How the Top 1% Actually Get Rich

How the top 1% actually get rich. You don't get rich from mowing more lawns or scrubbing more toilets. You get rich from owning a machine that pays you every month. Most owners chase revenue and fancy equipment. The top 1% build predictable revenue and predictable systems. I took a mowing business past $50 million in annual revenue by doing these seven boring things extremely well. If I had to rebuild from zero to wealthy in home services and this is the exact playbook and the part you won't expect. Trucks don't make you rich. My name is Mike Andes. I'm the founder of Augusta Lawn Care. We have over 190 locations around the world today. We're trying to get you in the top 1% with step number one, which is recurring revenue equals wealth. Rich owners don't sell jobs. They sell agreements, memberships, subscriptions and renewals create durable revenue. With durable revenue, it just means it persists, it continues, it's not one off. What buyers pay a premium for is knowing that revenue comes in every single month and consistently goes up. That's what your banker trusts. If you're trying to get a loan or trying to expand or trying to get a line of credit, they're looking for durable revenue, revenue that keeps coming in. If your calendar restarts every month or every January and you have to go get new jobs for for the upcoming season, it's hard to build enterprise value. If you're trying to exit, sell the business, be able to take on investors, be able to expand massively. You want to focus on durable revenue, recurring revenue that comes in every week, every month and every year. Predictability multiplies valuation and allows you to sleep well at night knowing that tomorrow you don't have to sell a job just to put food on the table. I still remember when I lost one of my managers that knew a lot of depreciation, different high end projects and high end services that were one offs. And I also had to realize I was going to have to cut back on all these services we were offering at my landscape business. So we were doing paver patios, we were doing tree chipping, we were doing putting greens, we were doing artificial turf retaining walls. We did everything under the sun. And I realized that I could not do this profitably without very skilled people that could have excavators and drive the dump trucks and operate traditional tree chippers. It was insane. And so what did we do over the next 12 months? We cut revenue by 20 to 30%. We sold off trucks, we let team members go. But you Know what? Profits tripled by us focusing on more simple services and reducing the scope of work that we were to focus on. I was able to get my employees trained up faster. My employees were able to make more money on pay for performance because they could be consistently profitable and efficient on the work they were doing. We were able to start profit sharing and actually giving a piece of the profits and back to the team. We are also able to raise base pay to our team members and add benefits. We had never been able to afford that in the past, but it was all made possible because we started cutting out all of these big projects and focusing on recurring revenue. Yes, revenue dropped. And yes, we have less trucks on the road and less big equipment. And the shop tour isn't so interesting anymore. But as an owner in the business, I'm more interested in the bottom line than what people think of me when they see my shop space. So now that you have customers that come back to you time and time again and you've built up your recurring revenue, you've got to move on to step number two, which is churn equals burn. You got the recurring customers, but if they just leave after a week or a month or two months, then you're not going to have any profits. We've got a reduced churn. That's the number of recurring customers that are leaving every single month. Growth is pointless if customers fall out the back door. And everyone can brag about how many new customers and new leads they got, but no one talks about how many people are canceling and walking out the back backdoor every single month. So how do I reduce my churn? Well, you can shorten the time to first value. You can make sure that you're actually getting on the customer's property as quickly as possible and solving their problem. You can also upsell them and cross sell them and solve more of their problems because it's a whole lot more difficult to take your home service provider and cancel them if they also take care of five other things on your property. And so sometimes he's like, I don't want to be salesy. Sometimes by selling more to the customer and solving more of their problems, it actually makes your product and service stickier. In other words, your churn goes down. People are less likely to churn and leave your service if you do a great job and you solve multiple problems at their property. And if someone does churn and they do leave, I want to have a reactivation campaign. I want to be emailing, texting them, calling them on a consistent basis at least once a month until they come back into the top of the funnel, because maybe the customer left your service, left a bad review, wasn't happy, but. But then they go try three of your competitors and realize, oh, hey, you're not so bad. You're actually really, really good compared to everyone else. And they just had unrealistic expectations. So making sure that people that say no to your estimates or that actually were a part of your service and then churned out and left, making sure we reactivate them and get them back in the top of the funnel is very important. Also, it doesn't cost you anything to email and text them and get them back into the top of the funnel and reactivate them as a paying customer. The reason that churn is so important and churn equals burn is because if you have a lot of churn, your business will burn down because your churn rate is the ceiling on your future. If you lower churn, the ceiling disappears. This is a great equation for anyone that has a home service business and has recurring revenue. New monthly recurring revenue divided by your churn rate equals your gross ceiling. So, for example, if you added $5,000 in new monthly recurring revenue this month, let's just say it's $100 per month. That's 50 new customers to make $5,000 in new subscriptions and new recurring revenue. Great. And now we divide that by the amount of people that are leaving every single month as a form of a percentage. So if your churn rate is 4%, meaning 1 out of 25 customers leave every month, that's a 4% churn rate. So if I take $5,000, I divide that by 4% churn, I come up with $125,000 per month. That is your growth ceiling. And as long as you keep growing at $5,000 per month with a 4% churn rate, your business will stop growing at $125,000 per month. This is a math equation. And so the only way to improve that math equation and raise that ceiling is to either sell more or reduce your churn. And everyone gets wrapped up in selling more, increasing the $5,000 new subscriptions, more customers. But they fail to realize that is a small tweak. Going from 4% to 2% would double the amount your gross ceiling is at. And instead of having 4% churn and $125,000 per month in your gross ceiling, if you could just move that 4% to 2%, you would have a $250,000 per month outcome. As Your gross ceiling. So what's the takeaway? Keep customers longer. And every dollar you spend on marketing compounds. Because now when I get a new customer, I keep them longer, I make more profit. And then that money becomes a virtuous cycle of getting more customers, knowing that I have a great product with where people don't want to leave. Third secret that home service millionaires know and the top 1% have is that profit margin is greater than revenue. I want to raise prices and cut drag because revenue is vanity. Gross margin is sanity. What's gross margin? Think of it as how much money you make taking out your direct labor and your cost of materials and any subcontractors. And so if you're doing a service where you're mostly charging per hour for the labor, I don't want to be spending 50, 60% of the revenue I make on my direct costs. That's my direct labor. Then all of a sudden, I only have a 30, 40% gross profit margin. I want that number as high as possible. So what do I do? I actually create a percentage that I lock in and give to my frontline team members for their direct labor. When I first started out, that was like 40% on paid for performance. And now I've been able, as we raise prices, get it down to where I'm paying 25% of labor revenue. And still technicians are able to make $1,000 per paycheck in just bonuses on top of their base pay. This is using a system called pay for performance, or P4P. The harder you work, the more money you make. But the reason it's so important to me as the owner is that I'm trying to protect my gross margin. I'm willing to lock in the cost of my direct labor as a percentage on every dollar I make. I don't want it to be where, because there's good weather, there's good days, someone is able to go really fast and I make more money. And then other days it's really slow and the weather's bad and I don't make any money. I want to be where every single day I'm making the same amount of profit on all of the revenue that I bring to the business. Why? Because I've locked in my cost of goods sold and the labor I spend on my team that's locked in using P4P. And then to increase those margins, I'm going to raise prices, I'm going to increase my route density and get more customers. And in a smaller area, I'm gonna fire the bottom 10% of my customers that always are calling, complaining, have unrealistic expectations, always asking for a cheaper price. And I'm gonna stop discounting to be nice. I'm only going to discount if I'm trying to fill my off season in. This protects my profit margins, and that's a whole lot more important to me than selling a bunch more work. I don't want to be traveling 30 minutes this direction and an hour this direction and driving 20 minutes between every one of my jobs and a route and, and having a whole bunch of windshield time and being super inefficient. This is why, in my opinion, trucks and equipment are not assets, they are tools. I need the truck, I need the piece of equipment in order to be able to get the work done. Therefore, I see them as a tool. Cash flow is the asset, not the trucks and the equipment. A business with systems is the machine that has value. And if you were to sell the business, your trucks and equipment are going to be depreciated. They're going to be like at market value, which is basically what you bought for potentially and what's actually providing the upside for you as a business owner. And equity is the business itself, and the business is built on systems. Profit buys freedom, fancy ego. Inflating equipment buys debt payments.

The real secret to how the top 1% get rich is they don't have.

To pay for every single lead.

Facebook and Google, they text message and email all their customers and get new leads on demand.

Oh, what's this?

Oh, this is my 32nd estimate that I got in the past six hours to send a text message to all my customers through Home Works. If you want to grow without breaking, check out Home works today.

The fourth secret that Home Service millionaires in the top 1% know is that you got to nail it, then scale it. Systematize before you pour on the gas. Don't scale chaos. Make a profitable business document, then duplicate it. I was talking to a business owner last week out in Idaho that was thinking about starting a second location. They were doing 800,000 in annual revenue. And then they made an acquisition and purchased another business and more than doubled the size of the company. And then they were thinking about starting another location. And I'm like, wait a second, we have no cash in the bank. You took $75,000 out as a line of credit with 40% interest. Catch that 40% interest on $75,000 loan so you can make payroll. And yet we're thinking about trying to scale this thing. Just focus on nailing this one location, just focusing on nailing this one service. Just focus on nailing this one market before you try to copy and paste it over and over again. One route, one crew, one neighborhood. Perfect the play and then roll it out. Don't copy and paste chaos. If your operations break at five and six employees, the problem isn't people, it's missing plays in the playbook. Create the playbook so that way as you scale, you know exactly what good looks like and then you can copy and paste it. You can compare and contrast what you've done before and that worked and now what you're building new and now you can actually have a repeatable process for growth instead of scaling chaos. In my book Copy and Paste Millionaire, I talk about how to copy and paste locations and have multiple locations, but don't do it. If your first location is unprofitable and and doesn't have systems and requires you to work there 50, 60 hours a week just to keep things propped up. You want to make sure that first location is nailed, has systems in place, you could basically go on for a two week vacation and everything would run fine and it's profitable. And then you can copy and paste it over and over again. The fifth secret that Home Service millionaires know in the top 1% in the Home service industry is they know the LTV engine. That's the lifetime value. In other words, how much revenue do I get from a customer over the course of their entire lifespan? This is why I love recurring revenue, because I extend the span of life that I serve that customer. Now this is the LTV engine. You get the work, you do the work and you get paid for the work. That is sales, operations and admin. Everyone makes things very, very complicated. And you look at an engine is like, wow, there'll be a lot of moving parts. It's like, look, building a great engine of lifetime value is I need to get the customer, I need a great job doing the work and I need to get paid. And I just need to keep doing that over and over and over. When it comes to getting the work, there's two major numbers I need to know. I know my customer acquisition cost, so what do I have to pay in marketing and ads to get a new customer? And my close ratio, that's how I get the work. That's my sales. And then when it comes to doing the work, I'm mostly interested in an efficiency score. So how efficient is my crew actually being getting the work done? That's my budget hours divided by my clocked Hours. If I know that score, I can know how efficient my labor is every single day doing the work in operations. The only other metric I care about in operations is making sure my customers are happy. So their customer satisfaction score. That's all I care about. Now the third part, admin, is getting paid. And the only thing I care about in this department is my profit margins. By having just a very simple few metrics that I'm thinking about. Customer acquisition, cost, close ratio, efficiency score, my customer satisfaction score, and my profit margins, I'm able to very easily manage the efficiency of the engine, the lifetime value across all three departments without even being there in person. Once the engine is built, feed it with time. Don't rebuild it every quarter. You're like, I got this great engine. I have exactly how the customer comes in, how the work gets done efficiently, how, how we get paid efficiently. And now I'm gonna go rebuild the engine. No, the lifetime value engine gets more efficient with time. You feed it. Let it just take the fuel of time. A year, two years, three years. Let the business get more profitable. Let the systems mature, let your team members and your managers mature. They'll get more efficient. Instead of you trying to rebuild everything and new systems and new marketing campaigns, and we're gonna do new services and we're gonna do new service areas and new truck setups. That is creating chaos and it's not allowing the engine to be fed with time. That engine needs fuel, and that fuel is time to stop trying to rebuild your entire business every single quarter. Let your operators and managers refine it while the business compounds. Avoid jumping in with new ideas every single week. As the business progresses and you start making it really profitable and that engine is tuned in and it's purring like a kitten. You gotta stop the entrepreneurial urge to jump in and constantly add new stuff. Instead, just do more and better of what you're currently doing. Well, then you might be like, well, what am I gonna do with my time? If I'm not actually actively helping rebuild the engine and rebuild the systems, what am I gonna be doing? And that leads me to number six, the sixth tip that home service business owners know that are in the top 1%, and that is architect time. You've got design systems and leaders that replace you. Owners who scale past a million dollars in revenue stop running the day to day operations and they start designing it. You go from manager to architect. And when you look at the three stages in your role in the business, you start off as a laborer, you're out in the field, doing the work. And then as you get employees, you hire laborers and you become a manager. And then as you even grow further, 2, 3, $4 million in revenue, what happens? You hire managers and you become an architect. Now, an architect steps outside of the building. They don't actually manage the labors and tell them what to do. They don't go in and tell the managers how they should put the beams up. And here's how you do the shingling. No. The architect steps back, creates the blueprints, creates the systems, attracts the talent, develops training that outlives you. It outlives the labor. Those blueprints, those systems that you build as the architect, are then given to the manager. And that is how the laborers know, know what to do efficiently. And so your day is actually spent stepping away from the building, looking for areas of stress, areas of weakness, areas of improvement, and then building systems to fix those problems. You create clear pay plans for your managers so they're incentivized to grow the business and make it more profitable. You create clear scorecards and dashboards of metrics so that you're both speaking the same language when you get together and meet. And you're giving permission to your managers to solve problems without you. Mid level managers should be able to find a problem, identify a solution, and then go execute. All without you interjecting every five minutes and giving your opinion. Otherwise, a great manager will leave and a poor manager will simply be a yes man that says yes to everything you say, but never actually comes up with solutions themselves. Which means you always have to be in the business, giving your ideas, and you can never leave the company if you're always stepping in. It's like the architect stepping back into the project and telling the managers what to do, telling the laborers what to do. Everyone gets confused. And your best people start to walk off the job because they are frustrated with how you, as the architect, are taking over their role. Architects don't swing hammers. They design the system that builds the house. The seventh tip that home service business owners know that are in the top 1% is you got to pay up. That's right, P4P. Pay for performance, profit sharing, and buying back your time. Top talent is cheaper than turnover. And if you're trying to skimp on pay for your mid level managers or skimp on paying your technicians, it is coming out of your bottom line. You're just not seeing it because people are leaving for other jobs. I want to pay for outcomes, not hours. So if I'm paying my Technicians by the hour. I think that's lazy. It leads to random pay scales and random raises that you give to people based upon when they ask you based on how long they've been with the business instead of simply saying, the harder you work, the more money you make for this business. So the more money you will make as the technician. This is pay for performance. Visible scorecards where your top performers are visible to your team. And Since I implemented P4P for my technicians, not one single time has someone ever asked for a raise. Why? Because they know what I would say. I would look at the top performers and say, okay, yeah, yeah, see Bob, last week he made $41 an hour. See Jill, okay, yeah, she made $38 an hour. Okay, see, see Sally, she made $39 an hour. Those are your top performers. What did those three people do that you're not? They might pack a lunch. They might read all their job notes and watch the estimate video the night before. They come prepared to the office and are out on the job within a matter of a few minutes instead of dilding, drinking coffee and talking to everyone for an hour. So having P4P and then sharing a piece of that upside with your leaders and your team allows you to replace yourself with systems and, and not stress. Because now when you're gone, they're thinking about the bottom line. They're thinking about efficiency just as much as you. Your job becomes vision, money and people. The team runs the plays the same way in the NFL. The owner doesn't step out on the field, they don't do any coaching, they're up in the press box. They have the vision of the team, they control the money and they get the right people in place so that the team down on the field, they run the plays. Owners have two things that most employees don't have. That's information and compensation. If you want your team to think like an owner, treat the customer like an owner, work as hard as an owner, you've got to compensate them like an owner, which is pay for performance. And you've got to give them the information that you have as the owner, which is open book management. Okay, so let's take action. This week I want you to do three things. Number one, I want you to cut out a one off service. Something that you're doing the business that's one off. Maybe big projects, but it's very sporadic throughout the year. Instead, create a simple subscription and start generating recurring revenue. Number two, kill one leak that causes churn and you're like, well, I don't know what causes churn. Survey your customers. Ask them how you could serve them better, and then write a standard operating procedure, a playbook, to prevent that problem from happening again. For so many of us, we know which services we're not making money. Raise your prices today. Do it blindly and join the 1%. You don't need luck. You need leverage, predictability, margin retention, lifetime value diversification, and people who get paid to win.