How to Grow a Plumbing Business from $1M to $5M

Hey everyone, it's Mike Andes. I'm the founder of Augusta Lawn Care, where we have over 170 locations around the world. Today we're actually talking to a plumbing company. And over the past four years, Victor, the owner, has grown the business from zero to almost a million dollars in annual revenue.

Last year, the second half of the year, we doubled actually.

However, as he's beginning to do that, he's having a lot of difficulties getting skilled laborers trained up and being able to do the jobs but by themselves without him having to constantly go to job sites.

So I cannot just expect them to figure it out.

Today we're going to be talking about how does he create systems in the business to make sure he either has to hire head of operations, needs to do better training or create systems in place so that he doesn't have to do as much quality control. Working in the field is probably the lowest leverage thing you can do in the business. We're going to talk about efficiency scores, KPIs, and figuring out what ratio of admin and salespeople you should be having to the amount of field technicians that you have out doing the labor. Let's go ahead and jump into it with Victor from Spotless Plumbers.

So we are based in Denver, Colorado. We mostly do remodel. Remodels and new build. We do a little bit of service as well. I've been in business for a little bit over in four years. I have five employees, plus an office staff and myself. And last year we closed like $950,000 total revenue.

Our books are still like, we're closing it, but around like 10 12% net profit.

And yeah, that's probably the most important stuff, I guess.

Okay, awesome. And so when you started four years ago, where did you start solo or did you buy the business solo?

I started from scratch.

Okay, awesome. Good stuff. Well, what can I help you with?

So I am. Let me pull up my questions. So obviously this past four years it's kind of like a roller coaster.

Because a year ago I had my first hire was two years ago. And last year around the same time, I had two technicians only and myself. So the second half of the year we doubled actually.

And with growing it, I, I realized that, okay, we gotta like start like systemizing stuff. But.

Yeah, like every business I get distracted all the time. So I don't really know, for example, like KPI's wise, like what I should track, what, what I should. Especially with that, as I said, we are like 90, like project based. Our bread and Butter is remodel and new build. So I don't know what KPIs were to track there as far as per technician or just the business.

That's one thing. Another one is.

That I have this idea, just an idea now that I would like to, I mean remodel, new build. That's. That's what we are like that's what we do. That's my most experiences from. But I'm thinking to build out the service side of the business like a separate department or even a separate any entity and then on long term try to sell that. So keep the business the remodel project kind of like supporting the lifestyle. But once me making enough money out of the business I can maybe use funding from, from that side of the business to start like a service department and then build that to sell to sell one day. And also as I'm thinking probably I would take out some sort of a credit. And as far as balance sheet. So obviously you have your balance sheet on QuickBooks what's more of a assets but as far as I know in my business anything below $2500 like purchases, that's expense. However we have a ton of like small tools under that price and technically we can call them assets from. Would you recommend to show like a different like balance sheet to the bank? Like hey, this is all my, you know, small hand tools, whatever, you know, press guns, a lot of stuff to make the balance sheet look better.

Yes. Yeah. Like do you have a lot of liabilities? Like do you already have quite a bit of debt?

I have some somewhat of a strategic reasons just to build business credit. Most of them are auto loans, business auto loans.

And some like a midterm, like five year loans.

Usually when I, when I'm doing balance sheet I'm just really like for the smaller stuff I'm just gonna bundle it up as miscellaneous tools and then I'll have like a list of all the stuff. So like for us we have like a lot of like weed whackers, blowers, chainsaws, et cetera. I'm just going to be like hey, miscellaneous tools $8,000. The reason I do it that way is that way if they want to take it on the balance sheet they will otherwise sometimes be like ah, those are not depreciable assets. Let's take them off the balance sheet and then they can do it on their own. So I usually just keep it separated but I usually don't list them out individually because then then they get like oh, he's basically trying to count every little tiny thing as an asset.

No, no, no. Yeah, that's what I meant. Like not like know, not the last like screwdriver type of thing. But we have a lot of tools and in a thousands of dollar range where like I could turn that into cash if needed. Therefore I'm somewhat of an asset. Okay, that's good to know.

Another question that I'm trying to eventually have a recurring side of the business. Right now it makes up 10% of the business. We know that we want to grow that eventually probably sell it because it's more of a sellable asset given that fact that it's recurring. What do you do now, Victor, in terms of recurring? Like do you do inspections? Are you doing warranties? What is the service side currently?

So it's just word of mouth, organic. Like we have a Google page, we get some calls. I do a very minimal SEO just because with projects our capacity is almost 100%. So the service is basically, I mean last year was. Yeah, exactly around 10 of the business, the income. So it's honestly I had this like debate in my with myself that oh maybe I should just. Because that was around $100,000. So like oh, maybe I should just find 250k project or 425k project and the service side because it's somewhat of a distraction right now. Right.

But at the same time it's from cash flow perspective. It's super helpful.

Yeah.

But yeah, I mean and I don't know how what. Because I heard that oh, you have to like somewhat separate the two businesses if you want to sell it one or the other. I just don't know how that would work. Like yeah, should I start like a separate company with different name, different branding and separate employees or should I just like kind of like just branch it out of the same business name and branding?

I think your valuation gets a lot better if you actually combine the two. Because I think that the two will, will, will feed off of each other. One thing that I'm really interested in when it comes to plumbing and I've seen several people do this is not only just go after service, but go after your current one time projects, selling them some sort of a warranty or like an ongoing recurring maintenance model. And so for example, you do an install. Okay, here's your price. 50 grand for this project. You know, by the way, we sell US$99 per month. And if you on that program, everything that we install is warrantied forever. If there's a leak, if there's a Break. Anything happens, we cover it. And that takes a long time to build up. But in the long term, you have this recurring stream of revenue that looks very, very interesting from a cash flow perspective as well as from an acquisition perspective. Because then if you think of it as like using service as the way to fill in the holes between the projects, you created just a much better business. Now the projects can be the, like the big money maker, but then filling in the. There's gaps between them with service or warranty work where you warranty your big projects and you sell them on some sort of subscription. That's very interesting to me.

I mean, I just don't know how. Because obviously these projects usually go through a general contractor. And I know how would that sit with them. I'm sure. I mean, it's definitely. There is opportunity there. Just I think one way to do it maybe that show the general contractor that, hey, just to maybe win the project, you can turn on like, we do something like that and then from there. Yeah, that's. It's a good idea.

Yeah. Even what I've seen some people do is they'll take. They'll ask the general contractor, like, hey, if I get. If I get the project, we actually have a warranty. So you don't ever called back for a little leak because, like, the general contractors wouldn't be called for that anyways. It's like, hey, we will actually be the ones that come back. We will contact the customer directly, make sure we have the warranty set up, etc. And then you get 100 customers. You know, it's only $10,000 a month, but you're probably really doing the work required. It's very minimal. And the reason I mentioned that is because that recurring revenue will have a much higher multiple when you go to sell.

Mm. Yeah. Okay. But that's. So I would not. I mean, as of right now, I would not want to sell like the project site. So how would you separate that as a sale? Like, hey, it's. I'm still like spotless plumbers doing the projects. But you are spotless plumbers doing the service calls. That's what. I don't know. Like.

Yeah, so. So you would never want to sell both of them together.

I mean, right now that's the idea. I mean, later I could change my mind. I mean, that would simplify things for sure. I just, I mean, I love what I do.

Yeah.

And that's what I like. Pretty much the only thing what I know how to do. So I don't really See myself to be like real estate investor or something. Right.

So yeah, yeah. Then it might be, might be. If you're like, you know, for certain you want to keep projects forever, it might be worth it just to keep them separate. But it's very easy to grease the wheels between one time projects and getting them into recurring or even a service upselling into a project or projects downselling into a maintenance. Right. So it's nicer when the name of the company, you could call it spotless something else. Like even if you want more the handyman route, but you probably don't want to, you're, you're devaluing your service. So it's like, it's like you could call it something else, but if the brand was the same, it's just easier to sell up and down the value chain.

You could start it as together Victor. And then down the road if you're like, okay, I'm, I'm going to really scale it and break it off and sell it, then flip over. Because until it's doing over 500,000, like the service side, until it's doing that, it's not really sellable anyways. So you can keep it the same for the sake of simplicity. And then if it starts to grow, then just break it off, create a new entity with the DBA and then have it. So we could sell it that way.

Yeah. Also the question kind of like should I really focus on that right now? Just let it. Because as I said I was like going back to maybe I should just not even take the service calls because a lot of times honestly it's just a pain. While we have like massive projects to do like 50 to $100,000 sometimes. So at that time, oh, we were like here to like mess with this 500 call, let's say. And like.

Yeah.

So I don't know. I mean, probably me problem as far as like I have to decide what I want to do.

Even if it's just a matter of like you got one person dedicated. It was like, hey look, your main objective is, is maintenance. And if there's not maintenance, you're going on a project but you don't schedule them on the projects. It's just like you can get ahead of on the projects if they're around. That would be the way to start the division. Right. I think that it's just more a matter of like where do you want the business? What, what do you want to look like? Like the only reason we're even talking about this right now is the fact that you think you can sell it down the road, right? Yeah. Because if, if that's not the. You want to do projects forever. So it might just be to your point of distraction. We put all our time and just build up the brand, focus on operations around the project side and focus on marketing to fill in your gaps. Because, like, you can do plumbing year round.

Yeah. Okay.

What else? So bonus structure.

Same thing with projects. I don't know if I could do something what you do with like launch services, but at the same I would like to come up with something just to, like, it's an addition to have my employees stick around longer.

Do they do. Right now, most of your projects, are they based upon a bid price or an hourly rate?

It's always based. So we did like, you know, that's the cost. Unless there are some change orders. That's what it is.

Yeah. So you, you could do a percentage of, you know, basically the laboratory to the employee. Like right now, when you're building, estimate what's the per hour rate? You're kind of trying to hit 195. And then what's. What's the base pay just to get a decent plumber in the door?

30 to $35. I mean, a muster could be more like 35 to 40.

Okay, see, you're looking around like 17 to 20% of their hourly rate to the customer, quote, unquote. The target rate is what you're paying them out. So you could just be like, hey, you guys are at 20% of everything you earn for the business. Now, this assumes that they're pretty efficient, but because you're doing big projects, there's not a lot of downtime. But what this was incentivized, the part that this, this helps, Victor, like, when it comes to big projects where you're on a job site for a couple weeks is lunchtimes, breaks, smoke breaks, getting to the job site on time. Like that's what you're actually cutting down on. Because the actual work itself, usually they're going to be efficient or they're not. Like, they're either going to work hard or not on these bigger projects. Um, but I've seen some, like, electricians inside P4P doing the same thing. And they're on like that 15 to 20% on P4P that they give the employee and you just cut. They just saw so much like, okay, we'll do a shorter break time. No, like, let's not do smoke breaks. Let's like everyone kept each other accountable to be on the job. Site as long as possible. It's affecting everyone's paycheck.

You got it. Okay.

Another question is how much cash should. Would you recommend to keep on your like checking accounts to just based on. Would it should be the. Based on like revenue. So let's say it's a million dollar business. What's your like? Okay, that, that should be like minimum.

Yeah, a lot. Yeah. A lot of it depends on your risk tolerance. Like for me I want at least one month of revenue in the bank just for working capital, making sure we're good. Some people say two months worth of expenses. No one knows what their expenses are. So I just use one month of revenue. So if you're doing 80,000amonth in revenue, like there should be at least 80 grand in the bank. Mostly just so you can cover payroll. If something crazy happens with your processor for a couple weeks, you're usually good in terms of payments or a contract or a job goes bad. The bigger your projects, the more money you need in working capital though. And so if you're doing 50 to $100,000 project, you might want a little bit more just because just in case one project goes bad. You don't want that to put you in a bad spot.

Yeah, yeah, that's okay.

The challenging part for you as a sub is. Is the cash flow because like yeah, they easier coming with you with the terms. Right? That's the challenging part.

Yeah, I mean right now. And that's one of my questions too that Most of my GCs usually like a few weeks to a month to get paid. It's like a progress payment. However to be able to grow. Now we are like getting into commercial jobs and cash flow could be.

We were lucky to find a couple like net 30 which is not that bad. But I know that will end up meeting with contractors net 60, net 90 or even more. And I got like a decent amount of line of credit to use. Although I don't really have like a strategy. I mean I have somewhat of a. Obviously we buy the material through suppliers who give us like a certain amount of credit using that 25 and then I can bump that balance to a credit card and then once that credit card due then I can even toss it paid off with a line of credit. I just don't know if that's like a right strategy or is there is anything better to do besides using your own cash which because last year we. I pretty much use cash only for everything and drained quite a bit.

So it's just I don't. Not a Good feeling when, oh, the cash balance is just going down, down, down. And yeah, I know it's coming in sometime, but you never know what can happen. And yeah, I'm just trying to figure out a strategy to use my credit line in a responsible way.

Yeah, yeah. Like the challenging part, if you're using a line of credit, especially right now when interest rates are above 10, like financing becomes a real cost to the business if you, every single job, you're having to tap into it, even if it's for a few weeks. And so like what, what you could potentially do is just simply offer pricing different to the general contract based upon their pricing terms. Okay. If you, if you give me an extra 25% before the job, here's your price. And then basically it's up to them to figure out their cash flow needs. And I wouldn't be given the discount I'd be putting on top of if they owe longer. And so just to bake in the discount for them if they give, if they pay you better, because you do not want to be in this, the treadmill of using credit cards and credit lines of credit just to, to especially pay off cogs like materials and direct labor. It. It's a spiral. Like I, I would, I would increase my cash on hand and I'd rather take that because if you're paying the bank 12, 15% on a line of credit, it's going to be very difficult to make margin if you're having to carry every single job for two or three weeks.

Okay. All right.

Our question, inventory. So that's where our last year could have been more profitable if I don't get like a pretty serious amount of inventory.

Do you keep inventory at all in your businesses or what's the way you guys track it? Because right now I'm estimating I have around like $50,000 just sitting in our warehouse, which really kind of hurt our net profit quite a bit.

Obviously. Is there. I'm, I'm not able to return it or anything.

I'm trying to come up with a way to track it. Or does it even worth. To track it? Rather just like, hey, this is what we have. Try to just pull it out from the warehouse as quickly as possible and just forget about it.

Yeah, the challenging part, you're depending on inherent knowledge from your team to know what the inventory is. And so there, there's a very high likelihood there are things in your shop that they are buying every day or every once in a while, but because they simply just don't even know it's there. And so I would, I hate inventory, especially inventory that goes over 30 days. Like if I have to hold something more than 30 days, I just want to get rid of it. Because the storage alone you're paying for the rent you're paying for that warehouse facility. And so what, you know, one thing I did with another plumbing company or handyman and plumbing company last year was like, we're going to take everything, this inventory and anything that's more than 90 days been sitting here, you're going to get rid of it. Like you're going to sell it, get rid of it. And they literally have their warehouse that were there spending $4,012 a month on half of it was literally just stuff that's been sitting there for literally years. And so if that's the case, I'd just be trying to get rid of stuff like flash sale the thing. Otherwise if it's going to be used, like if it's a material or a product that can be used in the future, then it has to be inventoried. Like we got to know where it's at, what's it doing, whether it be QR codes are really easy or putting in some sort of basic inventory management system. So then people know where stuff is. And then it's like how granular do you get? Because you can, you can get very, very fine with like screws and very small things. And you're like, hey, you took five screws. Eight. And, and that, those are usually the best businesses I've seen. Like when they, when they are really managing that level of granularity, they have things dialed in.

Okay, overhead. So same similar question to the cash. Like what is like a percentage, what you would think consider healthy.

Compared to your top line rename.

It really depends on the growth. Right? So like you grew a lot in 2023. What was your revenue?

Six, seven?

Yeah, it's like you, you grew by more than 50 last year. And so any, any business that's over 50% growth year over year is in mass amounts of growth mode. And it sucks cash. And so I, I really don't usually judge someone's net profit unless they take a year where they grow less than 25%. Because even if you grew 25% this coming year, you'd probably have to have a truck, you probably have to have one more employee, you probably have to get more shop space. Like there'd be so much more overhead expenses. And so you know to draw 10 to 12% when you grew by 50% year over year, Is not horrible. I believe that if you're like, hey, we're not going to buy more trucks, we're not going to hire more people, we're not going to get any more equipment, we're not going to get any more inventory. We're just going to raise our prices as we get more jobs coming in. I think this year you'd probably more at 20 to 25% profit, and that's good. And so I always take, like, your growth rate into account when it comes to determining whether or not it's a good net profit. A good net profit, 10 to 12%. Not by itself, but the fact that you also grew the business by 50% and you got two more employees and you probably got an office person at the same time, not horrible.

Okay.

The question just becomes. The question becomes, how big do you want the business to be? Like, if you're trying to build a $5 million business, it's going to take a lot more assets, a lot more trucks, more shop space, et cetera. And if you can maintain 10 to 12% profit throughout that entire time, that. That's not bad. You're building the asset in that case. But if you're like, hey, I'm not going to grow now I start taking cash out of the business. That's when I think at your size, you'd be probably making 20% margin.

I mean, in the past, like, six months or so, I was like, I would say 70 on. I mean, out of the field. But I have this. So our projects are relative complicated. It takes a lot of experience, takes a lot of effort to. To get things done, and a lot of variables. And I have decent employees, decent guys who I trust. But I feel like since the projects are growing, they may need more help on the field. So I cannot just expect them to figure it out. So I'm like, should I stay out of the field or should I just have dedicated. They say, Monday, Tuesday, I'm out. Don't even, like, think that I will come help. That's. You've got to figure it out and then have like another two or three days ago, okay, this is field work. Focus on that.

But at the same time, you know, I'm still doing the sales, doing all that part. So I don't know, like, how does it make sense to balance it? Or rather just let's say, okay, for the next three to six months now, we're just operations, figure it out. Systems, SOPs, all the good stuff. And then if everything is dialed in, hey, I might be able to get back to the field and have a admin or someone handle the all that.

Whether or not you're working in the field really comes down to how many employees you have. And when you have that many direct reports, like we're talking five people out in the field, it almost becomes a full time job of just managing them. And so when it comes to your time, it's like if you can just spend your time get making those guys 10% more efficient. So like the inventory for example, that's a high leverage task that if dialed in probably makes them 5 to 10% more efficient. But now you extrapolate that, of course, five different plumbers and so now you're looking at 25% increase because there's five of them. And so working in the field is probably the lowest leverage thing you can do in the business, especially when you're paying people 40 bucks an hour. And so I would, I would really think about, okay, when do I have, when do I get pulled into the field? And I'd be, I'd be documenting that. And for example, is it during inspections? Is it, you know, finalizing the last bit of a work? Is it a complex part of the job? Or is it, is it 10 to 20% of the services that we offer offer that we could just nix and it gives me 80% of my time back because they're just very, very complicated services.

Or do I systematize a certain aspect of this so that my admin person can do it for me? Or you go hire an absolute basically ahead of operations. Right. And so like this really comes down to how big of a business do you want to build? Like are you wanting to keep it around a million? Are you trying to get to three? Like what's kind of your longer term goal?

I mean for this year we are trying to be anywhere 1.2 to 1.6.

And yeah, like that's a three to five year mark. We should, we, I want to be the business around the 5 million.

Like at that size, at that size you're gonna have to get ahead of operations, right? So it might not be a bad idea to go get someone that you're going to pay them 40 or 45 bucks an hour. But they're the person that everyone contacts and they, they spend maybe 70, 80% of their time out in the field working. And the other 20 to 30% just doing what currently you're getting called in to do. Now that would be a very pro growth move, getting someone very expensive. They would be basically head of operations then you have admin, you'd have operations from this person. And then your response would be sales. And that's when the business will take go to the next level is when you spend all your time on sales, not administrative and not operations. It's like the unlock to go from a million to three is you focusing on sales and getting someone out in operations that can do all of the fill in work. And it's very highly skilled work. So it's not like with lawn care. Like we just systemize and simplify everything down to like basics. So we get entry level people. We don't need quality control. But for you, like you're going to have to have somebody sign off on things. Someone do that. Like when there's a difficult project, it's all very custom. And so I would be pushing. If you're trying to get five, you know, you gotta get ahead of operations. The difference between taking five to 10 years to get to 5 million and doing it in three or four is simply a function of do you get a great head of operations?

Okay, still conflicted with that one. I mean I understand.

That at some point I gotta hand it off. It's just even with hires, first of it's hard to find decent and qualified technicians.

And also like to show them how, what good, how good looks like in our business.

Right.

I don't, as of right now, I don't think I have enough technicians to just like handle. It's a new hire who we should dial it in like into two to four weeks to at least. Hey, do you, you want to do our way or is that something which you want to follow or look elsewhere? So that sounds like I'm still like in this. Should I just do hybrid or just buy the bullet? And yeah, it might be a three to six month struggle, I don't know. Because at the same time all of our partners and contractors and you screw them one or two times and probably you're out.

Yeah, you can do kind of a hybrid to it. To it, to it. Victor as well. It's like, hey guys, instead of calling me out to job sites, you're gonna first video call me. And like these are my hours. Like these are my. When I'm working here, there are two hours every day, one in the morning, one in the afternoon. During these times you give me a video call because now you can do without spending an hour driving to and from the job site. You can do something, fix their issue or resolve the issue within three, four minutes. So that's going to be the More cash friendly thing to do because you, you're right. Like if you get ahead of operations, you must get to 1.6 next year. Like you have to grow because like their overhead expense is going to be substantial. Like they'll eat up 10 profit right now. And so I think like the hybrid would be like how do you create systems in the business currently to keep doing what you're doing but make it more scalable. And so if it's hey guys, between 9 and 10am and between 2 and 3pm those are the times you can contact me and to do inspections, walkthroughs, whatever you need. If you have a problem and you're going to video call me, I'm not going to show up to the job site because that's what's killing you in terms of taking you away from your current job site. That's gonna be the most cash friendly thing to do.

Okay, let's just look this question, this came up in my mind because we're in Colorado so a lot of mountain area services, the phone service is not always that great. Have you ever had to deal with something like that? I was thinking get like.

Starlink.

Starlink. Although it's, I cannot just like hand off like a Starlink for each employees. But I don't know if because sometimes that's like difficult like hey, let's FaceTime. But it's just like I'll signal.

Yeah. But then something that you bake into the job pricing. Like hey, when you're at the job site and you're doing a job bid like oh, this is a job. I'm going to have to show up in person because they literally won't be able to contact me. Okay, well I'm baking an extra four to five hours of my time driving to and from that job.

Gotcha. Okay.

Another question. Warehouse space. Right now we have a smallish like a 1300 square feet square house warehouse. One reason is the inventory is getting tight. But the other reason is just we have a lot of stuff and right now just started to negotiate a five, three to five year lease. I haven't decided yet.

The catch is that the place is like 2200 square feet. So almost double. But it's, it's warehouse owners to know office space, no bathrooms, nothing. And what we're trying to, what I'm trying to negotiate then obviously per square footage rate is cheaper this way. And hey, if I finish like at an office, at a bathroom, I mean we could do it relatively cheap just because we have the expertise and the connections to do such a project.

What would be like a reasonable. Right now what I was thinking like hey give me the same rate for two. I. I'll sign five. Give me the same rate for two years. What. What's current rate is if I finish your warehouse to like a flex space, therefore increasing value for the rest of the lease, will we keep the same rate? Do you think that's a reasonable offer or.

Yeah. Like it just comes down to whether that landlord even wants that or it can get a per it permitted correctly too. Right. Sometimes for warehouses they might not be allowed to have any sort of water sewer coming up through the bottom. So it'd be mostly around permitting I would imagine. But and whether or not the landlord wants to deal with that in the feature because a landlord that does manufacturing or warehouse sometimes they're like I don't want to deal with toilets, I don't want to deal with any water. And so I'll just get low maintenance basically storage. And so that might be what they're you adding in in a bathroom in an office just complicates it for them. So it just kind of comes down to what they want.

I mean they have I think 80% of their spaces are offices. So every utilities are in. So they. We're not doing it from scratch. But I just wanted to kind of negotiate because I would not sign a five year lease unless I know my monthly rent is pretty. Pretty predictable.

Yep.

Because this way I would pay the same what I pay right now for the smaller warehouse. Just know if it's no bathroom for I don't know, a year or two.

Right.

Which is fine. We prefer. Because my goal is to turn that warehouse into somewhat of like a training.

Space. Like build out like examples like hey this is how it's done. If you have questions you can hang out here for an hour and just check it out. And then if you still have questions then you can talk. We can talk about it.

Have you ever been to Tommy Mellow shop?

No.

No. I highly recommend it. He will give. He'll do. He does it for free for anyone in home services. But he has exactly. You just talked about in terms of training facility built out for garage doors and like that sort of space is exactly what I think you would be great for the plumbing especially because your constraint is quality control and highly skilled people. And so being able to show them this is how what good looks like. This is how to do it. Training facilities start to make a lot of sense when you have that higher labor, higher level laborer because it's worth the cost of investment due to the fact they're expensive labor as well as the cost of doing the work incorrectly is, is huge. And so I would recommend it if you can get a, like a shop tour with him. It's free. I think I'd recommend it.

Okay. All right. Well, I look it up. I mean, I follow him and I think, I mean the group on Facebook. But.

Never, never heard about this though.

Just circling back to selling the business. What are the current like multipliers or what's like, how can you value your business just like based on, you know, look at the balance sheet or is it like a multiplier with the net profit or.

Yeah, usually you're gonna have some sort of multiple on the net profit plus, you know, whatever assets you have. The thing is that multiplier ranges dramatically. Right? And so having recurring revenue is going to increase it. Having just a bigger business, especially in plumbing, like if you get over a million, you actually start to like someone wants to buy you. If you go over for 5 million, it becomes like where every dollar of revenue and profit has a higher multiple on it. So you might get a 1 or 2x multiple plus asset value. If you're under a million, you likely get 2 to 3 if you get over a million. But if you get a five, these are very likely you get a three or four or even more multiplier on your profit plus your assets. So it just becomes a matter of like every dollar the business gets bigger. You're just attracting bigger buyers. Because a buyer of a million dollar business is likely someone that wants to like switch industries or just like a local competitor that wants to roll you up into theirs. But if you start getting to 5 million, you know, someone with private equity or a, a regional player starts to get interested in you and actually move the needle. One thing I was going to say too is if you do some form of pay for performance, I actually think this will almost vicariously fix the issue of them calling you out to the job site. Because if you say, hey, I'm only available these two hours a day and I want you to video call me, or let's even just say you're still going to go to their job site because the issues with the cell service, if they have to wait for you for an hour right now they think that's great because they're going to sit around, do nothing and you're stressed out of your mind to get there. Whereas when they're on paper performance, they will figure it out. Or they'll make sure it happens so that they don't have to sit around and wait for you and you don't become the bottleneck. So I guarantee you, like, if you do pay for performance in some way, you will suddenly not have to show up at the job site half as much because no longer do they look at you coming out. The job site is basically a way to take a break for an hour. It will be like, hey, let's figure this out on the phone. Let's video call this. Let's just figure this out ourselves without having to pull you into it. And so many times we've seen the amount of like admin or quality control to laborers get halved once you pay for performance come into play. Because the crew wants to stay busy. They want to keep working and not looking for ways to simply create random admin or check ins or like questions that they could really just figure out themselves.

Okay, okay. All right. I don't think we talked about much about the KPIs, like what's worth to track.

One of the big. Yeah, like when you, when you're creating the estimates, are you creating like a number of budgeted hours and you multiply that by the 195. Is that kind of how you're doing on the back end of the bid?

Yes.

So I would really be tracking like the budget hours versus, you know, how long it actually takes. So basically, did the job go well? That's how we're going to track that. But more importantly, I'd be tracking your labor efficiency. So how many budget hours were completed to how many clocked hours? That's the number that will get dramatically impacted by pay for performance. Because right now, if the job is a hundred hours that you have on the job, they're not clocking 100 hours. They're likely clocking 120, 130 or 140. And so knowing what that number is, and I would imagine it's around 60 to 70% your efficiency score, which is budget hours divided by clocked hours, knowing what that that number is. And I would incentivize people based on it, whether it be pay for performance like strictly, or just telling guys, hey, I measure these two numbers and their efficiency score of just budget hours completed divided by the clocked hours. The higher this number, the more money you make. Like that alone, without even to go into like P4P strictly would, would really change the business because there's so much wasted time on job sites and, and they're not incentivized to push each other to be more efficient. And so I would even put like bounties on jobs. One like easy way to do P4P is like, hey, here's the budget hours. If you beat that, you make more money. Like and then it's basically up to them to make sure it doesn't. It's done to spec. But that's like an easy way to do P4P. Instead of having to measure like okay, budget hours and clocking in the job and all the other aspects of like really refining it, just simply say, hey, these are budget hours based on how many hours you clock. If you beat that, you'll make more money.

Okay, any, any other KPIs. Maybe what I should.

And one thing I would be tracking is the percentage of your revenue that you're spending on admin and non revenue producing employees. And so right now you produce enough labor to probably cover your own wage. But as the business grows, it's like what percentage of our revenue is going to the office person, a salesperson, a quality control person, an inspector. Like as you get to that $5 million marker, tracking that. Because what I see a lot of times you see big bloat in that area. All of a sudden you have a salesperson for every field technician. You have a, an admin person for every field technician. It makes no sense. And so trying to keep that number like to five to one, it's like five people in the field to one non revenue producing employee. And that's kind of why you're hitting up against it now. You hit that five marker and you're kind of like in between both of those positions. But if once you get say 10 employees, you don't want to have four people in the office, it should be like maybe two. Right? So I would just be tracking that because like I see the two biggest issues with almost all home service businesses is like either a inefficient lab, so the direct costs are out of whack, or their indirect costs, I. E. Admin and sales. And like you know, sga, that's what gets out of, out of whack. And in most times just because they hire too many admin too many salespeople compared to how much is actually producing the revenue.

So okay, and.

Another one is sales. So currently the GCS and other partners you work with most of them word of mouth or some sort of like social media, but not like a direct like marketing strategy and a commercial side, honestly it's not that hard because a lot of those contracts are just Post the jobs and you can just bid it. Although it's more competitive on the residential side though. Earlier last year I tried like an email reach out, but honestly there was not a. Yeah, there is a seller Mosey quoted like, you got to do at least 100, but I don't even know if there are like 200 or 500 plus.

General contractors out here who I can reach us. So I could easily like just knock that out and. But let's say I reached out to probably around the 50 to 75 of them and just crickets.

Recently tried phone call, but same thing. It's. It's usually you get an office person and then you just depending on that, if they. They reach, they hand it to. To the owner or whoever is responsible to reach out. And I mean, I know the third option is go out and just, you know, go to their office. Although I don't know, I'm more of like an introverted person. So I just know, like, hey, some donuts, whatever. Like, let's just like kind of cringe, let's say. Yeah, so I don't know what would be like a good like, hey, let's do email and then a phone call and then if they are serious, then maybe set up a meeting to. I don't know how to build a strategy around that.

Yeah, I would do a couple things. I think the big thing is general contractors don't need you because they probably have a plumber already until that plumber messes up or that plumber drops out. And so really, who gets rewarded using these B2B relationships is who's consistent. So you just need to stay top of mind. So you're going to do email. You email them twice a month. Right. And it's going to be your before and after photo. It's going to be total product. Like a general contractor. Like nerds over seeing before and after. But seeing the cost, like, here's how much it costs us. Like, here's who was the price of the job. That's the sort of thing that will stop them from, you know, actually opening up and like seeing the email and like, oh, that's kind of cool. All right, next. Well, they see that 10 times and then all of a sudden their plumber drops out on them. They're going to call you and then it's also a matter of like, well, why would they choose you over anyone else? And then it's like, well, what's their pain point? Their pain point is they don't want to come fix your work because they're putting their co signing on your work. So that's why like I really like the, the idea of doing like, hey, we warranty all of our work lifetime and you will never have to like fix a leaky toilet, whatever. We go to the customer and we will get a warranty set up and you will never have to deal with it. So that's like one aspect, like how you actually be fundamentally different and solve their problems and their pain points. But then also from like as a marketing perspective, it's the consistency that B2B you know that this game is played on because either A, they just know you because you've been around for 100 years, but the only other way to get their foot in the door is their current contractor drops out. Like something bad happens and you just need to be top of mind at that moment. Like, oh yeah, you know that Victor guy, He keeps sending me things every couple of months looking really good. The projects look clean, looks like organized, their pricing looks decent. I'm gonna call him up and go. So I would just say consistent with it. So like I would put them. When you, when you have less than 100 hit list, like your hit list is less than 100, your prospects are less than 100, you just want to like be, you want to know every single one of them. You, you want to be the person that you're sending them a card at Christmas, you're sending something at Thanksgiving, like it does. Because your marketing budget, even if you spent 10, $15,000 a year, that's a couple hundred bucks per per prospect. So you can give them a gift, you can send them a card, you can send them every, you know, twice a month you're sending an email. The before and after of your projects and what the price was. And just like keeping you top of mind, that's how you kind of get your foot in the door with those, those relationships I've seen work.

Well, okay, that's actually a great idea.

And then you don't have to, you don't have to make cookies and donuts, you know.

Rather not.

Yeah, right.

Okay.

Also in the recording, Victor. But as, as time goes on, if you have any follow up, just email me back the email that I send you the recording. Especially once you get to kind of. Because you're going to keep growing. It's like you're going to have this breaking point around that operation side. Either do I hire the operations manager or head of ops or do I try to systematize things And I think from a cash flow perspective that's the safer route right now, is like creating better systems around you getting to the job site. So, and if you did, if you simply made it where you had two hours a day that you were open for them to contact you, and then you implemented some sort of pain of. Of compensation based on their efficiency score, whether it be actually P4P or just simply, hey, we're tracking budget hours and clocked hours. I think those two things would be, like, my biggest takeaways. So as you continue to grow, you're profitable and can get the margin up a little higher.

All right. Sounds good.

Awesome, brother. Well, you have a great rest of your weekend. Take care.

You, too. Thank you.

Take care. You got it.

Bye.

Bye.