BRUTALLY HONEST Advice for EVERY Home Service Business Owner

My name is Mike Andes and over the past 10 years I've grown my lawn care business from one location to over 150 around the world with over $50 million in annual revenue. Today I'm going to be sharing with you the brutally honest advice I would give any home service business owner that's starting their business today.

Alright, so the number one thing is to make the business sellable. Now you might actually want to sell your business one day. And, and this is a website called bizbuysell.com and you can see in here there's siding businesses, there's window cleaning businesses, there's electrical businesses, and they're selling anywhere from 400,000, 65,000, $10 million that these home service businesses are actually for sale. However, you might be like, well, I don't ever want to sell my business, but that's not the point. I just want to build the business where it is sellable because you want options. And whatever is going to be higher value when you sell is also going to mean the business is easier to operate and makes more money. So how do we do that? First is reduce key man risk. So if there's one employee or if you're the only person that knows how to do a specific task in the business, a specific service, or if they got hit by a bus, the business will be completely down the drain. That's a problem. That's a lot of risk associated with specific employees. Or you as the owner, reduce that by creating redundancy, having other people know how to do everyone else's job, or if you're the only one that knows how to do a specific service, train other people up or create systems and operation guides and standard operating procedures for other people to follow and do that same task. So what you can do is create systems. Now what is a system? A system is simply creating a repeatable outcome. And so if I want to create a repeatable outcome of getting contracts signed, getting estimates accepted, making customers happy, I need to create a system to make it repeatable every time. There's two ways in my mind that you can make systems. One is simplification and one is standardization. Simplification is just how do I reduce this to the least amount of steps possible and take out complexity. Standardization is how do I do it the same way every single time so I prevent any sort of mistakes from happening. And if I create systems, I create a repeatable outcome. Guess what, it's a more of a sellable asset. I could sell it to an investor, I could sell it to a competitor. Or I could keep the business myself and go have a general manager or someone else run the business for me while I'm out on the beach or I retire. Another way I do this is creating more locations where I distribute the management between multiple people. I have general managers and I have a hierarchy of regional managers. This is all done so that I can make the business more sellable. Now. Now keep in mind, if I'm making business sellable to actually improve the valuation of my business, I'm gonna be focused on customers and contracts, buying more trucks and equipment. If I turn $40,000 of cash and turn into $40,000 truck, I haven't improved the value of the business at all. I just took cash and I turned it into metal. If you actually want to improve the valuation of your business, you're gonna focus on generating more revenue, creating a website that generates a ton of leads. You're gonna have customers that are constantly coming back to you and buying from you over and, and over again. And you're gonna have a massive recurring database of customers that buy from you every single week, every single month, and over and over and over again. That's where the real value of a business comes when you're trying to sell it. And it makes it where it's more profitable. Even if you continue to own it yourself.

Q4 collapse will kill your business. Now, I call it Q4 collapse because typically in home services, the last quarter of the year is the one that you wipe out all of your profit. And for two, three quarters out of the year, spring, summer, super profitable. Then you hit Q4 and all of a sudden leads dry up, people stop calling you, revenue drops precipitously, and during that time you lose all your profit and you have negative cash flow. Bottom line, having negative cash flow where you actually lose money to stay in business for any month of the year is completely unacceptable. I've seen over the course of hundreds of locations at Augusta and thousands of different businesses and home services that if you take 1/4 of their profit and loss statement out of their financials, they're usually running a really good profitable business, like 20 to 30%. But then you add in one quarter where they' losing 10 or 15 or 20% of profit and they're actually paying money to stay alive and in business. Now all of a sudden they don't have a very profitable business. And that's when you get to single digit profit margins, typically in a lot of home service businesses. And so the whole objective is, how do I fix Q4 collapse when the grass stops growing and the bushes stop growing. For me and lawn care and landscaping, I've got to figure out a way to make money for those extra three or four months. Now, at Augusta Lanka, we have five different winter tracks and one of them is Christmas lights. And we've gone ham on Christmas lights. We've invested a lot in actually creating augustalights.com just so that our owners are able to solve the problem of Q4 collapse. And it's a basic service. Look, I already got the truck. I'm showing up in the same truck. We got lights. I'm just plugging them in to the bed here along the driveway. I'm going to do the similar thing on the gutters to be able to get ridge lights for Christmas lights. Now what this does is allows the owners inside of Augusta Nation to be able to sell during October, November and December and then take down the lights during January when other otherwise those are typically our slowest months of the year. Now, if you don't have Christmas lights, that's fine, but you've got to figure out a season specific service and create season specific offers for your customers. So what we do is we have our mowing customers that we're going to service throughout the entire year, but they don't need mowing and they don't need bush trimming and they don't need mulch during the middle of winter. So we create a season specific service, Christmas lights, and then we create season specific offers for our customers. And so what we're going to do is we're going to create an offer for existing mowing customers and say, hey, look, we can go ahead and install your Christmas lights. Click this one button and we will set up a quote for you. And here's what includes. We can immediately upsell massive amounts of our mowing customers into another season specific service just by making the right offer. I remember when I would save up between 70 and $100,000 of cash when I first started Augusta Lawn Care. And that was basically all my profit for the first half of the year. I would save all of that just to burn through it during the winter. And I would keep my guys busy because like, I was like, I can't. There's no way I'm going to be able to go into spring with no experienced crew members. So what did I do? We literally would pressure wash people's houses for free. We had pressure. Was their driveways free? We would give. We literally made cookies and then gave it to our customers and had the crew like Go distribute them. We gave customers free estimates. We went and talked to property managers. A lot of wasted time. And during those winter months, I had a negative profit margin of like negative 10 to negative 20%. I was losing money to stay in business. Off seasons will keep you poor. In home services, you've got to figure out a way how to never have an off season where you're simply switching from the lawn care season to the Christmas light season, or from the lawn care season to snow plowing service season. You've got to have a different service and a different offering to make sure you never have an off season and you never have a single month where you have negative cash flow.

Most people aren't going to enjoy this fact, but the bottom line is usually it takes about three years for you to replace the income that you would otherwise be making if you were an employee as a W2. And so those three years of pain is why most people will never get through it. Because it's very, very difficult. You usually make less money on your business than if you were just getting your old job from the past. So when we look at a calendar, it's probably gonna take you three of these bad boys to actually get to the point where you make more money in your business than if you were just at a regular 9 to 5 job. All right, so three of these where you're working and grinding and hustling every single one of these days, three times over before you finally actually like, oh, I made more in the business than if I would have just gone and worked my regular 9 to 5. Now let's go to the whiteboard. Now the reason this is super demoralizing is cause you're gonna look at your profit and loss statement or your P and L, and it's gonna be like, you made $80,000 on the bottom line. And you're like, that's fantastic. But why in the world on my balance sheet do I show from a cash perspective, I only have $20,000? That's horrible. Here's the thing. Your profit and loss statement does not take into account depreciable assets like trucks and equipment. So for example, if in your first year or two, because you're growing really quickly and you're buying a bunch of trucks, and yes, these are going to be the best trucks you have ever seen on a whiteboard. Now, if you're buying this truck and this truck is $40,000, you're like, well, then doesn't that mean that I'm gonna have an expense of $40,000? On your P and L. No, no, no, you aren't. Because $40,000 for said truck is a balance sheet item. It is not an expense item. And so what's going to happen is from a cash perspective, you got $40,000 poorer if you paid cash for this truck. However, it is not an expense on the P and L. And that is why so often the times you'll be very, very like, business owners will get disillusioned by the fact they see $80,000 or they see some big number of profit on their P and L. And they're like, why in the world? I don't actually see that in the bank account. Like, where is the money going? And it's usually just a matter of you're putting your cash into assets, and those assets don't show up as expenses on the P and L. And that's why usually by year three or four, you're not buying trucks and equipment and growing so much. Therefore, you start to actually see this profit and loss. This money starts to actually show up inside of your bank account.

When it comes to marketing, we want to make sure we boil the puddle. Instead of trying to boil the ocean and try to market to everybody, I want you to focus on direct response marketing to a very small segment of your target market. So instead of trying to market 50,000 homes, I'm going to select several neighborhoods where I can boil the puddle. In other words, I'm going to get in front of them in every single way possible. I'm going to put door hangers on their door. I'm going to send them every door direct mail campaigns in the form of postcards. I'm even going to show up at all the intersections that are close to their neighborhood and put yard signs right next to these intersections. So underneath that red sign, the stop sign also, I might even put it across the road there so when they're parked to the stop sign and they're looking into oncoming traffic, they can actually see my yard sign. I'm going to do that all around my target market. But again, my target market is not my entire city. It's not my entire county. It's not the three counties surrounding me. I'm going to start very, very small. Now, the whole goal in doing this is that we start with direct response marketing. Now, direct response marketing is not the end all, be all. What we really want to achieve is brand awareness. Because when you have a good brand, it reduces your customer acquisition cost because you don't have to spend money in order to get actual New leads. If you have great branding, people just see your trucks and they go to your website and they submit request form. Direct response marketing, though, is different. Direct response marketing is I'm asking the customer to do something, they need to respond. So on my Facebook ad, I'm saying, fill out the form. I'm saying click here on my yard sign or door hanger or my every door direct mail campaign with postcards. I'm going to be telling them to go to my website or give me a call. That's what we call direct response marketing. This is how I think about when you start a home service business and scale it up is I'm going to start with direct response marketing to boil the puddle. So I'm going to do the door hangers, I'm going to do the flyers, I'm going to do the postcards and the yard signs. I'm going to do Facebook ads in this area and try to boil this puddle of several neighborhoods, maybe a thousand houses over the course of time. If I get all my customers inside those neighborhoods, this is what's going to happen. My trucks are going to be driving through that property, through that neighborhood every single day. And this actually happened in this market where we're standing right now is Blaine Washington. You can look it up. It has like less than 6,000 people that live here. And I started all my marketing. All of Augusta Longer started right here where there's like 6,000 people. And I was able to hit everybody multiple times with every door, direct mail, door hangers, Facebook, Google, really, really easily because it's such a small puddle, I was able to boil it. But then what happened is even though I had two or three trucks, we were driving around here all day long in this little one mile radius. And because that people thought we had like tons of trucks because they were. They saw us every single day in their neighborhood, in their community, driving down their streets. And so we eventually achieved brand awareness because people thought we were bigger than we were. They saw our trucks everywhere. And I started to get leads without having to place ads. And that's why usually your second year you'll get a big influx of leads, is because the first year you had to pay for every single ad. You had to pay for every single customer because people only came to you as a customer from your advertisements. But now as you start doing services in the same area and you're boiling the puddle, they're seeing your trucks, they're seeing your uniforms, and you're starting to get brand awareness in the long run, our goal is brand awareness. But to pay the bills, we've got to focus on on actually doing direct response marketing. If you try to jump all the way to branding and doing like massive billboards and TV commercials and all like sponsoring the local team, those are all branding plays. And if you focus on that right away, you're going to run out of money because you're not going to have enough capital to be able to actually scale the business. So focus on direct response marketing. Boil the puddle, the small, small service area. And then as you do that and you start servicing all those customers in that area, you'll achieve brand awareness because you are boiling the puddle.

Building a seven figure, million dollar lawn care, landscaping or any home service business is a lot harder than it sounds. Everyone talks about building a million dollar business as if it's everyone can do it. Here's the facts. In the United states, less than 10% of businesses that get started will scale past a million dollars in annual revenue. And the vast majority of them will never even scale past 100,000. The ideology that everyone becomes super successful is going to build a seven figure eight figure business is just unrealistic. Now if only 9%, that's what approximately what percentage of home service businesses start actually get above a million? Let's just say it's 1 out of 10 and in a lot of industries a lot lower. Because the barrier to entry is so easy to get started with something like lawn care that most people don't even get above 100,000. But let's just say, let's just say 1 out of 10 people that start a home service business are going to build it past seven figures. What that means is that as you build the business, you're going to have different hurdles you have to encounter. First off, you're going to have to go full time. You're not going to run a part time seven figure business and employ a bunch of people. It also means you're likely if you're going to go really fast, that you're probably have to find debt or some sort of capital or investor if you're going to grow really quickly. And these are all challenges that you're going to face along your way to growing a business to seven figures. Each of those obstacles is what keeps nine out of 10 people from growing the million dollar business. And so right now you're growing the business, you're at 300, 400, 500,000. Realize that the growing pains you're going through now and the challenges you're facing, like I can't Find any employees. That's why nine out of 10 people never scale to a million. You're like, man, I just got a lawsuit from a customer that sued me over something that's stupid. Again, this is why nine out of ten people do not grow a seven figure business because it's hard. And so if you're going to think, get into this business, think it's going to be easy, this is the wrong business for you. And just to keep in mind, that 10% figure is across all businesses. Every industry is difficult. If you get into like a restaurant, can you imagine trying to like get food done the same way every single time to every single customer that's putting it in their mouth? And then there's like time where it gets really busy and there's times where people don't tip and there's weird customers have weird preferences and like all sorts of craziness. That's the restaurant industry. Okay, software, software would be so much easier. I've done software, it's extremely expensive. I can't pay people 20, $30 an hour. I've got to pay them 100, 200, $300 an hour to do work. So there's always constraints, there's always difficulties to every business and every industry. Instead of thinking that your industry is difficult or that this business is so hard, I can just do a different service. It'd realize that only 10% of small businesses that start in the United States grow past a million. And what you're facing right now is what keeps 90% of them from ever getting to a million. So overcome each of these obstacles, get through them, put your head down and grind through those moments. Because that's what makes the extraordinary seven figure business possible.

Not all growth is created equal. I like to think about your home service business as three different types of revenue. And the valuation of this revenue is very different when it comes to the enterprise value of your business. In other words, what is your business worth? So first off, we have one time projects. These are going to be jobs that customer only needs done one time. Think of it like a new roof or new windows or an H Vac system. They're usually not going to get a whole bunch of H Vac systems every week or two from you. So these are one time projects from a valuation perspective, creating value and worth in the business. What is more valuable is a reoccurring service. This is where they might need every week, every two weeks, every three weeks, or every four weeks. But they ultimately are doing it ever so often. For example, I Don't need to have a Pepsi on a subscription, but I will go get one today and then I'll get one in a few days and I'll get one next week. So it's reoccurring. It happens periodically over the course of time and that's all cool. This would be something like installing mulch in your flower beds. Like maybe you do it once a year. It's definitely not a one time. And you never get the customer customer again. It reoccurs to some frequency. However, the most stable revenue and therefore the highest enterprise value that you're going to get from any type of revenue is going to be recurring revenue. This is where the customer is on schedule. You're showing up at their property every week, every other week, every month, every quarter, but they're on some schedule where you can predict very accurately out in the future of what your revenue is going to be. The most valuable companies in the world always focus on trying to create recurring subscription revenue and jobs in the future that they can predict exactly what their revenue is going to be and slowly build on it over the course of time. And so if you're only doing one time projects, I encourage you, for the sake of increasing the valuation of your business, try to create a maintenance division or some form of recurring revenue in the business. You could even create warranty programs that you sell on one time projects. So that way you have a recurring stream of revenue coming in over the course of every single month, every single year. And that revenue is going to give you the highest multiple on your valuation of the business. So when we think about enterprise value, the reason I am a big proponent of actually thinking about from this perspective is if I can grow my business from a valuation perspective of $250,000 is the value of my business. If I'm able to grow the business, if I'm able to increase the quality of the revenue from less one time projects and towards more reoccurring or recurring revenue, if I can do that and I can increase the value of the business from 250,000 to, let's just call it a million dollars in revenue. What happened here is I was able to create $750,000 of value out of thin air. In other words, I don't pay any taxes on this increase in equity. And this is how the rich get richer and they continue to be able to not pay taxes is because this increase in the valuation of this business going from 250,000 to $1 million, there was absolutely no taxes involved here. I didn't take distributions on this. I didn't take any sort of salary and if I did, that's fine. But the net worth, my net worth going up is not getting taxed here at all. The same way if your house, if you bought a house 10 years ago for 500,000 and now it's worth a million dollars, you're not getting taxed anymore unless you sell. Unless you sell the house. And same thing is true, until you sell your business, you don't ever actually realize this is income and therefore you never get taxed on it. Very cool. So remember, not all revenue is created equal. We have one time projects, we have reoccurring work and then we have recurring work. Also keep in mind, when you're growing revenue, the least profitable way to grow revenue is by expanding your service area and, and adding a bunch more services. So whenever you're tempted, like I want to double the business. Yeah, just add more services and start servicing more and more cities. That's usually the least profitable type of growth. So not all growth is not created equal and not all growth in terms of your service area and adding more services is going to make you more money.

One thing I found in the home service industry is that we are addicted to cold traffic. What I mean by that is we're always trying to face and find the new shiny customer and we're always going after customers that we've never talked to. We've never, they're not in our database, they never heard of us. So we spend tons of money on advertising, Facebook, Google, every door, direct mail. Not to say those things are bad and you will need to go after cold traffic, especially at the beginning of your business. Many times we neglect the warm traffic in our database. So instead of going after cold traffic, people have never heard about you. Let's focus on the people that we've already done service for or they've asked for estimates in the past and they just never accepted the quote. Doesn't mean they don't want service. They actually need our services. They raised their hand in the past and said hey, I need this specific service done so why would I not go up to them first? You can use text blasts, email blasts, inside of copilot and reach those customers and like, hey, what about this other service? Would you like an estimate for that? And guess what? It costs you exactly zero customer acquisition cost to get those people to buy more from you. Alright, little explanation, a little demonstration. We're going to cook some ice cubes.

All right, so we start with ice cubes. Very quality ingredient. So what our goal is is to be able to get the customer to eventually buy from us. This, think of this as a cold customer. They don't know about you, they've never heard about you. And we've got to warm them up with a whole bunch of advertisements. So let's throw a bunch of customers into the frying pan, also known as a pot. I think I have no idea whatsoever because I don't cook.

Alright, so now we've got all these cold customers, these people that we potentially could sell to, but we've got to warm them up. And you might have heard the phrase where people will say you got to advertise to someone eight times or touch them eight times before they even make a buying decision. And that is what we got to do. Now. We're going to turn on the heat and this is all the time that's going to go into advertising them sending them different door hangers and yard signs. They got to see it. And they go see your trucks, they go see your uniforms, then they go see your website. This is all the warm up process. And here's the thing, they're still cold and it's going to take a long time for them to become a liquid. The eventual process of this will be going from a solid ice cubes to then a liquid water and eventually become a gas. But why not just start.

With this water? I eat warm traffic. These people have already bought from me in the past. They're in my database. They've asked for service in the past. Now I just take them from a liquid into a gas.

And that is the objective. We're trying to take warm traffic liquid into wonderful paying customers. And if you want to get more customers, go to blue collarsummit.com we're gonna have a three day event where me, John Taffer from bar rescue are gonna help you grow your business and again, take cold traffic into warm traffic and make more paying customers.

We'll see you there at the blue collar summit.

Oh man. All right.

Stick to business, Michael. Stick to business.

At the end of the day, we want to keep it really, really simple. In other words, keep it simple. Stupid. When we think about home services, I like to think of it like this. At the end of the day, all you're really doing is selling labor. If you have a home service business, you're selling labor like oh no, we sell like really fancy H vac systems. Okay, great. Let me explain. What we're going to do is we're going to take in $20 per hour. And we're gonna pay someone $20 per hour in form of a labor. And this product, this is their product is labor. It goes into the box. Now, the whole goal of a home service business is to take the $20 per hour that you're paying the employee and out on the other end, we get.

$100 that the customer's paying us for. And so ultimately, this is the machine that we are building. And so this box right here, this black box is, is the box of your business. The systems, the procedures, the equipment, the training, everything that goes into your business and making it more efficient is this black box. But ultimately, the product that we are selling is labor. And we're trying to take low cost labor, 20, 30, $40 an hour. And then through all the systems and the training and the equipment and everything you put into your business, out on the other end, we are getting that same labor, giving it to the customer for more money. This is the basis of home services and the skills that you give your employees and the training, the equipment that you equip them with so they have fancy trucks and nice equipment and tools. This is what makes that labor worth more to the customer. And so this is why the black box, everything that we've talked about so far in the video is all about the black box. How do I make better systems? How do I make sure I track my efficiency score? How do I make sure my crew clocks in? Now I pay them by performance and I give profit sharing. All of that is to make this black box more efficient, so that per unit of labor, I make more profit when I sell it to the customer.

Use debt. After proving your business model, in my opinion, debt can actually be used to make your business grow much faster. Think of it like this. If I need money to buy trucks, equipment and assets to be able to grow my business, if I can just fast track that by having loans and debt to be able to pay for that, I'll be able to grow the business much faster. Typically, the most conservative way to grow without having loans and without having debt is going to be grow and then stay in profit mode where you actually raise prices and make more money. And then after a little more time, you get more money in your bank, then you go and grow again. You buy some more trucks, more equipment, you continue to expand. That's a more conservative approach. If you want to grow really fast. A lot of times you do need outside capital, whether it be from investors getting a loan or some form of debt. Even if you use credit card debt, not Advised, but it's possible. Ultimately, adding debt adds risk to the business. For this reason, I usually recommend that before you go out and get debt, prove that your business model actually works. The reason I say this is because more than half of small businesses don't last five years. And so if you're going to saddle yourself up with a whole bunch of debt in your first year without proving the business model, without knowing your labor market, without knowing the seasonality of your services, without knowing your customer and what they're willing to pay, if you don't know those things and you have all this debt, you have opened yourself up to a massive amount of debt that even if the business fails, you've still got to go pay that off or declare bankruptcy. And so I'm a big proponent of using debt after you've proven your business model. There's a reason why companies like Apple, Microsoft, and so the biggest, most profitable business businesses in the world still have billions and billions of dollars worth of debt. And they use guys like Chase to go get those that debt. And why? Because they know they can get debt for say, 3, 4, 5% interest and then take that money, invest it in growth, invest it in offices and buildings and infrastructure and employees and advertising and marketing, and then by doing that, get like a 10 or 15% return. Ultimately, if you can get debt and then be able to, to make a better return on investment than the interest rate you're paying, technically that's a good deal. The question is, is it actually worth the risk? That's what we call our risk adjusted rate of return. And that is the difference between what I'm putting at risk versus what I actually get back from my investment. And if I can make more than my interest rate and what I'm paying down on that loan, technically it's a good deal and you'll be able to grow the business faster. Debt is sort of like gasoline on fire. I would rather build a, a small fire and then slowly trickle a little bit of fuel, a little bit of gasoline, a little bit of debt on the business if needed, so I can make it bigger. What I'm afraid of is people get massive amounts of gasoline, massive tub of gasoline, and then you're just getting their business started with a spark and they're trying things. That's a huge risk. All of a sudden that could immediately combust. The business could grow really fast or the business could just blow up. And that happens more often than not. And I recommend waiting until you've proven the business model, you understand how to make profit in the business and then use debt to scale the business faster.

Premium brand equals premium price equals premium customer. You're going to attract the best customers by having an excellent brand and a price that matches it at the end of the day with home services, you don't want to be the person that's always custom competing for the bottom of the price barrel in always trying to be discounting, giving away things for free. Now when you're first getting started, you might start there because your only differentiation is price. But as you grow the business, as you get out of massively trying to grow, grow, grow, you're going to need to raise prices. Now you can only raise prices if you have a great brand. People are not going to pay a premium price and the premium customer is not going to come to you. If you don't have a premium brand, what does a premium brand do for you? Well first off it's going to allow customers to have a perceived value much higher of your business. So when they see your trucks that are wrapped, when they see your uniforms, when they call and the office actually picks up the phone when they go to your website and it's branded and it looks great and it has your logos, it has pictures of your truck on it, that premium brand is going to translate to a customer that's willing to pay a higher price. Now you can't just jack up your prices and think that somehow that's gonna make you premium. You've actually gotta have a great product but a big piece that people forget. It's not just the actual work you do that needs to be premium, it's the whole service and that's what brand is. How does it make the customer feel when they call you? How does it make them feel when they go to your website? When they submit estimate request form is there automations are they able to put a credit card on file? What's the process like when they actually get the quote and get it accepted? These are all pieces and parts of your brand and if you make that really strong and you have a premium brand, you can charge a premium price just by having a great website. Based upon the studies we've done, you're able to charge 5 to $10 more per man hour when you're on their Just by having a great looking website where you show your brand and you show your trucks and you show your uniforms and by having that great price now I can actually afford to be able to go get the best customers using marketing. By having a higher price I can actually afford to spend money on ads. I can actually spend money on getting the trucks wrapped and decal and uniforms. And so if you're like, well, I can't afford it, I can't afford to get a great website, I can't afford to get great uniforms, I can't afford to wrap my trucks, you can't afford not to. Once you get it done, you can now charge a higher price. And by doing that, by having the higher price and a higher value, you're going to attract a higher premium customer that's less price sensitive. These customers in this neighborhood, they're premium. These houses are selling between 700,000amillion dollars. And most of the population inside of here is going to be 70, 60, 70 years old. By that I'm able to sell them all of my services. They're not just going to accept mowing, they're going to accept weed and feed, they're going to accept bush trimming, they're going to accept clean out the gutters, they're going to accept winter services, they're going to have their Christmas lights put up. And so premium customers are attracted to companies that have a premium brand. And your prices match that premium brand. You can't have super low prices. You've got to actually increase them. And this is why a lot of times people realize in home services they raise their prices and no one leaves because they have good customers. And the customers you lose during a price increase are usually your least premium customers. The ones that don't accept all of your upsells, they always only use one service. They're never accepting all the other services you offer offer. And to me, a premium customer not only pays a premium price, but they take all my upsells Instead of just taking one service, they accept all the services I offer. And inside of co pilot, when I show up to a property, I'm going to click on a couple buttons and every time I come here, I'm going to be looking for another service. I can upsell this customer because a premium customer will accept every single service.

The average home service business stinks. The industry, the service, just the entire thing stinks. Here's why. Because the cost of goods sold or the cogs inside of home services is really brutal. Usually 40 to 50% of all your revenue goes out the door to cost of goods sold or direct costs. Well, what are those? Those include your materials, but it also includes direct labor. And that's the challenging part with any service business is the fact that you have to actually pay people an hourly wage or salary to actually go do the work. It's part of your cost of goods sold, which means you have a low gross profit. What that means is if you take your revenue and you take out your cost of goods sold or your direct cost, then you have a gross profit margin. And in most of our businesses, that's like maybe 50 to 60%. Not excellent, not great. On the other hand, if you're selling something like software, it might only cost you 10 or $15 per month of like server space and like actual hard cost of sending out text messages and emails, but then you're charging the customer hundreds of dollars per month. In the software business, you actually have like a 90 or 95% gross profit margin because you don't have a lot of cost of goods sold. And if tomorrow you don't hire anybody, the software kind of keeps going, which makes it nice, you have a higher gross profit margin. Now, not to say that software is easier, by no means, but it does mean to say it's a higher margin business. Because in Home Services, I have to pay more money for every single unit of more revenue that I collect. Because if I don't do more work and I don't do more labor on the customer's property, I can't sell them more services. So a low gross profit margin and high cost of goods sold makes this industry very difficult. Another reason why home services stinks is because it's very solo operator constrained. And that is it's easy to grow to 100 plus thousand just by yourself. But scaling past that where you have employees is extremely difficult. And it's not like where I can just build one thing and then rent it out to a bunch of people. It's not like I'm doing an Airbnb and I just like can fill more people and raise the prices. Instead, if I'm going to grow the business, I actually have to hire more people. And going from a worker to a manager is very difficult. It's a completely different skill set. And that's why most people in home services don't ever actually become more than a solo operator, is because having employees and W2 employees that you have on payroll is very, very difficult. Difficult not only just to keep the business profitable after having employees and all the extra overhead, but also finding employees. And so now you have the labor market you got to deal with. And guess what? The government, they love having low unemployment numbers where they're just incentivizing everyone to get more jobs and they'll pump money and to get making more jobs. And guess what that does? It makes your job as a small business owner a lot more difficult to find employees. So it's hard to find them, it's hard to keep them, and it's hard to make the business profitable with the employees after you've gone past being a solo operator. The best home service businesses generate over 20% profit margins on a million dollars in annual revenue and take at least 10% of revenue out of the business in distributions or free cash flow where they actually take the money out. So in other words, they would have a million dollar business $200,000 in profit, and then the owner, after they take their salary and everything, would take $100,000 out of the business and put in their own personal bank account. Those are some of best the best businesses in home services. Those are the metrics I'm seeing. 1 million 20% net profit margin and 10% of revenue is being taken out of the business and put in the bank account of the owner. The vast majority of home service businesses run a very low profit margin business because they think that they're competing on price, when in reality, if they had a high value brand where they could charge a premium price, they could actually raise prices and immediately double or triple their profit. And so because we don't think our services are very sticky and we keep our prices low and we try to compete on price, it makes our profit margins abysmal in home services. In my opinion, the only way to win in home services is to be able to have a premium price that you're charging customers and then use technology with your higher margins. Invest in the technology to be able to make you more efficient than anyone else. So whether it be robotics, whether it be software, these are all things. This technology that's going to allow you to do the job for a lower cost to the customer, it's going to reduce your labor expense, it's going to make you more efficient. And so using technology after you're charged a premium price to the customer makes the business great. And again, I said the average home service business stinks and I stand by that. But here's the bottom line. Don't be average, because the average business will go out of business in the next five years. So to stay in business, be profitable and stay in home services, charge a premium price and then use technology to become more efficient than all of your competition.

Basically, there's just one skill that's required to grow your business and home services to a million dollars, and that's sales. After getting past a million dollars, the Next thing you got to focus on is talent acquisition. In other words, who. So it goes from selling to who is going to do the job. For me, think of it like this. When egg lawn care, some are locations they'll get started and within a matter of three months they're already doing over $100,000 in monthly revenue. Other locations might take three, four or five years to ever hit that number. Here's the difference. It comes down to who can sell. The person that can knock on doors, the person that can do door hangers, that tells all their family and friends, gets Google reviews right off the bat is every time they go to Subway or to the barbershop or their accountant, they're telling everyone about their business. That's the person who's going to grow the fastest to $100,000 per month in revenue. And that can happen in a matter of a few months. It can take years. It all comes down to your ability to sell, your ability to follow up, your ability to convince customers to do business with you, and the ability to be able to put on your boots, start pounding pavement, getting in front of customers faces and convincing, convincing them to buy from you. After you pass a million dollars in annual revenue, especially get two or three million dollars in annual revenue, it really comes down to who are you hiring? And I still remember the first person that I hired for over $20 an hour and I was like, oh my word, this is crazy. Then I remember the first person I paid six figures to, oh my word, this is insanity. I remember when I hired the first person for multiple six figures like their very first day of work. And every single single time it was insane insanity to me because it was like all this risk and then you realize that that is what unlocks a massive amount of experience and talent that will let you go to the next level. So recently we've had massive bottlenecks when it comes to technology. And so finding engineers and product people and UI and ux, those are big bottlenecks for me. And then I just realized I need to find who had the solution to my problem. This was simply a talent application acquisition game and so going on and finding great people, attracting them to your organization, putting them in general management positions, regional manager positions, office manager positions, salespeople. These are the type of positions you'll then have to fill to go from a million to 10 million.

We don't sell stripes. Now obviously this is for the lawn care landscape industry where we talk about actually making stripes in the lawn, but you actually don't sell stripes. If you boil down your service or product to simply the commodity, then you're going to be a low price, competition type of situation and always lowering your prices because you're just selling a commodity. But if you actually think about what you're really selling to a customer, it has nothing to do with the service that you're doing. And you replace lawns with, you know, the paint that you're installing or the fences that you install or shingles on a roof roof or appliances or H vac systems. Whatever home service you're in, remember, the actual service and product that you're selling the customer is not actually the most valuable thing you're selling them. For example, it's not stripes that we're selling. We're selling peace of mind. For people that are out of town, they might be a snowbird where they're away for three or four months, and they want to make sure that their property looks good while they're away. So people don't think that their house is vacant. You are also selling time. Like, the customer would probably take two or three hours to mow their lawn. I can do it in 20 minutes. I'm saving them a mass amount of time. And here's the thing, if they're 75, 80 years old, time to them is worth a lot. And so you might be like, oh, my goodness, this seems so expensive to charge them $800 for a property cleanup or for whatever service you offer. And yeah, to you it is, because you're not the target market. You're not their age, you don't have their type of net worth. And remember, you're not selling the property cleanup. You're not selling trimming a few bushes and hauling it off the dump. What you're really selling in this case is status in the community, in the local neighborhood. They want their neighbors to be able to drive by, see their property's being taken care of by a professional service, and it looks good. You're also selling insurance. Like, think about like insurance. You don't even use it. So what are they selling you? They're selling you peace of mind. They're selling you that if something goes wrong, they're going to be there to take care of you. And when I'm trimming bushes off of a house, I'm giving them the peace of mind, the insurance that their biggest asset, their house, is going to be taken care of. And the thing about home services is for a lot of our customers that are baby boomers that have paid off their house or they have a ton of equity in their house. It's the biggest part of their net worth and of their portfolio is the equity in their house. So you're actually providing asset protection when you're taking care of the home, improving it, repairing it, maintaining it. And so think of those sort of benefits that you're giving the customer. The insurance, the time that you're saving, the. These are the actual benefits that you're selling them that are worth much more than just the stripes, just the wood, just the things that you do around the property that we can all commoditize and make cheap. And if you think about that way, you'll be able to sell to that premium customer at a premium price.

And if you're selling to first time home buyers or millennials like working professionals, keep in mind that you're also selling pride of ownership. This is their first house they just purchased. It's a small, super big deal to them to keep it maintained.

All right, so I shared so far, brutal advice I'd give to every home service business owner. But really, if you're like, what's the, what's the secret? What's the fix to every business problem I have? All right, 90% of your problems will be fixed with one thing and that is raise your prices. I know it's mind boggling, but if you go back to the turnaround shows that I've done over the past year to over 30 small businesses and try to help them turn around, most of which were in the home services, almost all of them could just fix their problems by raising their prices. Here's why. If you have a 10% profit margin business, which means I am doing $500,000 in annual revenue, I'm drawing $50,000 in profit if I raise my prices by 20%. So now instead of making $500,000, I'm going to make $600,000 next year. Well, if I make $600,000 instead of $500,000 and I have the exact same operational efficiency, I am now going to be profitable by 150,000. So I went from 50,000 in profit or 10% of 500 to now being $150,000 in profit on 600,000. Because all that increase in revenue from 500,000 to 600,000 just came because I raised prices. I didn't have to buy more trucks, I didn't have to hire more people. I didn't have to change anything. I just raised my price. And so if you have a great service and you take care of your customers and you really do Care about them, and you don't have complaints and people aren't leaving and mad at you, you can raise your prices, and it'd be very sticky, which means when you raise prices, people still don't leave. Recently at the Bellingham shop for Augusta Lawn Care, we raised prices by over 25% across the board on almost 400 customers. And guess what? Only about 30 of them left. But guess what? I more than doubled my profit margin because I raised prices by 25%. So here's the bottom line. If you're having problems in your business, raise your prices. Say, it's so simple. But here's the thing. I have employee problems, or I'm having problems with my equipment. Here's what's really cool. Money solves everything. If you have more money, you can go hire people for a higher wage. If you have more money, you can go afford to buy more trucks. You're like, I can't get any leads. No one's calling me. Great. If you have more money, you can go spend money on advertising on Facebook and Google and doing every door direct mail campaigns and doing door hangers. And so ultimately, because money solves everything, and raising your prices, if you have a good service is usually very, very sticky. Just raise your prices. And if you're considering right now you're gonna go to business, you're like, all this brutal advice that you've given throughout this video, I have done none of it. And because of that, I'm about to go out of business. Give me one month. Just raise all of your prices across the board to existing customers and to new customers. This will solve so many problems. And if you're like, no, no, no, Michael. It has nothing to do with my business. It has everything to do psychologically. I just can't take this anymore. I'm, like, overworked, and I'm working crazy hours. My family's gonna kill me. My relationship's in the garbage because of it. Here's the thing. Money solves everything. If you raised prices and you doubled your profit margins, guess what? You'd be able to afford another employee. You'd be able to afford a general manager. You'd be able to afford an office manager. You'd be able to afford someone to be able to take the calls for you instead of you in the middle of the night. So ultimately, because money sells everything, raise your prices. And if you're thinking about giving up, if you're thinking about throwing in the towel, just raise your prices. I beg of you. At least 10 to 15%. I would rather you raise your prices by more like 20 to 25%. And I think you'll be shocked by how few customers leave and just how much money you can make in this industry if you raise your prices and charge what you're worth.

Now, if you're interested in actually starting a lawn care business, specifically, watch this video here. It's a master class in very much detail of exactly how to get started.