenue that we're making from mowing. And if we assume a 25% profit margin, our profit is literally going to be $4,000. Pretty cool. Hey, check this out. Let's go ahead and erase these top two real quick because I want to emphasize price here is a massive lever in your business and really, ultimately, your goal in your home improvement lawn care business is to be able to increase your prices. That's ultimately the goal of your business. Make a very sticky service that people do not want to leave. And the pain of leaving and finding another provider is way greater than the pain of a price increase. And we'll talk more about price increases down the road. But we have a letter inside the templates and documents. We raise prices consistently almost every year to our customer base. And we usually have 2 to 7% attrition people that leave because of our price increases. And usually it's more around the 2% marker. So you gotta keep raising your prices. But the only way you can do that is having a very sticky service that customers do not want to leave and go change providers and risk making the wrong decision on finding another vendor, finding another landscaper that is $5 cheaper a month, $5 cheaper per cut. But they don't show up sometimes and they don't have a credit card on file and they don't have automatic billing and everything is done with check underneath the front porch mat. All of that is value to the customer so you can raise prices and your service is sticky enough to where they stay with you. So you've got to have a high enough value to the customer like we talked about in the previous video, in order to be able to charge higher price. You can't just be like, I'm just gonna jack my prices up. But again, remember, the transaction will only go through as long as value is higher than price. If you just jack up price, this is when you lose customers. So instead of on a race to the bottom, of always making the price lower and lower, focus on how do I focus on improving the value, Having a better website, having a great experience for the S4 request form, having a great automated response system for the estimate request follow up. All of these things are improving the value so that you can increase price. As long as price price is lower than value, the transaction will still take place. And my goal is to have a premium product where I can charge a premium price and still the transaction goes through. So comes down to price. Let's take this example here. Now instead of $40 per cut, we're gonna charge $50 per cut. So now the math is this. Four cuts per month, still the same amount. But now instead of $40 per cut, we're gonna charge 50. Okay, that's a lot. No, it's 40. Anyone that accepts 40 is usually gonna accept 50. It's a very marginal difference. You might have to keep them for a year and then raise the prices in year number two or three or something like that. But the goal ultimately is, watch what happens here. A little tiny change in price. We're gonna increase the price by $10 per cut. Watch what happens here. Okay, so now it's gonna equal $200 for our whatchamacallit here. Our $2.

Or, sorry, revenue per customer. Now, down here, we can assume that our expenses, expenses equal. Whoops, equal $12,000. My goodness, I can't write. So because I know that I have $16,000 in revenue and $4,000 in profit, I can assume that I have a $12,000 in expenses now what's really cool at raising your prices is it doesn't change your expenses. I'm still going to have $12,000 in expenses on all these customers. It doesn't change anything to raise price. It's a lever, I change it and massive change in profit. And I do not have to change my expenses. But check this out. $200 per customer that I'm going to make and I'm going to have 100 customers. Whoops. Not 1,100 customers. I'm going to be able to keep these customers, they have great value. I'm going to be able to retain them. But instead of $40 per cut, now I'm charging 50. Now it's going to equal $20,000 in monthly revenue minus $12,000 in expenses is going to equal $8,000 in profit. Check this out. By raising my prices $10 per cut, I am literally going from $4,000 profit to $8,000 in profit. So a 25% increase in price resulted in a 100% or a.

Doubling of my profit simply by raising my price. Small change in price, $10 per cut literally doubled my profit. That is the power of pricing. That is the levers that you must focus on. And that's why it's so important to build value with a website. Build value with uniforms, build value with great trucks that are painted and have a great brand and your uniforms and you have a great CRM and everything is functioning on automations. You've got to do all that so you have the ability to raise prices and not lose these customers. That is the whole goal and ambition of starting your lawn care business is create a recurring revenue stream that you're able to to have price insensitive customers, to be able to raise prices and literally double your profit. That's a lever. This is what you've got to focus on when it comes to your lawn care business. Talk about how to estimate for a mowing recurring lawn service. Okay, now the reason we want to start with mowing, especially in year number one and especially in year number two, and as we kind of grow the business, we want to continue to make sure that I'd say at least 30 to 30 to 40% of your business, at least 30 to 40% of your business is recurring revenue. That revenue is most the time for mowing and maintenance services. We're just going to kind of combine all of those maintenance services into what we call lawn care or mowing. And so the reason we want to start off with the mowing is create that recurring Revenue, we make sure that we know we have money coming in the door and then we can focus on, once that's established, on getting those higher profit margin landscapes jobs. Now the reason that works so well is because you can actually see a direct correlation between the amount of recurring lawn mowing jobs you have and the number of landscaping jobs that you're gonna get. So as you get a hundred, two hundred lawn care jobs that you mowing every week, what happens is all their neighbors start to see your trucks more. And all the word of mouth, that's when it really starts to go to action for landscaping. The really where the meat is on the bone, where you get your profit margin really working and get higher priced products. And that's what you're trying to sell. But in order to get there, you'll see a direct correlation between the more mowing clients you get, the word of mouth increases. People see your trucks more, there's more employees, you're just around in the community more. And then you'll get those higher profit, higher priced landscaping jobs.

I do believe if you only have 15, 20 customers, it's not a good idea to be trying to do things over the phone because especially if you have really, really thin margins and like every dollar counts because 5, $10 difference on mowing price is going to happen, you're gonna be off by 5 or $10 occasionally if you're doing estimates over the phone. The reason you do estimates over the phone is when your volume is so high and speed is more important than accuracy, you are going to close more jobs if you get, if all things are held consistent. If you get the job, get the estimate to the customer faster, you will close more jobs. The question is, how accurate are you on that estimate? That's going to come with time. So typically when you're first getting started, you're not going to be able to accurately know how many square feet of lawn you get cut per hour per minute. And you're not going to look at a 3,000 square foot lawn or a 8,000 square foot lawn and know accurately how long it's going to take you. So I'm a little bit hesitant to tell people like you're gonna use hourly. You can do it over the phone when you have five or 10 customers because you might lose a customer that would otherwise be really good. But because you did the wrong calculations, you're charging $80 when they should be 60 and you lose the customer. So a couple reasons why I believe that you should do over the phone is if you're getting lots of estimates. You're getting like literally you have 100 plus mowing customers and you're getting lots of leads every single day, day. And driving around with all of them is a waste of time. If you're getting multiple estimates every single day, multiple leads for mowing, probably a good idea to start thinking about doing it over the phone, because the time it takes you to drive to all of them is killing your margins. It's taking your time. And ultimately, if you can save 30 minutes and be on a job site where you're charging $80 per hour, it's not the 30 minutes it takes to go to the client's house. It's $40 worth of labor that you would otherwise have gotten because the opportunity could have also been that you were on a job site. So just realize that there is absolutely the value of your time. And if that's becoming 1, 2, 3, 4 a day, now you're spending two hours driving around doing estimates. You should just do those over the phone and realize that you might lose an occasional job or be inaccurate slightly. Now, worst case scenario, you do an estimate over the phone by square footage and you are off by 5 or $10 and.