P4P in Action, Selling My Real Estate, Money Printing Machine

Welcome back to the Mike Andes Podcast, where we discuss ins and outs of owning a small business. If you're new here, the Mike Andes podcast is all about taking your business to the next level. Today is going to be information heavy. If you're ready to learn, we have the content for you. First off, let's see how P4P works directly by watching a yard cleaning job in action. We'll see why P4P is better for both the employee and the employer. Next, Mike is making a huge bet and selling off his real estate investments. This might be the perfect time to do it. Mike will explain why. And finally, we talk about a certain equation that could potentially turn your business into a money printing machine. As always, you can find all this and more over at the Mike Andes YouTube channel. Let's get into it. Here's Mike with a lawn care breakdown proving that P4P works.

I believe that paying your employees by the hour is lazy. There's a more profitable, more efficient way that you can pay your employees more, be able to retain them, and they are able to see the fruits of their hard work. Today I'm going to show an actual project being done. And I do lawn care, I do landscaping. This works for any home improvement business when you have project based work or recurring jobs on a route. And today we're watching a project that's being done. It's a BlackBerry bush removal, literally clearing out BlackBerry bushes. It's not fun work, but it's work that needs to get done. And this customer specifically wants to haul the debris out of there. They didn't just want it chipped away. So today I'm going to walk you through the entire job, show you the notes, show you the actual job being done, and show you how much money the employees made on what we call P4P, which is pay for performance, the replacement, and the alternative to dollars per hour.

So as I continue with the video, keep watching the video here of the actual project being completed. Because when I'm done talking, giving my.

Little spiel, I'm gonna go to the.

Whiteboard and we're gonna go over the numbers of this specific job, the real numbers. So here are the job notes.

It's a property cleanup.

The project area is only the backyard. We're gonna knock down the BlackBerry bushes and the grass and all the undesired growth and anything that's encroaching on the house, we're gonna rake out all the leaves, remove all, haul it to the dump. We're going to also make a video for the crew so they know exactly what to do and the estimator doesn't have to come back to the property. And it also says the client had to obtain permission to park the Augusta truck at the next door neighbors to load debris. Must have been just way easier for them to be able to get access to the backyard. So on this project, we have 32 budgeted hours. That is how long we expected this job to take. So watch that as I begin to talk. Keep an eye on it, because I want you to think about how long you think it would be taking them and then we're going to break down the actual numbers, how long it actually took them, how much money it was made, as well as how much they would have otherwise made if they were just getting paid by the hour. Okay, so why do I think that paying an employee by the hour is lazy? It's lazy because it's very simple to do and everyone understands it. And just because everyone understands it and it's really, really simple and it makes a lot of sense and it's been done for tens of years, decades, hundreds of years, does not mean that it's right or the best thing for the business or your employees. Now, because I make social media content and stuff online, people bash me all the time. You don't care about your employees and you, you hate employees and you're so a miser and you're greedy and all the rest, that's fine. But ultimately, the number one reason why I started pay for performance P4P because I was just so unhappy with the fact that I could not pay my employees more. I wanted to be able to afford to pay them 25, $30 per hour when they were working really hard and deserving every single penny of it. However, in lawn care and landscaping, we don't have 50, 60% profit margins. We are not a tech company. We have thin margins and we need to operate on them. And so I wasn't able to give away a dollar per hour, 25, $30 base pay for some money. Somebody that has very little skills or just getting started in the lawn care industry, but family. Like I felt bad, like I could not provide for them when they worked so hard. So it's like we'll just give them a raise. Well then how do I give someone a raise? Based upon if the business can afford it, Based upon if they work hard in front of me, Based upon like this. In traditional workplaces, this is how people get raises. Look good in front of the boss. Take the boss out for drinks on the weekend. You know, get cozy with them. It doesn't matter about what the team thinks about it, just as long as your manager or boss thinks you deserve a raise, then you'll get a raise. And then a lot of times raises go to the people who just ask for them or need them the most when that's not fair. What should be done, if you have a meritocracy inside the company, is the harder you work, the more money you make, the more you contribute to the business, the more money you make for the business, the more money you should make. I believe to my heart that every single employee wants to be paid this way. The more they contribute to the business, the more money they make. Now, how you create a system around that is the hard part. And that's why people don't do it. Because I think 99% of business owners would agree with me that they would rather pay people based upon their performance compared to just how much time they spend on the job. However, the thing that they then don't take a step on, the thing that makes it difficult, difficult to do, that they shy back from, is, well, how am I going to calculate that? I've got to create parameters and rules and I've got to create this whole framework, a game and present it to my employees. And they've got to understand it. And it's challenging. It's not easy to make this massive switch away from what everyone understands, which is dollars per hour. But this is what I want you to think about on dollars per hour. The employee and the owner are going in different directions. The employee wants the job to take as long as possible because the longer the job takes, the more money they make. Whereas the owner wants the job to take less time because the less time the job takes, the, the more money the business makes. When, if you do pay for performance, where they get a percentage of the labor revenue that they earn for the job, guess what? You're now both going the same direction. The owner and the employee wants the job to get done as quickly as possible and to a high enough quality where there's not callbacks and the customer is satisfied. That is what P4P is. Pay for performance is a way of paying your employees by how hard they work and how efficiently they work and how profitable they are for the business instead of just how long they clocked in. Whether or not you need employees more, so you bump up the wages more. Whether or not you, you know somebody that, oh, they worked for 15 years with the company, so they make more money. How is that Fair that someone who's.

Just worked with the business for 15.

Years makes more money than the person that just got started two weeks ago. But hustles, shows up really early, is educating themselves, makes twice as much money for the business, doesn't spend 45 minutes at lunch taking a nap and then 15 smoke breaks and 48 bathroom breaks and three lunches and siestas throughout the day. These are the employees that deserve more money. But why does it take them 15 years to earn it? Why should you have to stay at a business for 15 years in order just to get a half decent wage? You should be able to work hard and within a matter of a couple weeks of getting trained up, be efficient and profitable and be able to make more money for you and your family. And by cutting out all the waste in the business, the business can still be profitable and more profitable to the point where they can afford benefits. We are able to afford health benefits and profit sharing. Once we instituted pay for performance on hourly, we were scraping by and people are like, man, you're really passionate about P4P. I've invested hundreds of thousands of dollars in developing P4P software.com because it completely changed my relationship with my business. And with and now I know I feel a lot better knowing that if someone works their brains out all day long for us mowing lawns, right now they're making 26, $27 per hour on average. There's people making over $30 per hour and they don't have a degree, they don't have a lot of skills, but they work their brains out and they deserve every single penny of that. But in the past, I could never afford to pay everybody that it was just so hard to gauge or measure or track who was actually driving business results and deserved a higher compensation package. So for everyone in the comments that says, well, how are you paying employees so much that the business will just become unpro? By cutting out waste that serves nobody, doesn't serve the customer, doesn't serve the employee and doesn't serve the business by cutting all of that out. That's how you're able to afford to pay the employee more and still the business be profitable. And the best part of it all is that now the system of P4P is managing the employees instead of you micromanaging and looking over their shoulder, rolling up to them on jobs, always texting them like, hey, what are you doing? Why are you at so and so's house? Why are you at the gas station? I saw you on your phone. What Are you doing? I don't do that anymore. Because, like, look, they want to be on TikTok for half the day, and that's fine. They're gonna make less money on P4P. That's their decision. And I believe that most employees don't want to be micromanaged, especially the top performers. They don't want someone looking over their shoulder and doing quality control by rolling up on them at a job. They just want to be able to do their job to the highest extent and the highest level. And if they're getting paid based upon that performance, the happiness of the customer and the speed at which they do the job and the efficiency and profitability that is brought into the business, I believe it's a win, win, win. So now that you've heard me rant about this, I'm gonna go to the whiteboard. I'm gonna break down this job that you've been watching them doing, this BlackBerry cleanup. We're gonna break down. And I truly believe that this is something you should consider. P4P software.com training, free videos on how to institute this in your business.

And if you want to use the.

Software, I believe it'll save you a lot of time, because it only takes one minute per day per employee to calculate these numbers every single day. Let's go to the whiteboard and break down this job.

Okay, we're at the whiteboard now. Let's walk through this job and actually go over what happened with this project that we've been watching. So, first and foremost, the budget hours, 32 hours. That is what was determined by the estimator. And this is labor only. We're not going to talk about the debris or estimate fees or any other costs besides just the labor, because the only thing that matters when it comes to P4P employees don't get a percentage of the revenue. They get a percentage of the labor revenue. And on this job, let's just assume that we were charging $80 per hour for this work. I think this local location does more like 90. I don't remember, but let's just use 80. If we used $80 per hour and that's what we're charging for labor, that would mean that the labor revenue equals $2,560 as the total labor revenue. Now, there's two employees in this job, as you saw, and now we're going to do is walk through three different scenarios. Does the job take them 24 hours to do, like, they crush it. They beat budgeted hours. They hit budgeted hours. They match what was expected in terms of how long the job was going to take, or does it take them longer than expected and it takes them 38 hours to get the job done. So here I've wrote how many hours each of the employees would work because again, there are two employees. So if there's 24 clocked hours, that would mean that both employees worked 12 hours each. So let's break down the math. And this is the beautiful thing about P4P and pay for performance is I'm giving them a percentage of the labor revenue. I'm going to assume in this case that I'm giving a 33%. Okay, now on P4Psoftware.com you can customize that, you can change it, you can change it based upon the type of job or services, that's fine. I'm just going to assume 33% or 1/3 of that labor revenue is going to the employees. What that means is before the job even starts, I know that the total wages paid out to the employees on this job is going to be $853. Does it matter how long it takes them? Again, they're incentivized to get this job done as efficiently as possible and make sure the customer's happy. So there are no callbacks, they're gonna do a walkthrough, they're gonna make sure the customer's happy. But ultimately, before the job starts, doesn't matter who's working on the job, who my most efficient people are, it doesn't matter the weather, it doesn't matter what happens to the equ. I know my wages will be $853 on this job. I would much rather have a fixed expense of labor than having it always all over the place based on weather, whether or not people will want to work that day, whether they feel good, all a host of different types of variables that come into play and affect your profit margins as a business. Alright, So I know I'm paying $853 because that's one third of the labor revenue and that's a fixed expense that I know I'm paying on P4P. Now the question is, well, what does the employee make? So let's go ahead and calculate this. If we take $853 and we by the 24 clock hours, if they get this job done and they really crush budgeted hours, they're literally going to make $35.54 per hour on this job. That's incredible. Now they deserve the $35 per hour some People are like, oh, they know this is entry level work. That's insane that you're doing it. I just watched them and anyone could do that after a day of training.

You're right.

But they kicked butt and they worked hard the entire time. They beat budget hours literally by like what, 20, 30%? They deserve $35 per hour because Gu didn't have this P4P option where they got paid based upon how quickly they got and efficiently they got the job done. Guess what? They would have make it. They would have made sure it took 32 hours. They would've just taken more breaks. The drives, the dump would have been a lot longer. Longer lunch, more smoke breaks, more going to the bathroom, more on their phone, all of that would have happened. I guarantee you, when employees are getting jobs done faster, if there's no incentive for them to get the job done quicker and more efficiently and more profitably, they're not going to. So the fact that they cut out all that extra wasted time, that's how I'm able to afford to give them the $35 per hour. Alright, they crushed it. They absolutely annihilated it. Now let's go ahead and assume that they hit budget hours so it takes them as long as was expected in the job. So take the 853 because again, that is a fixed amount that we're going to be paying the employees and we divide that by the 32 hours it took them to do the job and now they're making $26 65, 66 cents. Alright, so $26, not bad. They hit budgeted hours. They got the job done in what was expected of them in terms of the estimated time. Now usually about 4 out of 5 jobs we are going to be able to beat budgeted hours, right? But there's going to be times when things go wrong, weather changes, maybe something wrong happens on the job. You're starting to dig out something and you hit a rock. If you're doing a digging job, whatever it is, there's always things like that in the job. But I want to make sure as the business owner, I fixed my amount of wages so I don't have massive variety like oh, 10 profit on this job, 80% profit on this job.

Oh, negative.

I lost my shirt. 50% on this job. When you have those fluctuations because of labor being so variable, that's why you lose your shirt on projects and you have months where you do really good and months where you do really bad. So still the same $853. Let's assume that maybe they either. It could be a host of reasons. They could be A lazy, they could be bad on not trained correctly. C bad weather. 4 a lot of times is what happens. They run into unexpected and unforeseen things in the job that the estimator did not account. Okay, well let's go ahead and do the calculations here. We have $853 in wages that we're paying. Let's divide that by the clocked amount.

Of hours that took them to do.

The job and now they're only making $22.45. $22.45. Alright. Not great. Below the average that's currently at this location. If they take this long, but ultimately not horrible. What you're protecting yourself against on P4P is this job taking 60 or 70 hours because someone just they're happy with base pay. They're happy with 18, $19 now that you give them as an hourly rate. So what do they do? They just SAP the clock. They just take tons of time. And all that wasted money is why you can't pay your top performers what they deserve. And they go out and kick butt every single day. The reason most business owners won't make this change is because this makes them afraid. It's a whole lot easier for them to say oh, 24 hours. That's how long you took the job. Great, I'm going to multiply that by $20 per hour. There's your paycheck. I'm sorry, I'm just being straight up with you. You are being lazy. If you're just paying dol and giving raises just infrequently and randomly like why is someone getting paid more simply because they hit a milestone of a year or two years or three years, they're not bringing any more revenue to the business. They should be paid based on results. And if you want to create a culture where people are motivated to get work done, cut out waste and figure out ways to make the jobs get done faster, you better be making sure that incentive programs are in place to reward that action as soon as possible. Not quarterly, not an annual bonus, but every single day. They get paid basically upon their performance and how quickly they get the jobs done while also retaining a high degree of customer satisfaction. Because I know everyone's out there like oh no. If you make people go faster, they're not going to be able to do a good job and they have low quality.

Okay, great.

Go watch the videos on p4psoftware.com training. We've thought this Part through. We've thought about all the ramifications and we've ironed out the kinks. Please, I beg of you, if you're in the home improvement industries, please go check this out. This changed my business forever. It changed my relationship with my business and it changed my relationship with my employees. No more micromanaging, no more playing favorites. They don't have to feel like they have to look good in front of the boss. They know that the results speak for themselves and it speaks for their paycheck. And if they want to work harder and make more money, they know exactly what to do. Go talk to the people that they can see on the leaderboard that we share on the software. They can see who's making the most money. They go talk to that person. They, hey, I gotta learn from you. I gotta make, you know, I got $300 extra car payment I didn't know I was supposed to have this month. I gotta make some money. Can you please show me what you're doing to get ready for your jobs? Be more efficient. Cut out waste and beat budget hours. That is the type of culture I want to be around. And I truly believe it'll change your business. It'll change the lives of your employees. You'll be able to pay them what you want. I truly believe most business owners in home improvement industries really do want what's best for their employees. They're good people. They want to pay more to their employees, to the ones that deserve it, the ones that are actually doing the hard labor that is not fun, not exciting, but they're getting it done to provide for their families and they want to be able to provide more for those families. I truly believe P4P is the solution. I beg of you to do the hard work. It's not easy to switch, but once you have done it, it's the best thing you'll ever do for your business. Please check out p4psoftware.com training. Also check out my book. It's on Amazon. You can get it for a dollar if you would like to read it digitally or get on audible. I can't fix those prices. Those are done by Amazon, so they charge, I think, $19 or whatever it is. So please take the time, take the effort. We're heading into the winter season. This might be the time to take a few months, use the software on the back end. You can use it for an entire month for completely free. I'm also going to allow you to talk to a CPA on our team, a certified tax accountant that is able to actually walk you through any questions you have about P4P and this is a massive cost to me, but I've just seen it change my businesses, change the businesses of our Augusta lawn care franchisees. And I desperately want to this to happen for you. So please check it out. We're constantly developing and improving the software. It's not perfect. I'm not like Google or Apple here. But we're making it better. Every single day, every single week, we're adding new things to it. And I truly believe it will change your business. Take one minute per day per employee and change your business forever.

Do you believe in what Mike is doing for the landscaping industry? You can be a part of that change if you attend Landscape Summit 2023, a conference by landscapers for landscapers. We'll have talks from industry experts and breakout groups for focusing on your business. New to 2023 is a separate track specifically built for your employees and loved ones who tag along. We only have 300 spots open yearly so make sure you secure your tickets before they sell out. You can get your tickets@mikeandys.com summit. Alright, so Mike is selling off the real estate investments and you might want to think about doing the same. Here's why.

I'm literally betting between 3 and 5 million dollars on what I'm about to talk about where I think the economy is going and what I'm doing with my portfolio, my businesses to ensure that I take advantage of the recession that I've been talking about for the past year. And I believe we are going into in specific type of asset classes. So back In October of 2021 I stated that I thought we were in a bubble when it to came came to the stock market and cryptocurrency. And so I sold about 70%, 65 to 70% of my stock portfolio. At the time was a 7 figure just over a million dollars in stocks and cryptocurrency. And what I proposed, I didn't want to just make that cash and just have it sitting there because inflation was going to eat it up. So what I did is I moved approximately $700,000 into real estate and in that same month I purchased purchased a 10 unit apartment complex. Okay at the time I purchased it for 1.85 million and they the rents currently when I bought it were $700 per month to about $1200 per month, maybe 1100. I don't think there's any 1200. So 1.85 million is what I put down the property Now I only got a one million dollar loan on this one and I, I just used cash for the other 8.5 or 850k. So that was cash. So really what happened is I moved this $700,000 cash into real estate deal. That's basically what happened. And so now fast forward now almost a year later, almost exactly a year later, I feel like what happens, the stock market is going to now happen with real estate. So if you look at October 2021, it was not the peak of the stock market, but November 2021 was. So I probably sold within 4 to 5% of the top. And now a year later, I believe that the same thing has happened to real estate. Now I talked about this in January of this past year and I said that real estate was going, this was going to happen. However, now that the SBA loan that we were anticipating for headquarters is not going through, a lot of it having to do with all this inflation, with the interest rates going up, them restricting their lending capabilities, they were requiring us to have one entity to possess and be the tenant of 80% of the property, when that wasn't the goal of the whole building like the building was. I'm going to have four or five of my entities all in the same building and you know, no one entity will have more than 50, 60% of the building. So all that say we couldn't get the SBA loan, so we had to settle for a regular commercial loan that we're still wrapping up right now. But it's literally less. It's like 30, 40% of the value of the property and the building project. So I need more cash. Now the question is, should you be selling real estate right now? Honestly, no. I would be keeping my real estate if it wasn't for this headquarters position and what we're trying to do and the fact that I think there's a better opportunity than I talk about in just a second. So the reason I would keep my real estate honestly right now is because as interest rates have gone up, the cost of mortgages have gone through the roof. Even as we've seen real estate prices start to come down in most markets by 5, 10%, we still see the cost of rents going up. Why? Because the cost of mortgages have gone through the roof as interest rates have gone up. I talked to someone the other day, got a 7% interest rate and just even a year ago that would have been unheard of. They would have been getting 2.9, 3.2% on a 30 year fixed mortgage and they're getting 7%, 7.5% now. That literally means your mortgage is 40 to 50% more expensive. And so just because housing prices have gone down 5 to 10% does not mean that housing is cheaper. The cost of that loan has gone up by 40 to 50% over the same course of the past six months. So I believe rents are going to keep going up. I really do believe that. However, the asset value of these real estate products that I own is going to go down, down. I really believe that. So to date I believe that this property I put in probably about $200,000. I believe it's easily worth 2.4 million because we have raised the rents dramatically more than double. As well as made two of the units being Airbnbs. That can now be. They make over $7,000 a month in gross rent, just those two lead units. So I think it's easily worth 2.4 million. I am not going to sell it for 2.4 million million. I like this specific property a lot. I actually live here and so I'm actually gonna list it for 2.6. And if I don't sell it, I don't really care what I am going to be selling though as of right now, because I do believe the market over the next six to 12 months in real estate is going to get not obliterated like 40%, 50% down like we saw in 2007, 2008. But I do believe we're going to see a 20% correction and I don't want to be part of that because I need the cash out for the headquarter build. And again, something I'm going to talk about in just a second. So what am I doing? I am not going to sell this property that I specifically bought a year ago. Instead I'm going to buy properties I've been holding for a few years and I have a ton of equity in as well. Right. So this property, I did not do the traditional 20, 25% down. I did like, what was it, 50% down almost on the property. I'm not going to do that. Even though I have like 70% equity on that property, almost 70% equity on that 10 unit apartment complex. I'm not going to sell that. I ideally don't want to sell that. What I am going to sell is four duplexes. Okay. So my goal is to sell these four. I've held these for a couple years at least and again, rents have increased. I've put money and improved all of these. They have great renters and long term leases in place. They're great investments for whoever is going to buy them. The average price that I bought between these four duplexes, the average is about 520, a little bit under 520. I probably on average put in about 40k in improvements.

But I'm gonna be selling these for at the very least 700,000. Like the very least. I would like to get 800,000, but let's just say that they're now worth only 700k. I believe I'm gonna get 800k for most of these, but let's just be really conservative and say 700. Basically over the course of a year and a half, two years I held these, I'm probably going to walk away like 100 grand. And again this is 700k is after I'm assuming like real estate fees and transaction fees. So I might make like 100 grand walk away. Not great. Honestly, I would like to keep these deals, these are all great cash flowing deals. My mortgages on these are 3 and 4% and you can't even get a mortgage like that now on an investment property. So great debt that I'm getting rid of. Why am I doing this? Number one, I do believe over the next six to 12 months of real estate prices, the actual asset value are going to go down dramatically as we see interest rates go through the roof and people will not be able to buy houses. The reason I'm selling right now is because I don't believe we're going to see the current market that we're in with real estate for another 24 months. We're going to dip pretty good. And by the time we come back to where right now I believe we're at least two, three years away from that before interest rates go back down to 3,4%. Sorry, I should say mortgage rates go back to 3,4% and cost of capital is cheaper. So my plan is over the next two years I'm going to take this equity that I have locked up in all these properties and I'm going to go and deploy that against two things. Number one, I'm going to. Because remember, even though I'm walking away probably only 100, $150,000 conservatively, I would ideally like to make $200,000 per duplex. But let's just say 100,000. If I do that, remember it's not just $100,000. I'm getting the equity that I have been paying down the debt on as well as the initial 25% down. So on all of these properties, I'm going to be pulling out, like, at least 350 to $400,000 on each duplex, so times that by four. So I'm hoping to walk away with all these properties after I pay off all the debts. At the very minimum, I want to walk away with, like, 1.6 million. Okay, that is exactly what I need right now. I need 1.4 to pay for the headquarters building of Augusta Nation. Okay. And if I do this, we will have paid off about 65%, 70% of the headquarters building with my own cash. And that will be really good because our rents that we currently are paying will be far less than what even we'll be paying on the mortgage once we move in, which is great. So from a financial standpoint, from the businesses, makes me feel really good that we're going to move into the headquarters with 65, 70% of it pay off. And my goal would be to pay that off completely within a year or two so that cash will go there. The other thing is, like, if you mention, if you heard me, I say there I need 1.4 million left to finish off the project for the headquarters. The other $200,000 is what I'm going to use to go start two, possibly three more Augusta Lawn Care locations. So our goal at Augusta Nation is to prove that you can have 10 locations, a general manager on each one, each location doing about 5 to 600,000 in annual revenue with one regional manager above them, and then somebody that is a more or less passive investor or CEO at the top of that organization. And so I already own four. I want to get to seven next year and then year after that, start five or six more of these locations. But I want to prove the model of 10 locations, one regional manager, and then myself at the top. So this $200,000 in extra cash that we'll have, we'll start two or three more locations for Augusta Lawn Care, and I'll have that as a regional manager. So my plan Right now is 2021. I moved money out of stocks into real estate because I saw, hey, the writing is on the wall. We're in a bubble. It's about to pop right now. I don't believe we're in as big of a bubble with real estate because a lot of the loans that have been purchased over the past couple years are much better than we saw in 2006, 2007, however, because of interest rates, the way they're going and what Jerome Powell, the Fed chair, just said last week about interest rates and how he expects there to be severe pain in the market when it comes to real estate prices. I want to get out, and I can't afford to hold these properties for two to three years when they're. Even though they're cash flowing really well, like every single month. These properties do over $20,000 a month in cash flow. They're fantastic assets. They make good money every single month. But I need to take that cash out. When it's at still the peak in our market, it's come down maybe 3 to 5% in terms of prices. I feel it's going to go down 15%, though, over the next six months. I feel it could go down as much as 25% over the next 12 months. It could. And if that happens, it will happen because of interest rates going through the roof. And if that happens, I want to take my cash, throw it into headquarters that I know we need to get to the next stage of growth, Augusta Nation, and I'm going to throw it into something that I know beyond the shadow of a doubt we can make successful. And that is another Augusta lawn care location. I really believe I can make my money back on these in about two to three years. So that implies about a 30% return if I'm conservative. I've done it faster, I've done it longer. I want 10 of these, though, so I can really prove this model. Really begin to see the numbers of how it works with the regional manager, general managers underneath them. How do you train the general managers, what the system looks like, like. And really, ultimately, when you're finding 10 general managers, they're working GMs, they're not the type that are going to scale it to a million or $2 million in revenue. They're working GMs, they're going to be working in the field two to three days a week at least, and managing a crew of four to five guys and several trucks. That's the goal with this extra cash. So I really believe that this is going to be my best use of funds over the next 24 months. And I timed this one correctly in October 2020. I believe I'm doing the same thing now. I'm probably a little bit late to the game only because I thought I was going to be able to get the SBA loan and I didn't. If I would have known what I know now about our current position with the headquarters loan, I would have sold back in January, February of 2022 with my real estate, because the writing is on the wall. The thing is, real estate moves slower than stocks. So stocks can just drop like they did so fast. Even though of course, a couple months, beginning of stage the year as interest rates begin to start to hike, now real estate is just starting to come down, but it moves much slower. It's going to keep going down. And so I really feel like right now the best opportunity for my capital that I have is I know I need the headquarters. It's going to be the thing that allows us to go from $20 million across the franchise system to 100 million, is going to be having the headquarters building, have better training, bring everyone together, is going to create a lot of operational efficiency. I'm going to be living on site at the headquarters, so it'll help me in terms of being more productive. And that alone will pay for the mortgage honestly. And then furthermore, this $200,000, in my opinion, is going to be able to within 12 months kick off more cash flow than what I was making from the real estate. And so down the road, I'm going to get back into real estate. I believe that in about 12 to 24 months I will be buying real estate again as we go into a correction mode. And then right when the Fed begins to cut interest rates, they will cut interest rates very quickly compared to how fast the market reacts to it. So when that switch happens, just like they did in March 2020 and I bought a bunch of real estate then because they cut rates really fast. But then the market prices for real estate took about five, six months to kind of catch up and start escalating. So when that happens, which I believe it'll be a couple years from now, I will be a net buyer of real estate for sure and I'll be going back into estate, real real estate. And it's not saying I'm pulling all my money out, by the way, I still have the majority. Like I'm still more than half of my portfolio is still going to be inside of real estate. But my thesis is that over the next 24 months I can get a better return and then enter the market with assets being lower, the prices of the real estate being lower and interest rates being lower, which is a great deal. So I think there's gonna be some really good deals to pick up in 12 to 24 months and I will be there for large deals. I am no longer interested in duplexes. Alright? The crux of this entire thing is the fact that I am no longer interested in duplexes. They're too small of a deal to Make a couple hundred dollars a month in cash flow. I know it sounds horrible and it's a great problem to have, but it's just not worth my time even purchasing or looking for a duplex when it's only making me a couple hundred dollars a month and in best case scenario, making 5, 6, $700 a month, which is great. Again, I'm not complaining. It just. It's not worth my time or having a property manager for that small of a location. I will be a net buyer in 12 to 24 months of real estate. Probably more like 24 months of units sizes. There at least 20 units on the property, so 20, 30, 40 units of apartment complexes. Those are the ones I'll be buying again, ideally in a very deflated market because everything catches up with interest rates and as soon as the Fed turns around, interest rates start to drop. I will be a net buyer of real estate again. So that's my predictions. I know saying this sort of thing online is risky because I am assuming so much happens in terms of everything from geopolitical risk, cost of oil, politics get involved, and way that even the election goes next year. So things like that start to really impact this. But this is where I'm putting my money. I'm putting my money where my mouth is. And I've talked about the recession. I talked about it back here when it came to the stock market. I talked about in January, February, March. I talked a lot about real estate. And now I'm putting my money where my mouth is. Even though I should have probably sold back in March. I just didn't know I wasn't going to get the SBA loan due to their Tennessee requirements and percentages of each entity. So it's gonna be good. I'm looking forward to building headquarters. It's gonna be later than we hoped. It's probably July, August of next year by the time we actually move in. Still, permitting in our county is extremely laborious. So even though the capitol we're gonna have ready to go, I'm still going to be waiting on a permit. However, I'm not waiting to sell these properties. My thought process originally was, okay, I can sell these if needed at the end of the building contract, like in six to nine months, if I need to sell, I will. But I really believe that if I sell in six to nine months, these assets are going to be worth 10 to 20% less. And I don't want to risk that. So I'm going to take the more cautious approach. Sell them now. And I still think we're within 5 to 10% of the peak. And, and I believe they're gonna be coming down. I know they're gonna come down. I'm not predicting a whole lot when I say they're gonna come down. It's how far do they go. And even though the cash flow is good, we're gonna take that capital, deploy it against the headquarters, go in a couple Gusta Lawn Care locations. And again, I believe in, by the time the market catches back up in two years, those few locations alone will be kicking off more cash flow than the duplexes that I'm selling. So that's my game plan. And maybe I'm wrong. If I am, I'd be actually really happy if the real estate market is able to not drop 40%. That'd be fantastic. But if it does, I'm gonna be prepared for it from a cash perspective to be able to take opportunity of those deals when they come along. So that's it. This is not super exciting. I don't usually talk about my investment strategy as much. I talk about business. But as you go from a business owner to an investor and you start having multiple locations like I do, stocks, real estate, different types of businesses, it's very important that you do this in a very tax efficient way. So this money that I'm selling or these properties I'm selling is gonna be a 1031 exchange. I won't have any capital gains. I'm gonna be moving that into another commercial building in the headquarters. So the same entity that owns these duplexes is going to be owning the headquarters building and then will simply the corporations and entities that I own, the businesses will pay rent to that real estate holding company that I own. That way I can sell these properties, I have a lot of capital gains. But then do a 10:30 exchange into a headquarters building, which is, it's like enough because commercial, it's an investment property. It's like enough to be able to build the offices and it'd still be a 1031 exchange and not have to pay any taxes. So that's what I'm doing. And I really believe over the next 12 to 24 months, I will outperform the real estate market by investing in Augusta Lawn Care, both in the headquarters and some of my own locations. Getting to hopefully 10 in the next year, year and a half. Thanks so much.

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So the first KPI that I want you to track is how quickly you can recover the cost of startup. That startup capital goes into business to get it off the ground. That investment that you put in, how quickly can you retrieve and get that money back? Does it take three months? Does it take six months? Does it take 12 months? The bottom line is if I put $50,000 into the business and I dig myself in that $50,000 hole, how long for me to get back to zero? That is extremely important. How fast can I get my money back out of the deal? Now if you go into debt and instead of going and spending $50,000 in cash, you might actually be able to get away with putting $10,000 of cash into the business, leveraging getting debt on the other $40,000 and therefore you might have monthly payments on the $40,000 worth of debt, but you're able to get out of that small $10,000 hole of startup costs very quickly. So leverage allows to you to improve this KPI a lot. And remember, KPIs don't tell the whole story because you have a monthly payment. Loans and leverage definitely add to the risk of your startup. However, this KPI can be massively improved by getting debt out because you can recoup the cost of capital and the cash that is required to get started. And here's the thing, when you're really trying to scale up, if I can go start five locations because I only have to put $10,000 down instead of $50,000 and I use leverage on the other 80% of the deal. I could literally go get some started five locations or five businesses instead of one simply by making sure that I am taking a loan and get using leverage in the business. Now 20% down is pretty standard for a lot of business loans and if you go to the SBA, you might actually get 10% down. Which means for $5,000 down, I get $50,000 worth of leverage. And again I'm going to have my monthly payment. But I'll be able to improve this KPI, this performance indicator of how quickly I can recoup the capital that it takes it takes to invest and get the business off the ground.

The next KPI in the perfect business is your close ratio. And in the perfect business, the close ratio is extremely high. While you are growing. I don't want your close ratio to be super high when you're trying to maximize profit. Because if you're closing 90, 95% of the deals and the proposals that you send out to customers, it potentially means you're leaving money on the table. Because if you'd raise your prices, you'd be able to get more profit margin even though your close ratio is low. But your close ratio is something you should be tracking. It's a key performance indicator simply because it's the best measurement of demand and supply in the market. If demand is really high and supply and other contractors and other businesses that are offering your service or products as low, you should be charging a higher price. And if demand is really high and supply is really low, your close ratio will probably be really, really high, like 80, 90%. And in that case you either up end A, grow and continue expand and grow the business, or B you raise prices. In my opinion, there is no in between. You either are growing your business by having a high close ratio or B you increase prices, increase your profit margins and slow down the rate of growth. And by raising your prices, you bring equilibrium of supply and demand down. At Augusta Lawn Care, we really shoot for 70 plus close ratio. If somebody is just getting started and in hyper growth mode and we actually want to want them under 50% close ratio if they're trying to maximize profit. If someone's running out of cash, growing really fast and they're 80, 90% close ratio, I will actually tell them raise your prices to the point until your close ratio is under 50%, which might means raising your prices by 20, 30, 40%. But that that margin, that extra revenue that you create is literally straight profit simply because raising your price is a massive lever in the business that literally pumps money directly to the bottom line. In my opinion. Opinion close ratio is the best determining factor of whether a company is in growth mode or in profitability mode and maximizing for the most margin or trying to maximize the number of customers that they are bringing in the door. Now close ratio is great for service based businesses, but when it comes to product based businesses, you can look at things like conversion rate when it comes to people that actually put things in their checkout in an online shopping cart, and how many of them actually continue with the transaction. When it comes to service based businesses, if someone is struggling with cash flow and they're always also telling me they have so much work they don't know what to do with this is like the number one thing I'm talking about is you need to raise your prices to bring down your close ratio. Your close ratio should not be at 80, 90%. If you're struggling on cash and you have tons of leads lining up and you have, you can't even get back to all the work that's coming in the door.

The next KPI is CAC or customer acquisition cost. And customer acquisition cost is simply the amount of money that I need to spend in order to get one customer. It's very simple. I take your total market, marketing or advertising spend and divide it by the number of new customers that you bring in the door. That is going to be your customer acquisition cost. Now this should not be confused with your cost per lead, because a lead has not yet become a customer. If you take your cost per lead and you divide that buyer close ratio, you'll typically come up with your customer acquisition cost. Because the close ratio is the determining factor of how many people do I turn from a lead into a customer. Now, customer acquisition cost is extra, extremely important. It's going to be the determining factor in this perfect business, how quickly and efficiently you can scale up. Because if you have really high customer acquisition costs, you're going to burn so much capital and it's going to take you so long to recoup the cost of acquisition that you'll never be able to scale efficiently. For example, if I have to spend $400 in order to acquire one customer for mowing, and every single week I mow the lawn for $40. All right, so I got $400 customer acquisition cost, $40 per cut. And let's just assume that I have a 25% profit margin business. That means on $40 cut, I have $10 of profit. In other words, I'm going to have to mow this lawn 40 times. That's 400 divided by $10 of profit per cut. I'm going to mow this on 40 times before I ever even get out of the hole and make up the cost of acquisition. Therefore, I could literally mow this person's lawn for a year, a year and a half. Before I ever actually make a profit on the the customer. That's extremely difficult. And this goes back to looking at every single customer, kind of like that first KPI that we talked about, and that is getting your business started like the startup capital and recouping. That same thing goes for customer acquisition costs. A very efficient customer acquisition model is one where you pay very little or nothing for customer acquisition and immediately are profitable. And there's software companies that are literally willing to spend two or three years worth of revenue, the annual value of a customer. They're willing to spend two or three times that on just customer acquisition costs. That's incredible. But typically they will lose money because any model where it takes two or three years to recoup the cost of acquisition is typically not a business that can grow very quickly or sustainably. Because what you want is I get that customer for $10, I spend $10 on marketing, I'm able to get one customer. So if I paid $5 as my CPO, my cost per lead, and I have a 50% close ratio, that would mean that I have a $10 customer acquisition cost. Now, in that same model, if I'm mowing lawn for $40, same price, same profit margin, 25%, literally in one mowing service, I'm able to recoup the cost of acquisition, which means in a week or two, literally one or two weeks, I'm able to recoup the cost of acquiring that customer. The reason that CAC is so important is simply due to the fact that the enterprise value of the boat business is simply determined by this equation. Money in customer acquisition cost and money out return on investment. How much money does it take to get a customer, and how much on average do I get in profit from that customer? If that model can be very efficient, where the customer acquisition cost is very low and very quickly recuperated, that isn't a very, very efficient model for business and a very efficient use of capital where investors want to spend money. And your enterprise value is going to be very high because you have a predictable low customer acquisition cost with a predictable outcome that within a matter of week, two weeks, a month, very short amount of time, you're able to recoup that money and then take the capital and the cash that you get from that customer after that and put it right back into growth. So now, after that first lawn mowing service of $10, that I recoup my customer acquisition cost. Now every single time I go to that customer's house, I'm getting $10 in profit. In my pocket, in and above the customer acquisition cost, which now I can take that money and go buy another customer customer, which means every single cut, I could theoretically take the $10 of profit, pump it right back into customer acquisition cost, and get another customer out the other side. And that customer then create another $10 in profit, every single cut. So the faster I'm able to recoup my customer acquisition cost, the more efficient my business is. That model of cash in customer acquisition cost in and return out a customer on the other side, the more efficient that model is, the more valuable your business is.

And that ties to in the next KPI, which is lifetime value. Because if I spend $10 on customer acquisition cost, the ROI is really going to be determined on how much is that customer worth to my business in their lifetime. For example, if I get $10 of profit on every single lawn service and I'm able to recoup the cost of acquisition after one service, how many services on average, the lifetime of the customer am I going to be able to make in profit? Let's say on average I'm able to mow that person lot 100 times. That means that I spent $10 on customer acquisition cost money coming in into my box, my business that I built, my system that I've built, and if I can return a hundred on average cuts for that customer at $10 per cut in profit, I literally turn $10 into $1,000. I just had a business that was able to produce a hundred X by simply figuring out the systems, by putting $10 of customer acquisition cost in and $1,000 out on the other side. But that is all determined by lifetime value. How long do I keep a customer, how many years, how many months, how many weeks, and then how much do I make from them? On every one of those date periods, most of the time measured in years, you can say, okay, if that customer is going to stay with me for five years on average, and I'm going to do 20 cuts on average per year, that would be 100 cuts that I'm going to be able to keep them. And if I know I make a profit of $10 per cut, there's my equation. $10 in, $1,000 in profit out. That's a very efficient machine that is worth something. That black box that we call a business with the systems to make that equation work is what you have value, you've created a business. Having trucks and equipment and a fancy office does not make a business, does not create any value. You simply may turn cash on your balance sheet into an asset like a truck or piece of equipment. What creates real value is when you can put customer acquisition cost in and return on investment out. And when you figure out those numbers using lifetime value to calculate what the return is on that customer acquisition cost, you have nailed the game. And that's really where the valuation mechanism and enterprise value of your company begins to skyrocket.

So the next KPI is actually going to be the thing that determines how large your business will grow in revenue before it actually begins to plateau. Because there's this unforeseen thing that just constantly eats away at small businesses. It just erodes a small business. It's called attrition. It's like the little bug that eats through the bark of a tree, eats it from the inside out. All of a sudden, the tree dies. Now what happens in a small business? It's growing, Everything looks healthy. And all of a sudden, business starts to plateau. The revenue growth stops happening. What is causing that? It is attrition. And you can actually numerically find out where exactly your monthly or annual revenue is going to be before your business begins to plateau. How do you do this? You take the amount of new revenue that you get on a monthly or annual basis and divide that by the percentage of a trip. Now, what that means is attrition is simply the percentage of customers that you lose every single month. Let's say, for example, you have $10,000 in new revenue coming in the door every single day. Now, if you having a 10% attrition, which means 10% of your customers are leaving every single month, well, that is $10,000 divided by 10%, which is 100,000. Now, what that means is that $100,000, when you hit that in monthly revenue, your attrition, $10,000, which is 10% percent, is going to equal the amount of new revenue you're getting every month, which is also $10,000. So you know in the next month, what's going to Happen? You're at $10,000 more in new revenue. You're also going to lose 10% of 100,000, which is 10,000.

So you're going to break even.

You're not going to grow anymore. So you can actually predict using your attrition rate exactly how big your business will grow before it stops growing. There's two ways to break out of this vicious cycle of plateauing. And that is either a, you Increase new revenue, I.e. market more, advertise more, make a better brand for your yourself, be able to get a better customer acquisition cost so that when you spend more money on advertising you generate more revenue. So either A, you have to work on the top part of that equation which is increase new revenue or secondly you can improve the denominator or your attrition. And how do you do that? How do you improve attrition? You have better customer service. You make sure that you try to get customer to come back to your service after they've left. These are the only two numbers you need to know in order to know exactly how big your business will be before that little bit bug starts to appear and your business stops growing. If you know all those key performance indicators in your business right from startup all the way, the lifetime value and churn of your customers and if you can constantly be refining and improving and adjusting and making them better, you will beginning to work on the system of your business. That black box is all that I care about. Make it better, improve it, tweak the gears, grease it, make it more and more efficient so that this one equation works well and that is customer acquisition cost in and ROI and and return that customer out. Constantly improve that box, your business by improving the systems and making sure all these key performance indicators, these little gears, these little things inside that box are working well oiled to ensure that your small business is a money making machine. Watch this video here where I talk more about close ratio. Because the only thing you need to know if you're building a business from 0 to 500,000 in annual revenue.

This has been the My Candies podcast. Now you have some ideas on how to take your business business to the next level. And if you liked what you heard, we have tons of lectures, interviews and more over at the Mike Andes YouTube channel. It'll be right up your alley. That's all we have for you today. We'll see you next time.