Mike Minutes Mastermind 08/12/2022

Ladies and gentlemen, boys and girls, it's Friday. Okay, welcome. Let's go ahead and get started. Jump right into questions. This morning we had.

Serious. Did I close out my. I closed out the questions tab. Seriously?

Ah, mercy. All right, here we go. Pull that up. Let's see here for the stuff there. Cool. Last night we had our off site meeting for command center. That was a success.

You want to share my screen? Boom. Okay.

For questions today we're starting with. Wait, why do they go to three? Oh, it's almost made too. Okay, here we go. Make sure you guys can hear me. Settings, audio, get. Okay, first one up. Ken.

In one of your previous videos you showed the potential new hire showed up two minutes late. You said to him, are you serious? Oh, mercy, that was cut out of context. Stephen, Stephen, you're gonna have to come explain yourself. Yes. So they're wondering about the. The guy that when I. He showed up and he said. And I walked out and said, are you serious?

Two different people. I just cut it up so that it sounded. The guy's name was Cyrus. Oh, right. And I was like, is it serious? So there's two clips. Yeah. And you're like, are you serious? He's like, no, my name's Cyrus. Oh, come on in for the interview. And then, yeah, I just had the clip of the guy rolling in and it just.

Let's go. There's your answer. It was all clickbait. That's the clickbait genius over there. Okay, let's see here where the questions go.

Should we just call people immediately when they're late and tell them not to bother showing up for your interview because they're already late? Not sure how you handle that guy being two and it's late and we should do the same. Yeah. So my, My opinion on this. If they contact you prior, I'm probably gonna give them a shot because if they call me 15 minutes before, like, hey, I'm running late, I just got off work, or I hit a. Hit a train, I. I'm on my way. That's totally different than someone just showing up late. Because they just show up late, they're going to do the same thing when they. When they work for you. I don't think I've ever hired anyone where it's worked out well if their interview was late. So save yourself the headache. In a lost uniform, what gross profit percentages should someone at 500k be shooting for? Right now? We are roughly at 40 to 50% for lawns and 50 to 60% gross margin for Landscape crews. So gross margin in our industry is a lot of times I see.

Being misunderstood.

Because it is somewhat of a gray area. Let me pull this thing out and see if I can hold the power button to get started. Let me see if I can't draw this up for you guys a little bit. But basically gross margin is revenue minus cost of goods sold. And so typically gross profit is most important in a, in a product based business because you have actual inputs in terms of material. Same thing with project based work. You actually have real cost of goods sold like mulch and rock and gravel and you know, posts and materials. And typically cost of goods sold is easily associated with material cost. However, when it comes to the production of our product, the production of our product, the major input is labor. And as a variable expense, labor and fuel is essentially what your cost of goods sold are when it comes to lawn care. So let me go ahead and see if I can't draw this in a way that would be helpful.

So we got revenue minus cost of goods. Solar. You'll see this as cogs that is going to equal your gross profit. If you then divide this by profit.

That is going to give you your gross profit margin.

And so typically the biggest thing that you're taking out of, you know, revenue, this is the number everyone struggles with. What's cogs? And for the most part in lawn care and landscaping, you are looking at materials, you are looking at gas, and you are looking at labor. Therefore, if you're on P4P, the beautiful thing is this COGS number doesn't change a whole lot cause labor is the majority of it. So I know right off the bat that let's just say 25 to 30% of my revenue is going out the door to just direct labor. Again, this is direct labor. This is not indirect labor. There's not going to op X. Okay? Because if I take what the result of this is, which is.

Gross profit, if I take this and I minus out op X or operating expenditures, that is then net profit. Okay? So operating expenditures are going to be all of your overhead, your indirect labor, like Estimator, GM, etc. Command center, all of those things are OPEX. So your gross profit is really just measuring how efficient are you at producing the product. Okay. What goes into actually allowing that product and that machine to run is all the operating expenditures. Okay? So the reason that this is like say 25 to 30%, like why isn't it 33% in terms of labor?

Because remember that they only get 33% of labor revenue. But in terms of all the other revenue that goes into the business, like EVs, dump fees, material markup, all of that is still contained inside of revenue. Okay? So your cost of goods sold labor typically is gonna make up 25 to 30%. If you're a little bit more inefficient, just getting started might be more like 35 or 40%. Okay. But then you got add in like fuel that might be 5, 10%. Then you've got to add in material costs because if you're doing more project based work that might be 5 or 10%. So that's where these numbers get very, very messy because every single job is going to really the cogs are going to depend on is it project based work? Do you have materials, do you have an estimate fee, do you have dump fees, etceter? This is the equation though. Revenue minus cost of goods sold. And that cost of goods sold for us is mostly fuel, materials.

And wages and wages are the biggest determining factor on P4P. We get to fix that number massively. And that's the biggest reason why if you all your guys are above P for P above base pay, you can basically look at your cogs and know exactly what that number is. Because you fixed, you've basically fixed wages as a percentage of the gross of the labor revenue. So however there's, there's a lot of variables in there because that revenue is going to take account if you'd dump fees, material markup, et cetera. And then if you're more heavy based on projects, you're going to have more material costs in there as well. So hopefully that was somewhat helpful. And yeah, you'll have, have a higher margin typically on projects because projects are the ones that take the most opex. Right? So you might have more margin because you're able to, you know, markup materials more and you have, you know, do all these markups and charge even a higher rate for, for labor. However, your OPEX is what balances it out typically, right? You have, you have to have a machine, you have to have, you know, you have bigger trucks. All of those things are not accounted for in gross profit. Okay? Those are OP X or operating expenditures that come out of gross profit and are considered overhead. So I've seen time and time again people with 60, 70% gross profit margins lose money every single month because they have loans, they have a whole bunch of debt, a bunch of equipment they don't use, bunch of trucks sitting around they have debt on. So that's why you got to, you Got to look at two different ways. One is my variable cost, my cogs, right? Cost of goods sold, and then two, my operating expenditures. Those are the two defensive mechanisms of a business. You got to always defend your cogs so your gross profit is good and you have to defend your opex and make sure those are cut down in order to have net profit. So when you look at profitability from the standpoint of bottom line profit, you still have to look at the top line, which is the gross profit in terms of, you know, just because, just because I have bad net profit does not mean my opex is off. It could very well just mean that my cogs, my labor, my fuel consumption, my route density is way off and therefore I'm really unprofitable gross profit wise. So I've seen it just go both ways. I've seen people have really low gross profit margins, but because they've paid everything off, because they don't have any office, because they don't have any debt or trucks that, you know, everything's just done internally paid off, that's typically, I see in years three to five, their, their OpEx goes down, down, down because they don't have all these loans and debt and they're not buying equipment. And that's when you get more profitable.

Kyle, is there any ever time when you think it would be a good idea to give an employee notice, one to two weeks notice of being laid off or fired? Never. I have never seen that work out. Well, I know in, in theory it's like, oh, well, I need them for one week, but then I'm gonna fight him. Do not. No, you, you are asking for trouble.

Wait, let me take that back. If you're gonna lay someone off for like the winter, I would, I would give a notice, right? I would say, hey, look in three. Okay, I sort of misread this question. In terms of being fired, I would not give them notice. Like if you're going to fire someone, be decisive and fire someone. Don't be like, hey, we're thinking a couple of weeks. Like if they did something really bad or you think they're, you know, doing something wrong, like fire them. And if you think, well, I need them, well then keep them. If you think you need them more than what you don't want them around because they're fired. But laying off, we do give a lot of notice because I want them to go find another job and I don't want them to be in a bad spot. So we do give a lot of notice around being Laid off. But we're just trying, we try to be upfront, honest in terms of like timing of the year and when people are going to need to be having less hours. And then we try to usually like two months, six to six to eight weeks before giving everyone like a one on one and being like, hey, where are you at? Do you need work? Do you want to work here during the winter, etc. Things like that.

Oh wow. Okay. I have an idea for operational theory. I know I'm nowhere near this level yet, but I've been thinking about a lot watching your vlogs. It goes like this. No shop space. Each employee will have their GPS rig, grass project snow, which they take home in the territory they work in. If projects require more than one employee, the senior employee will pick up the other employee to go to the job. Each employee that is assigned a GPS rig will be responsible for the equipment maintenance or scheduling of that maintenance. Ooh, that's tough. The storing of unused equipment plows in the summer when mowers in the winter will be done at the employees residence if possible. If not possible, will be stored at owners of property. My goal for this method would be to keep everything slim, lean, adjustable and configurable to the situation. I would absolutely love this. And in theory this would work fantastic. Way less opex. You wouldn't have to have rent, you wouldn't have to have shop space. And they're responsible for all of the upkeep, they're responsible for all their equipment, etc. They're responsible for routing their work, et cetera. All of that sounds fantastic. Here's the problem. You're going to have to pay someone so much to have someone who's going to self manage their equipment, self manage their route and their, their schedule for the day, self manage the storage of their equipment and debris and all the rest of it. There is.

Just, it's so hard to find that person secondarily. Let me ask a question to everyone out there. What percentage of your employees, frontline team members, were with you a year ago? Right. So we're seeing literally a 70 to 80% annual churn, which means every, you know, on average people are sticking around for three to six months in the frontline team members. And so it's very difficult to get someone up to a level of aptitude to know how to schedule route, take care of their equipment. And then furthermore, like I'm dealing with one owner right now, their employee has their truck and they're holding it hostage because they got fired and so right now he's literally going to court and try to get his truck back. So. And that he owes money on the truck. So that is very scary. So he's going to be going to court over a truck because the employee does not want to give the truck back. So there's just a lot of gray areas. And then it's like, well, then you got to determine if they're allowed to drive it personally and what happens if they get an accident and they're not on company time, or what happens if someone else and their family drives the truck. Well, they're not an employee, so are they going to be covered by the policy? Your insurance is going to be completely different if you actually tell them that they're going to be driving on the weekends outside of business hours. So it just gets very messy. However, I'm a huge fan, I am a huge fan of this idea, minus the scheduling part, because that you're asking a frontline employee to do that.

If someone knows how to schedule, route, dispatch, maintain equipment and do the work itself, you're probably not gonna be able to afford them to be on a mowing route. Like, let's just be honest, they're gonna need 25 plus dollars an hour. Because if they know how to fix their equipment and maintain it and route and schedule, they're like GM quality. You're looking at $25 minimum per hour. So the fact you're probably just not gonna find a lot of those type of people that want to do that and that you can retain them for any period of time. If I knew everyone I was going to be able to retain for two or three or four years, this is exactly what I would do right here.

But I just don't see that being as a viable solution in the labor market. And I don't think it's going to be in the future in terms of maintaining, you know, 612 months, 18 months average tenure is just a thing that passed in my mind, honestly. And that's why we systemize, like system simplified systems so much and simplified services so much. Because we're trying to build a model that will work inside the confines of a very fragmented labor market and where people are only lasting three to six months because trying to fight that is going to be very expensive and a challenge. So I'm not against it. I would, I'd be all over and there's people who have made this, this model work because theoretically what you can do is take your, your capex, do what you're saving and give it to your employees. Here's the deal, though. If you have 20 trucks and 20 employees, let's give 10, 10 trucks, 10 employees, and you're saving $2,000 a month in rent. That's $200 a month. The question is, for $200 per month in savings, can you keep employees? Can you pay someone $200 a month and expect them to go from frontline entry level, no experience to maintain equipment, routing, dispatching, etc. And being accountable for a vehicle that's worth 50 grand with equipment, etc. 60, 70 grand, that's a, that's a difficult task. That is a couple grand extra a year. And you're literally asking someone to go from entry level to pretty accountable. And that's a, that's a tough tall ask, I would say, in this labor market. So. All right, everyone, have a fantastic Friday. Have a fantastic weekend. We'll see you Monday.