Cut Costs or Raise Prices? (Coaching with Mike Andes)

Hey, everyone, it's Mike Andes. I'm the founder of Augusta Lawn Care, where we have over 150 locations around the world. But today, I am going to a handyman service that is over $2 million in annual revenue.

We are really good at taking care of small stuff.

Just this past spring, they lost hundreds of thousands of dollars and had to fire almost everyone on the entire team.

A spring like we had this year will kill us for two to three years.

Regardless of what home service business you're in, this is going to be a really good one.

If you.

You struggle with having an offseason where you can't produce enough revenue to keep your crew busy and make profit. Let's go ahead and roll the coaching tape.

The thing is, like, when I look at the P and L, it's like, the thing I'm mostly concerned about is just like, the percentage of revenue goes to cogs.

Yes.

Right. Like, literally 80 to 90% goes between direct labor subcontractors and then the cost of goods sold in the materials. And so usually that either is two. Two opportunities there. Either one, we have operational efficiencies, things like pay for performance more efficient, get twice as much work done with the.

Same amount of cost. It is. Majority of it is operational efficiency. I'm not sure.

If our.

Price is where it needs to be.

That's the second option. It's either price or it's that.

So we're already at 120, and we raised that pretty much across the board from 100 about three months ago.

Our electrician is 20 bucks more than competition. We're at 180 for our electrician, where.

The competition's at 160. So I'm not sure how much room we have there. I think it's more operational efficiencies. Yeah, the. The work that we've done so far, I'm kind of seeing in the graphs it's going in the right direction.

Right.

But I'd like to see more.

Yeah, you know, like, my. My thing is this. So, like, for example, we have, let's just say, maybe 16 technicians. Approximately.

No, actually, as far as the technicians.

We actually did the numbers on that. As far as actual technicians, they're actually 12.

Okay, 12. And that includes the lead.

Yes, got it.

Okay. So 12 leads. So if we have 2,000 hours full time, there's 24,000 hours. So if we can do 2.4, our effective hourly is a hundred bucks an hour.

Yeah.

The thing is, then we got to take out our material cost. So out of the 2.4, it's probably like 1.9 is labor revenue. So if we take 1 million nine divided by the 24,000 hours. Whoops. Divided by 24,000, now we're looking around 79. So if we're, if we're doing 79 and our target hourly rate is 120, that means we're having around 66% efficiency. It's not horrible.

Well, we've had it down. We've had it down to probably about 40. Oh, really? Yeah, just with training, efficient with, you know, weather's a big thing. You know, when we go out to do an outside project and all of a sudden it rains. Now we have guys that are sitting for about half an hour until we reroute, until we reschedule, until we, you know. So those kind of things eat up big time. You know, we've been kind of measuring our load times where we've kind of been getting a little bit better every, every month. Yeah, that's from the time they show up to the time we kick them out. You know, we're getting better every month, but we're still, we're still not there. I think that's this month.

We're still not, you know, but the 10 minutes over a year, that's 30 grand with all those guys sitting there.

Yeah. Okay.

Okay.

And then when you move the price from 100 to 120, did you see any meaningful impact on close ratio?

No, no, no.

Yeah. Like usually. So usually hourly rate. That one's a lot of times we're like, well, we're higher than everyone else in terms of hourly rate. Ultimately it's a. What's the price to the customer?

That's correct.

And so sometimes we will have a higher rate, but then because we don't upcharge on, you know, our materials as much or we don't have estimate fees or something like that, we are comparable.

If not lower because we're, we're really not.

It's very rare that we do time and material.

Right. Okay.

You know, everything's estimated and they're just getting the price, you know, so, so it's.

So I'm not quite sure. You know, we're, we're starting to watch a little while we have the ability to watch those little details a lot more now than we did even three months ago.

And so, so right now, like I looked at the balance sheet, but from a, from like, just like a top level view from a debt perspective, where are we at?

Probably about 400.

Okay. And then the payables to vendors, I'm assuming is the other.

So.

I can, I can get the recent one.

I'm guessing that was mostly just the, like the supply. That's just an ongoing bill with your vendors.

So two bills on there that, that are just a accounting adjustment.

Okay.

Okay. One from the office, electric and plumbing and one for to supply because we bill them for the admin portion.

Got it.

And, and they bill us for services. So. So, so there's a portion of it that gets paid to them and portion of it is accounting adjustments.

That's where I live.

I love it. The focus room. Well, the room inside the room.

Well that's when the door is closed. I'm focused, so don't bug me.

So.

Let'S see. So. So this is the last quarter.

Okay.

The improvement has, you know.

Yeah. Dramatically since the first two quarters.

And then we, we look at you know, the, the first two quarters. That's, that's where it was. You know it was really the first quarter that really made a big old hole.

Yeah.

And.

You know, trying to get out of that is. But as far as the receivables, you know some of this.

Some of this is the.

Is EMP and electric. Majority of this is MP. Electric is more of a. So so it ends up same thing on theirs and then.

And on that 400,000 in on the debt side, what's the monthly. Just payments straight on that per month.

I think probably about three grand because yeah, it's not bad.

So is it most of these all 0% interest stuff?

Well, so one of our landlord has been awesome.

Okay.

He's let us default for a while, pretty much giving us an interest free loan.

So that was kind of like the personal loan side of things.

Well no, he just, he just said, you know, just, just keep, keep trying, keep paying and then we'll catch up later. So we got some water things going on and things like that. So, so there's about 30 grand on that. And then you know we ended up to be able to fund this whole, whole thing. We sold our rental properties. We.

We took out a line of credit from under a house and yeah, so it's this, this year has. Yeah. So I think we're probably running out of borrowable money so we got to.

Make this work.

From the positive aspect. This past quarter has been far better than the first few.

Oh yeah.

Like the first few is really, really concerning just your gross margin. But okay.

And so the 400,000, most of that one would be on five year terms then because like how Are we only paying $3,000 a month?

Well, I missed the SBA. Okay. We have a 30. $30,000.

So you're leaving that one?

For now, we're just making the minimum payments on that. And just. So we're pretty much just kind of defaulted to minimum right now.

Credit cards just.

Yep. Just. Just take care of anything that's minimum. And. Yeah, so it. Yeah. As far as monthly, I don't think it has been over or five grand.

Okay, well, then, like, from my perspective, it's actually changed a lot since you even just coming in.

Oh, absolutely.

Just looking at the numbers, it looks like a very different story than what I've seen. Because you've actually kind of turned a lot of the aspects around this quarter.

Yeah.

My concern is actually, like, what happens in the winter when you don't have all the work coming in.

That's my concern.

Yeah. And so what's been the strategy in the past? Has it been like, hey, we kind of just do as much as we can. Whatever leads come in.

As far as workload, we never really slowed down. It's the efficiency that.

That hurts because the weather.

Because what we do is right about this time, we start scheduling indoor work, and we have lots of it. So. So right now, like this project where it's in the planning stages right now because we're waiting on permits.

Right.

But a $600,000 remodel. Right. And so by the time. By December, we're going to be inside.

Okay.

You know, we should be done with everything outside.

Got it.

You know, it's. It's addition. It's. We're redoing the roof and everything else, so.

So we do quite a bit of that. We got other projects on the, on the books are inside remodels, and he's. If he gets another one, it's another one just a little bit bigger than this, but it's phased out quite a bit. So. And the bigger ones are not always a better ones for us. You know, we are. We are really good at taking care of small stuff and.

You know, so bigger ones, they kind of create a relief and then strain also because it gives us this big old cash flow. So. So it. It's hard when the cash flow is already tight. Yeah. You know, one of the things that we've been trying to do for the last few years is a. Is a service contract, and I'll show you what it looks like, but it's a four quarterly visit, you know, something like that. And we haven't figured out, we got A quarterly meeting coming up and we're going to try implementing that and really putting the fall service in.

Fall inspections would be sold basically as a kind of like a year round. Checkups quarterly on your property. Here's everything we're hitting. Got it.

Yeah. So just really just preventative maintenance, you know, mostly inspections and touch ups and any of the repairs would be the upsell. Got it.

Okay.

What other services do you make the most money on? Or is it kind of just like, hey, the reason we make money is because we do it all well?

Yeah, I was just having that conversation with Ed. I go, we probably need to start backing off on the things that.

We'Re.

Not as good at. And he goes, well, that's going to take you off the offix situation. So how do we balance that? You know, how do we, how do we create a decent balance where that's where we are taking care of those in, in a proper way. But.

I had one person say, well, how, how are you dealing with those tasks that are asked that are, you know, $50 an hour items? We pretty much say we have to have 120. And you know, and Garrett's gotten, gotten really good at that. He says we have to have that, you know, and he tries to refer others. You know, those guys will probably be cheaper because this is where we have to be. And they're still choosing us, you know, because there is something that we're providing that, you know, so we're still doing those low cost items at that rate.

Because like, what I'm trying to prevent is like a spring like we had this year will kill less for two to three years, like in terms of just the hole that it builds. And so if the, the Achilles heel that was caused this past spring is finding great laborers that are super skilled, the question is, can we reduce the threshold of skill required for people to be profitable?

That's a tough one because we pretty much been weeding out are low skill, you know, and.

Which isn't bad.

It just, it's more a matter of like, is it, is it hard to find? Like, because for example, if you only have one or two people that can do one service and one person leaves you just bottleneck the entire organization if they're waiting on that one person for different projects, for example.

And we're not in a way because we're cross training everything.

Okay, so everyone is kind of cross.

Everyone is cross trained.

Got it.

We just have experts.

Got it. Okay.

Yeah. So everybody is cross trained and we can, we can bring in A second guy or third guy. And, and we're able to split them up pretty well. Okay.

But if, if the cost to train someone to be that jack of all trades is, to your point, 50, 60, 70 grand, is there certain one or two services that take the majority of that time?

Because that's a huge cost of like onboarding somebody.

So we, we feel that we can reduce that to about ten grand.

Okay.

With some processes.

Okay.

You know, well, we, you don't mind me turning the screen on? We, we kind of been working on, on it and, and we kind of been getting stuck in, in.

In our situation.

So pretty much this is, you know, for us to be able to produce a product. This is kind of our, our flow.

Yeah.

And so.

We already have some of the processes built for the, for the actual work being done. That training, we got some training videos and things like that. So recently we kind of started change the format and do it this way. And now we're just going to start attaching our, our processes to here for each thing and.

Looking at the cost that. Because we had experienced guys already, even though there was five, the 17. If, if I would take that training cost, I think we already reduced it just, just by changing the way, the way we're approaching and having multiple people to train.

Got it. So we're kind of batching them.

Yeah. So, so I think we already reduced it. I think we can reduce it and that's kind of something. You know, last couple of quarters I've been talking about, we got to get this down to about 10, 10 grand so we can, so we can onboard.

So what does onboarding look like right now? Like onboarding and training? Is it like basically on a lot of on the job stuff.

So a lot of it on the job site. So I bring in for a week, I bring, bring them in and you know, for an hour and go over our culture, our, you know, our, you know, how we do things as a, as a team.

Yeah. One on one.

That's one on one. Yeah. And then the other portion is really attaching them to the, to the guys in their specialty. So we're doing a personality test and everything to make sure the personalities line up and then just trying to attach them to, to the other guys. It doesn't always work because depending on the job, you know, we're not able to send the same, same type of guy where sometimes we can't even send two guys out, you know, because a lot of our jobs are one, one guy type jobs and. But it kind of causes Us to send out two vehicles. Sometimes if that one guy needs help for about half an hour, you know, doing some heavy lifting or something, and then, then we move the other guy to another job. So for that purpose, it's.

You know, we kind of been sending two guys out, you know, because we're able to split them up.

Yeah. What's the retention like if you train someone up, do they usually. So at least this year, have they been sticking around the whole time or is there a pretty good fall off after a few weeks?

We had only two people quit in seven years. Okay, well, yeah, we parted. We noticed and parted with quite a few, but usually I try to. So in the past, I like how.

Delicately you say we parted with them. That's a much better way of saying.

We parted ways.

We found that our paths did not cross anymore.

Because, you know, even though the word fire, it really means the same thing, but we really, you know, I feel like we're all on the same mission, you know, so if we're not on the same mission, let's just decide to go a different direction.

But like this year, for example, like out of, let's just say 20 people that you might have interviewed on board, etc. Do we have maybe 10 or 15 of them? We only have two.

No, no, no, no.

All about.

That's not bad.

That's not bad.

No, we, I, I, we go through three days of. Yeah, well, and interrogation and just making sure, you know, that those guys will, you know. You know, in the past, I've.

I've let people stay way too long that shouldn't have. And that's something we have realized, you know, within, within a few weeks. We need to make that decision if that person's not gonna work.

And so right now that training is basically you kind of doing a cultural thing. Then you do the personality test stuff, and then I'm assuming there's like all these services that you kind of need.

To hit all over personality tests. We're doing that in our interview process just because we, we have certain personalities that, that work better, you know, and majority of we, we use a best test.

And majority of our techs are high technical and high. And the best ones are high sympathetic, where they really want to help people.

Right?

Yeah. So majority of our people are right in here. We got a few Boulder ones, you know, then that ends up me, Tim and, and Aaron. Really the estimator sales, you require a little more boldness. But we are less on technical. But you got like Ed, he's super high on technical but low bold, you know, you know, so certain ones and, but I have also been keeping a record of those who aren't working with us, you know, so, so it's, yeah, it's, it's been working pretty well.

Yeah. Like there's, there's, I think there's a lot of good positive things that, where the company is going. Honestly, I really do. I'm mostly concerned in two things. One is the short term, like just on the cash position. And then secondly is how do we prevent this past spring from ever happening again?

That's where I'm at with you.

Because it will sink a business for literally three years. Like what happened this spring will take us two to three years to financially recover from. And so then it's a matter of like how do we build the business in a way that, that, that will never happen again.

That's why you're here.

Yeah. So like from a short term cash position. Because I know there's like a lot of stress in that area right now. What's the kind of strategy around receivables? Because there's, there's a good chunk there that we could get a little bit of breathing room on.

Well, and so, so a lot of it, you know, stuff that's, it's on.

The balance sheet probably.

I think there's like 140, 150.

So. So yeah, so 140. But realistically it's probably minus.

Minus 36 over 90 days. You're not going to get it?

Basically. No. So every, everything is here. So. So this is mostly our internal.

Got it.

That we need to just do accounting adjustments. Got it. Okay, so.

Oh, I see what you're saying with the electric.

Some of this stuff is um, either held up with punch lists or, or things like that. And so as far as the collections, the guys have been going through it once a week and, and making sure we're calling them and collecting them so we don't have a whole lot of bad debt coming up. You know, we got one that we are going to write off which isn't all that big. You know, after the job was done. No, we did some work outside.

Their house, caught fire. Her husband died in that fire and she. Sweet things, she tried making payments and we go, yeah, that's enough. You know, so. So it just, just those kind of things.

And then what percentage of the revenue now is residential versus commercial? Is it mostly residential?

About 90, 99%. Yeah.

Do you put cars on file for the smaller projects or not?

Some, not very many.

Because most of them have been pretty good. And this whole year we've been trying to reduce the cost of the card. So we've been trying to collect with check or cash.

Are your leads responsible to collect that at the end of the job or just kind of depending on after the job completion?

So we didn't have a very good process for a while. So for about two months now we pretty much fine tune that with the estimators and dispatch because he's already communicating with the customers at the end of a project he's supposed to call, you know, how is everything turned out? You know, are you, are you 100 happy? I'm sending the invoice. Can you. Yep. And I'm gonna send you a Google review link. Can you do that? So that sort of thing. And we fine tune that a little bit. We still have some work to do on that. But that's because like from a short.

Term perspective, even though a lot of it's not going to go bad debt we're collecting in 60 to 90 days, a big chunk of it. And that, that will, that is like going to really hurt mostly when you do have that winter lull because now the 36 day will catch up to you.

Yeah.

And so like if you, if you're starting to change it now like one thing we, we will do with projects is like look, when you do the walkthrough you collect the final check and then dispatch isn't having to worry about the admin time required to collect on. It's like the lead is required to collect final check and final payment at the walkthrough.

So we, we pretty much did that with the sales guys right now. So the estimators to do that 1080, 10 so that the final 10 they.

Come back to the project.

Yeah. And that way they can actually look at other because they're already, the customer's already talking about and talking to a lead about that. It just kind of ends up getting by side. So so we, we kind of divided that time to 10% at the beginning. Make sure they have the materials, verify the materials are correct and everything because they're the only ones that know what that is. You want to be.

Yeah. What percentage, what percentage of the project total do you think the estimator is actually going back? Is it pretty much that's like standard operating procedure. Estimator goes back to the end of the job.

That's, that's been new.

Okay. Yeah. I really like that because the thing with handyman's there's unending things they can do.

That's correct.

And so like that walkthrough process I think can become collections and then it becomes this thing.

And that's, that's, that's something that we've been working on this month. This entire month is how we fine tune how. And we put that into that process is exactly.

How have those been going when the estimator goes back? Has they been getting some upsells and like more projects?

Yeah, yeah, that's. It's been effective. It just. I wish we would have done it earlier, but we didn't have Aaron and. Yes, thank you. Bottom left. Yes, thank you.

So if we, if we go toward the end.

So that's pretty much right there. So we got the, the progress invoicing, quality control punch list and that's done by the estimator. Then close out punch list. That's pretty much the final walkthrough and upsell. And then we got punch list approval. So the estimator is responsible for those.

And then do you think you can move the payment receive part back to the estimator?

Right now it's going back to Garrett at the CRM side. Like I'm just trying to think if, if we can collect final payment, we're going to literally increase our cash flow by 30 to 60 days almost immediately. Because even with the, if we take out the 90 day plus stuff, we're still over 100,000 where fixed. Yeah.

Because I think final invoice and review. Because even. Because the challenging part here is you have Garrett still doing the final invoice and review. So the estimator wouldn't have the power to be able to do payment received. However, if Garrett touches base with the estimator prior to the walkthrough, he can be like, hey, this is what, this is what needs to be billed. And it's like, here, take this.

Yeah, well Garrett can really just do that final call to make sure that they receive the payment. Everything's, you know, the follow up for the review portion. But yeah, I agree with you.

Yeah, I like that. That'll help a little bit the cash flow side because like, I really think you turned a big corner. I just, I think it's just a matter of, you know, that short term cash position. Like if we could literally just collect even 50 grand of that right now, that would just give us a little bit of breathing room.

We will actually within, within next few days we're wrapping up two of the bigger projects. So probably I'd say we're gonna be Way more than that. Next next few days. Yeah. So that's. And then by that time we should be demoing. Probably next. Next two weeks we should be demoing. And our progress payment is as soon as we're done with the demo, then we're doing another 160 grand. That's not even on here. That's built. So it's, it's building up to that. But. But it's, you know, it just doesn't.

Show on the reports and on Garrett's side on the leads portion, like how many, how much is he like overwhelmed with leads? Like estimates just getting them out or.

Is there capacity on Aaron's or Garrett. Garrett is a dispatch.

Sorry, I'm an Aaron. Aaron. My bad.

So, so, so right now he's not, he's not overwhelmed.

Okay.

We, we use Home advisor a little bit and we turn them on and off as needed. Yep. And so right now he's not overwhelmed and Tim is back in the game. I, I backed everything off of him for a while because he had a burnout.

Right. And that's when Aaron came on. Right?

Yep.

Okay. Okay.

So right now with Aaron kind of putting a little more wind under his wings.

Okay.

Tim?

Tim.

Yeah. Yeah.

Okay, cool.

So Tim is. We're kind of conditioning him to, to go more after service contracts.

Got it.

Because he is the little figure out type guy.

And I really like this because like I would love to see some recurring revenue and what's nice about all these projects, like the install, et cetera. Like everyone wants a warranty on stuff and so your warranty becomes your maintenance package. Like we will warranty all our work as long as you're on this maintenance package where we're coming every quarter. And so what's your pricing look like? This is it going to be an estimated?

That's one thing. That's the one thing we haven't fully figured out. But we, we have few ideas that I think we're, they seem a little on the low side.

Okay.

But yeah.

And ultimately like even if you're a good, better best model you have, even if the good one is like ridiculously cheap in your mind, like we can never make money on this. The objective is to upsell them. And so if you have it as like you name it the packages differently but then you also like this is like when you go to a mechanic and it's like these are 70 point inspection. You just have different points on each of these. Right. So like the all fix is like your 75 point inspection on your house and here's all the stuff you're gonna get for it. This one's a 50, this one's a 25. And you know, that 25 one is basically walking around the house and taking pictures and.