Create a Report Card for Your Service Business! [Mike Andes]

Hey, everyone, it's Mike Andes with Copilot, CRM and Augusta Lawn Care. And today we're going to be talking about your company scorecard and really grading exactly where your business is at based upon specific metrics. Now, we can obviously track how many leads we have. We can track a lot of different things in our business, but these are some of the KPIs key performance indicators or also kind of like the triage that you might use in your business to determine, like, are you above average? Are you below average? Are you struggling in an area, or you doing really well? And so let's go ahead and jump into these. These are mostly used for home service businesses. So let's jump in. So the reason I'm doing this is because a lot of times people will always say, like, give me specific numbers, and, you know, I want to know exactly how much I should be doing this. Is this good? Is this bad? Is this a good close ratio? Is this a bad close ratio? And when I first got started, you know, I was almost a little bit annoyed when people were like, well, I'm not going to really share the full number. They'll kind of beat around the bush a little bit, kind of share some ranges. I want to be as specific specific as I possibly can be in terms of what I see being successful in home services and what I see being failing. And across the 150 locations at Augusta Lawn Care, across the thousand locations that use Copilot, I want to be able to be able to give you what I see as working and not working when it comes to these specific terms. So let's define some of these first, because this is a scorecard that we're going to be using. First off, distributable cash, what percentage of your revenue actually gets distributed to you as the owner? After all salaries are paid and the owner's been paid as well. All right. In terms of their, you know, wages. Okay. What I defined as shoe real cash is first off, must be defined. What is distributable cash is important because in my opinion, distributable cash should be a threshold that you determine in your business. And how we do it for my general managers, is anything above the average monthly revenue of the past three months, the quarter, anything above the average monthly revenue for the past three months, we're going to consider distributable cash. So if we've averaged, if we did $40,000 a month in revenue, $45,000 and $50,000 a month in revenue, the average of the past three months would be $45,000. Anything above $45,000 in the bank account is, is now considered distributable cash. All right, so first off, you need to find what distributable cash is. It can't just be like, well, I need money, so I take money out of the business. Define what that line, what that threshold is in terms of if the bank account goes over this number, we take out cash in the business. There's also a really, really good thing to know for when you're creating comp plans, compensation plans for management or partnerships, and that's what I use them for, is for my general managers to know exactly how, how much money in the bank account needs to be in there in order for there to be distributable cash. And they get a percentage of that money. All right, the next thing we're looking at, the scorecard is the percentage of revenue that is spent on direct labor. So this is considered your cost of goods sold or your cogs. This is work that actually goes into doing the jobs. This is the gross wages of all your field workers. And it doesn't include your admin or your salesperson. So you're any sort of office workers or estimators. This is not included. Direct labor is the labor required to actually get the work done in the field. The same thing. Now we're looking at the percentage of revenue in the office. This is indirect labor. This is people that do not actually make the jobs happen. The blades aren't turning underneath them on the mowers, they're not shoveling, using the chainsaw, et cetera. So this includes all admin labor. And this is really, really got to be careful during the off season because these office wages are unproductive. They don't actually produce revenue. They're important. They're important for the business to operate, but they don't actually produce revenue if they're in the admin role and doesn't include other office costs like computers, Internet, utilities. And this is not a negligible number, but it's something that I just want to define. Here is when I look at the percentage of revenue that's being spent on office wages, I'm not taking into account other office costs that can be sizable in terms of your rent, your facilities, et cetera. And also a lot of times, if you're a larger business, you are part of the admin cost in terms of labor. So your wages are considered admin or sales would fall into this category. So the next one is close ratio this is a scorecard we're going to go over and I'm going to give you ranges that I think you should fall into and what is considered good, bad, ugly, average. In most of these markets, we look at close ratio. This is simply the number of estimates accepted divided by the number of estimates that are sent. And this is really influenced a lot by your pricing and how fast are you trying to grow. All right, so if you have really low prices, you're going to have a higher close ratio. If you're trying to grow really fast and you're spending a whole lot in marketing and reducing your costs, you're going to have a better close ratio. Also, the close ratio can kind of hide sales process leaks. And I've made videos on this channel before about your sales process and how important it is to make sure there's not leaks in that process. But a good, a close ratio can kind of hide those leaks because close ratio is only one step of the sales process. So watch my other video about that on the channel. Because really close ratio is just one step of the whole sales process and that is the estimate getting accepted. There's a whole lot of other steps in the sales process, so keep that in mind. Low profit with low close ratio is a lethal combination. If you see me on my main channel do these turnaround videos, if someone has a really, really low close ratio and, and their, their profit is really low and they have, their pricing is really low, it's very difficult to turn around that business because typically if the close ratio is really high, I can raise prices and immediately become more profitable. All right, we're looking at hourly labor rate. What are you charging per hour to the customer? And this is your easiest way to impact close ratio. Just simply reduce your price. Last, your scorecard is the debt to income percentage. Debt is a measure of risk. All right, High interest rates that we're currently in, in this environment is going to have a bigger impact on how much debt you have in the business and increasing that risk. And so when I look at the debt to income ratio, I'm looking at the total monthly loan payments divided by your gross monthly income. So I'm not looking at the debt value like a hundred thousand dollars in debt. No, I'm looking at the total monthly loan payments divided by your gross monthly income. So if you are in growth mode, and again, growth mode, as I define it is you are trying to actively grow the business. You are increasing close ratio and reducing prices. If you're in profit mode, it means that when you get all of your trucks and your employees filled up and they're all working at full operation. You raise prices and reduce your close ratio instead of buying more trucks and hiring more employees. So if you're in growth mode and you're trying to get more jobs and grow the business, distributable cash is great if you can just get 10% in your pocket. So if you had a $200,000 business, $20,000 would be distributed to you as the owner. At the end of the day, this is after you would take a regular salary. You might be taking 50, $60,000 salary, but then after that, distributable cash is after the owner has been paid. These are the numbers, and here are all the numbers here. You can screenshot this. Pause whatever you want to look at all the different metrics of that we've already talked about, and what I see is sort of the average of being great, good, and in the danger zone. And it's okay to be in the danger zone for a while, but being there too long can usually lead to a lot of burnout as well as just a lot of cash problems in the business. So keep that in mind. For example, the debt to income ratio. The debt. What percentage of your revenue every month are you basically spending on debt payments? Ideally, we don't have any debt. That's great. But if you're over 30% of your revenues going out the door to loan payments, you're in a very, very critical position when it comes to your debt to income percentage. If you're in profit mode, things change a little bit because now, again, we assume that we're in profit mode means that if we hit capacity, we're not hiring more employees and we're not buying more trucks and equipment. We, we're raising prices and reducing our close ratio. Keep that in mind. If you're in profit mode, in my opinion, you have to choose one or the other. You're either in profit mode or you're on growth mode. You cannot be in both. It is simply determined by when you hit capacity of the amount of customers you can serve. If you're going to go buy out more, more trucks, hire more employees and increase capacity, it means you're in growth mode. Profit mode is the opposite. We're going to raise prices instead. All right, so free to screenshot those, look at those and, and determine, like, really first and foremost, you got to determine, am I in profit mode or am I in growth mode? There is no, you know, you can't be in both. I want to grow my business and make it more profitable. It's very unlikely that's going to happen. You got to determine if I hit capacity, do I buy more trucks and equipment growth mode, or am I going to raise prices, reduce my close ratio and potentially lose some customers but make more profit? That's profit mode. So those are the two directions you first have to determine. And then hopefully those scorecards give you a little more clarity as to whether or not you're in the normal, the average or if you're exceeding or potentially in the danger zone where it might be an area of concern you want to address. For example, if you're in massive amounts of debt and you're in growth mode, potentially you take a year, you raise your prices, you stop growing for a moment so you can get your debt percentages down, pay off some of that debt and make sure that you continue the business more sustainably.