Mike Andes (founder of Augusta Lawn Care) explains Pay-for-Performance (P4P) as a way to fix and predict job-level profit in home-service firms by tying employee pay to a fixed share of labor revenue instead of hourly wages. He walks a concrete mulch+cleanup example: quoted price $970 (labor $600 + pickup $50 + 8yd bark $320), costs of $515 (10 hrs labor at $25/hr = $250; dump $25; bark cost 8×$30 = $240) yielding $455 profit; if labor doubles to 20 hrs, labor cost rises to $500 and profit falls to $205. He shows giving employees a fixed share of labor revenue (example: 1/3 of $600 = $200) aligns incentives — employees earn more per hour when efficient and the business locks in predictable profit — and points viewers to p4psoftware.com training, a book/ebook, and a CPA named Brad for help.
Questions this video answers
February 6, 2022
Over 80 locations around North America
Over $300,000 in distributions (in addition to salary)
$970
Labor $600; pickup of debris $50; 8 yards of bark at $40/yd = $320
Hey, everyone, my name is Mike Andes. I'm the founder of Augusta Lawn Care. We have over 80 locations around North America. But today I'm talking about my first location and how I went from working 70 to 80 hours a week, making barely $50,000 a year, to where now I work on that business one hour a week and literally made last year in distributions, over $300,000 in distributions, in addition to the salary that I took from that first location.
How did that happen? Honestly, it's something called P4P, pay for performance. And what I want to talk about today is why it works. And that is very simple. And that is before a project starts, I know exactly what profits I'm going to make on that job. So how is that possible? What if it rains? What if there's bad weather? And what if someone gets stuck, gets a piece of equipment stuck? Regardless of what industry you're in, if you're in the home service industry, this is absolutely imperative for you to implement and use because look what happens. Let's just say I'm doing a mulch install job. I'm talking about landscaping, but this works for any home improvement business, any sort of time when labor is involved. And let's just say that on this mulch installation, I'm going to have. I'm also going to a cleanup, do a property cleanup. So let's do a plus a cleanup. Now, I'm not going to go through the entire estimate, what I'm going to write out, but what I am going to show is what's the cost and how much profit do I make on. On this job? Okay, well, first and foremost, let's assume that we need eight yards of bark. Okay, I'm just gonna do bark mulch. And also we're gonna do a cleanup. So we're also going to need, let's just say a pickup, one pickup of debris. So we're gonna pick up, fill up one entire pickup of debris with a bunch of branches, leaves, weeds from the cleanup of the property. Then we're also going to charge this customer. Let's just.
Okay, so this is pretty standard how you figure out the estimate for a project. And you say, okay, well, I'm gonna charge $60 per hour. So therefore I'm gonna charge $600 for labor. I'm gonna charge one pickup of debris. Let's just say, let's just charge $50, okay? And let's charge 8 yards of bark, and we're gonna charge $40 per yard of bark. 40 times 8 is 320. So literally this is how you could create an estimate. Okay, well, we got 370. So that's going to be $970 is going to be the total quote price that I'm going to give the customer for this job to be installed. Now the problem with this is that what if this crew gets the job and it takes them 20 hours to do the job? Well, let's break down the numbers. Okay, so let's assume first of all that they get it done in 10 hours. And let's just say it costs us, let's just say $25 per hour for these employees, including taxes and all the rest of it, our actual cost. So let's write our cost down here. So the cost on 10 hours is going to be $250. Okay, 10 hours times $25 per hour, a pickup of debris. Let's just say it costs US$25 to actually dump the debris at the dump. And the next thing is 8 yards of bark. Let's just say we're charging them 40, but it actually costs US$30 per yard of bark. So technically we're actually only getting. We're only, you know, cost of this is gonna be 8 times 30, which is $240. Alright, so we've totaled that up. Our total cost is gonna be $515. So what we can do is take our price that we are charging the customer $970, subtract out 515 and we're gonna get a total of $455. So that is gonna be our profit, $455. Now this would be great if that's always what our profit was. $450. What's the big problem here is we're not confident that the $250 is actually what we're going to spend in labor. Because what if, what if this job all of a sudden the crew is taking a bunch of breaks, they lolly gag, they go to the supply yard and just sit around for an hour and it actually takes them 20 hours. So now instead of 10 hours, it's going to take them 20. Well, what happens now? Now the cost of our labor went from $250. Now went all the way up to 4, $500. So it went from $250 or 10 hours at $25 per hour. Now it's at 20 hours, that's 500. Now all of a sudden I'm taking out another cost of 250 bucks and I'm only making $205 on this job, $205. And you're like, well, that's not too bad. You're still running, like a 20% profit margin. Well, not really, because this is gross profit. I'm not taking account all the overhead, insurance, fuel on this job. I can guarantee you that. And so this is the biggest problem with home service businesses is we don't know what our labor cost is going to be. It's always a hope. We cross our fingers and hope that they get it done on time. We cross our fingers and hope they show up and have a good day. We cross our fingers and hope they don't stop at 10 gas stations, take 46 smoke breaks, and take a siesta for two hours in the middle of the day, and this happens. So there's two things that you can do. One, you give them more time, but that inflates the cost to the customer, and you might not be able to sell the jobs at that price. So what do you have to do? You're gonna eat this. You're gonna literally take a job where you're charging the customer $970. You went and did an estimate in the whole nine yards. At the end of the day, you're making $205 in gross profit, which means after overhead and all the rest of it, you will lose money. This is why you're losing money in your landscaping business. This is why you're losing money in your fencing business, your construction business, your janitorial business, because you have a certain amount of hours that you're budgeting for every job, and it's not consistent. Sometimes it takes them shorter, sometimes it takes them longer. And your profit margins are all over the place. We went from literally $450 in profit to 200. Like, half of our profit just got eliminated because the crew took their time, lollygag took a bunch of breaks. And I don't blame them, because in the hourly model, the longer the job takes, the more money they make. So why not make a system where the shorter the job takes, the more money they make, because the shorter the job takes, the more money the business makes. So align your ambitions with the ambitions of the employee. What does that mean? That means I'm going to give them a percentage of this number. No matter what, they're going to get a percentage of that $600. So what does that mean? That means regardless of how long it takes them to do this job, they're going to be getting exactly the same amount of money. So, for example, we budgeted 10 hours on this job and we charge the customer $600. But what we know, if we have P4P, if we give them a percentage of the labor revenue and we say right off the top, okay, you know what? We're just going to go ahead and give one third of the revenue to the employee no matter what. What does that mean? $200. Okay, that's 1/3 divided by 3 right there. We're going to give one third of the labor revenue to the employee. What that means is regardless of how long this job takes, they're getting $200. You say, well, that's horrible. You're trying to make them work harder or whatever. No. Now what's gonna happen is they're gonna show up to this job and figure out an efficient way to do things. And guess what? This employee's gonna get it done in six hours. They're gonna get the entire job done in six hours because they're efficient. They're staying on task. They're not taking a bunch of breaks. They're not on their cell phone sending Snapchat. They get it done in six hours. Guess what? They get $200. They literally just made over $30 an hour because they were efficient. They stayed on task. They got to their job site. They didn't lollygag around the shop and drink coffee for 30 minutes before getting out of the shop. So they are rewarded for being more efficient. They're rewarded for cutting out waste, and the business makes more money. And furthermore, what's really cool is I know exactly what my profits are going to be on this job, regardless of how long this job is going to take, regardless of whether or not the employee has a good day or a bad day, regardless if it's raining or if there's equipment failure or whatever it is. I know at the end of the day, my costs on this job are going to to be not Approximately, but exactly $465. Which means I know without a shadow of doubt that I'm going to make exactly $505 in profit on this job. Now, if the crew gets it done in four or five hours, great. If it takes them 12 or 13 hours, doesn't matter. They're making the same amount. Now, of course I'm going to make sure they have a base pay. I don't want. If it takes them 20 hours, I'm going to have to probably pay a little bit more because we have a base pay, a floor per hour that they can't make less than. But if they want to make a lot of money. If they want to be super efficient, I want to align that goal with them making more money. Therefore, the business makes more money and we both have the same goal and objective. Not the employee trying to make the job go longer so they can get into overtime and get time and a half and burn cash to the business. But now everyone's incentivized to get this job done as soon as possible because at the end of the day, this amount is fixed. Instead of having a variable percentage that goes to a job of labor, well, sometimes 20% of our costs go to labor. Sometimes 50% of it goes to labor. Well, why not just fix that number? I'm going to give a set percentage of my labor revenue to my employee, regardless of how long the job takes. And therefore it's up to them to figure out how to do that job more efficiently and more profitably. All of this is explained in complete detail for completely free. If you go to p4psoftware.com training it's great. This is a book I wrote. It's literally the ebook is 99 cents. I think it's like 18 or $19. If you buy the hardcover. It's available on Audible. It explains all of this in very fine detail. All the details behind P4P, which stands for pay for performance. And if you go to p4psoftware.com training, all the videos will explain exactly how to do it completely free. And furthermore, you can actually book a call with an accountant that works at P4P to go over your numbers and figure out how you can implement it for your business. It's completely free, so I highly recommend go check it out. Go to the website. Brad is the name of the CPA that works with me and we onboard and try to help business owners convert their business from hourly over to P4P. So what they can do is fix the amount of labor revenue that is given to the employees for wages. And they can have a very consistent and predictable profit margin on every single job and know their profits before the job even starts, regardless of weather, regardless of feelings or emotions. And they don't have to micromanage the employee because the employee is the one that's managing the clock and trying to get that job done as efficiently as possible so they can maximize how much they're actually making. I'm Mike Andes. I hope that was helpful. Check out pforpsoftware.com training for more information.
