Mike Minutes Mastermind 04/10/2023

Hey, everyone. Hope you're having a great Monday. Welcome to another week. Hope you had a great Easter. Let's go ahead and jump in. Turn off my microphone here a bit. Okay.

There was no question that came in on the form, so I had a couple things I wanted quickly. First and foremost, we are getting a lot of people calling into command center not knowing when their product is scheduled.

And when this is coming from the phone. I know it's happening a lot.

So, yeah, you got to remember, and obviously if commands are doing your scheduling, that's differently, but the vast majority, you're doing your own scheduling. And we're getting a lot of calls saying, hey, when am I on the schedule? I accepted a job last week. When am I on the schedule? You've got to make sure you send the thank you and welcome email that has the date for that service after two or three days, after they click accept on an estimate, if they don't know what day they're on, they might go look for other estimates. And that's what happens when you might be three, four weeks booked out. If you never told them when you're showing up, you might show up to the job. It's already done.

So what we typically can do, though, is see on your schedule when you put it on the calendar, but you just haven't emailed them. So put on the calendar is first step. Great. You've got to email them, tell them thank you and welcome. Email inside it there telling them exactly what date they're on the schedule. And then we recommend putting in the estimate notes of what they accepted as well, just to double, triple confirm that there's no.

Miscommunication on that. Okay. I actually wanted to go over something.

Thank you. Let me present.

Here. Give me a second. I thought there would be questions. There's not. No marathon Monday. Today we present the app here. I want to go over.

A concept we talk about all the time. And I, I sometimes.

I need to remember that not everyone who is here has been here a long time and might not understand all these concepts. And we talk about gross, gross and net profit margins all the time. So I want to do like a quick recap.

Everyone is on the same page. Why is this not working? Just did this the other day. Are you serious?

So frustrating.

Oh, because I'm not on wi fi. Give me a second.

Switch over.

Okay, let's see if this will work now or if it's a Streamyard issue.

Oh, man. Looks like it's a Streamyard issue. Come on. Are you serious? Okay. Well, I'm gonna do it and just show you here. Okay? So it's really simple. So I want to explain gross. Gross margin and, you know, gross profit versus net profit in a really, really simplistic manner. Okay? So how I think about it is.

I was going to do this on my remarkable. Now I'm going to do it and then show you here. So what we can assume is that we buy. We have a candy bar, okay? So candy bar.

And we're gonna go and buy this Candy Bar for $1. $1 candy bar. That's good. We're gonna sell this Candy Bar for $3. So that's our sale. So call it our selling price, okay? To the customer. So we buy it for a dollar, let's call it Toblerone, and then we're going to sell it for $3. Okay? In this case, your cost of goods sold is equal to $1.

And our gross profit is going to equal $2. Okay? So cost of goods sold is the direct cost of the product or service being delivered. I'll get into how this applies along here in a second. Gross profit in this case be $2. So what would our gross margin be? Would be 67%. Okay? That would be our gross profit margin, 67%. Okay? Now when people talk about their profit margins, if they're trying to inflate them, they'll talk about that number when gross profit is an absolutely meaningless number. Because what you're not accounting for is what's called sgna, Sales, General administration, overhead, rent, leases, insurance, gas, fuel, all this other stuff that is going to be considered for like transporting the candy bar.

We've got to sell the candy bar. We've got to have salespeople, we've got to have insurance to warehouse and inventory. All of that is overhead not accounted for in the gross profit. All right? So this company might actually only run a 10, 15% profit, net profit after taking everything out. So let's just say, for example, if we have overhead, which if you hear sga, just it just sales, General administration, which is a big component of overhead, I just call overhead. In this case, it's gonna be a dollar. Okay? Well, now we have cost of goods sold of the dollar, our gross profit, $2. But now taking out our overhead, guess what? Our net profit is gonna equal $1. So now the real net profit of this business is 33%. Okay?

So this is the very basics of gross profit, gross margin, net profit, Net margin, okay, Is you've got to take away your cogs or your cost of Goods sold. Now in home improvement and in services, a big component of your cogs that's not accounted for in this candy bar example is direct labor. Not the cost of indirect labor like estimators, command center, office staff, etc. But it does include direct labor. Okay, so let's just look at an example. I'm doing this on the fly, so let's make sure. I hope my math is. Okay, let's assume that we are doing a lawn and we're doing it for. Let's do $40. Okay? Mowing the lawn for 40 bucks. Let's go. And we're going. That's what we're selling it to the customer. That's a selling price. Okay? The question is, well, what do we. What do we acquire? The cost of the goods that we're selling, which is this product, this service that we're selling, what does it cost us to obtain the raw materials, I. E. Labor to get this job done? Okay, because the biggest cost that we're having terms of cost of goods sold, is going to be our labor. So let's go ahead and just assume that we're very inefficient. Okay? Very inefficient. 20, 50% of our price is going out the door to labor. So cost.

Goods sold is equal. I don't know if you make it more realistic. 40% would be.

16, $16 or 40%. Okay, that's more realistic. Okay, so we're gonna assume that 40% of that labor goes to employees. This is why PMP is so important, is because this number, you fix it this big, the biggest number, your cost of goods sold, it gets fixed. It's no longer a variable number. That's why P4P is so important right there. That's the number you're trying to solve for. Because if you know that this is the biggest cost we have in all of our businesses, then you've got to subtract out overhead.

Okay? Insurance, franchise fees, command center, if you have an office, if you have rent, if you have insurance, if you have all this other stuff, payments on your trucks, all that is other overhead. Okay, let's just go ahead and assume that this is going to be.

Let's do $20. So it's like 50 of revenue, which is probably not what you're actually doing, but let's just assume it's 20 bucks or 50%.

Of your revenue. Okay, so you got $40. That's what we're charging for the lawn, our cost of goods sold, which is mostly labor. You have a Little bit of fuel in there if you wanted to, let's just call it 40. Then we have our overhead, all the other expenses that are not directly going into that job, materials. So I don't have any materials in this. If you did, you'd have materials in here too. For your cost of goods sold minus out your overhead. Now we're going to be left with 10% or $4 as our net profit. And our, and our net margin would be 10%, right? So I just want to kind of go more a little educational. I think the candy bar example is the easiest to understand because it makes a lot of sense. You buy it for one, you sell it for three. That's 33% of cost of goods sold. And then assuming you have another third, which is another dollar in overhead, you then have $1 in profit, which is 33 profit margin, right? So this is the thing. This right here gets solved with your cost of goods sold, but your majority of that will get solved because of P4P. Right? Paper performance will solve this problem. This is a problem that people will still run into by having inefficient inefficiencies in terms of their estimators, their general managers, their truck payments equipment that they doesn't get used enough.

For example. Here's the one, here's one. But to tie this around, you don't send an email to someone about their, their projecting on the schedule and what date they're on. They call command center. That's a two, three minute conversation. It's two or three dollars. That's all overhead. So these are the two fronts you can fight, can fight on, right? Either have cost of goods sold protecting your gross margin, or your overhead protecting your bottom line. Your net profit is whatever is like bottom line. That's net profit. Typically that's what they're saying. If you look at a financial statement, there's two lines underneath net margin or net profit. That's like the bottom line, right? And if you ever hear someone say there's a triple bottom line, that means that you take into account social things like climate change, social impact. That's what a triple bottom line business is typically talking about.

All right, you all have a fantastic week. Appreciate you all being here. I'll see you tomorrow. Take care.