Mike Andes explains the difference between ‘growth mode’ and ‘profit mode’ for small service businesses and argues owners must choose one when they hit capacity. Growth mode focuses on acquiring customers (even at low or no profit) and expanding capacity (hiring, trucks, equipment). Profit mode focuses on raising prices to reduce customer count but increase margins and personal/labor balance. He gives a numeric example: a $400,000 revenue business with a 10% profit ($40,000) that raises prices 20% (an $80 job → $96) would see revenue go to $480,000 and profit rise to $120,000 (tripling profit). He also reports raising prices >25% at his location led to <10% customer loss and more than doubled profit margin. Practical advice: determine capacity, choose mode, and build a ‘sticky’ brand so customers tolerate price increases.
We need to talk about whether or not you are in growth mode or you're in profit mode. Growth mode is likely where you are at when you're first getting started. Because you're always trying to get new customers. You're not even really thinking a lot about the profit. Because we just wanted to get as many jobs as possible and we don't even care if they're for free because we're simply trying to get more jobs so we can get referrals, reviews and upsells. So the alternative to growth mode though is profit mode. And the reason you get into business is eventually to get into profit mode. I find so many of the time that people will stay in growth mode so long, they'll eventually go out of business because they don't ever make a profit. And if you don't make a profit and you're in debt and you grow, grow, grow and the business is getting bigger and bigger, all of a sudden you have a million dollar business and be massively in debt and never actually turn a profit in the business and you will still go bankrupt. So staying in growth mode is not the objective. The objective in business is always to get into profit mode. Like, oh, these big businesses, they just keep growing. No, the reason investors invest in them is because they're getting bigger and bigger with the expectation that one day they will make a profit. So the question is, am I in growth mode or I'm in profit mode? Because in my opinion, you have to choose which of these two modes you're going to be in. And it's likely that if you're watching this and you're just getting started, you are in growth mode. You're just trying to get customers at all costs. You don't care about the prices and you're okay doing low cost jobs, low price bids, because you're doing the work yourself, you're providing the labor yourself. But now what's going to happen is all of a sudden we start getting more jobs. So if we look at this, we say, okay, well I can do, let's just call it 30, 40 lawns, whatever it is for you. And all of a sudden you're growing or growing, we're getting more and more customers. And now you hit here, you can keep going a little further. And we work weekends, evenings, holidays, work longer days. And eventually you've gotta do one of two things. Either A, you're gonna collapse, your body's gonna give out, or two, you're gonna have to eventually hire someone that is, increase your capacity to get More jobs. At this point, when you cross your capacity for you to like, hey, any more jobs and I'm tapped out, like I am working full time, overtime, et cetera. When you hit that capacity, you have a decision. The decision is, do I continue to get more customers and increase capacity or do I instead when I hit that same exact point and I have, you know, let's call it 40 customers as sort of our capacity of how many lawns we can do before we have to either hire someone or we're gonna like just be working way too many hours. Determine what that number is. The secondary aspect is what if I get to 40, I've been growing my business, I get to 40 customers, I don't wanna work way more hours and go crazy and overwork myself. I wann good balance with my family, have some weekends off, et cetera. Great. That's when you're going to enter profit mode and raise your prices. You're going to raise your prices on your customers so that you stay around this level. You're going to lose customers sometimes, you're going to gain some customers sometimes. But if you're in profit mode, if you hit capacity, you raise prices. If you're in growth mode and you hit capacity, you're going to buy more trucks, buy more equipment and hire more people so you can increase the number of customers you have. And by doing that, you, in order to do that, you're going to increase capacity. So it's like, well, should I grow my business more? Should I raise prices? It is very much of a binary decision here. You're either in growth mode or you're in profit mode. That is determined by when you hit capacity. Do you either a raise prices so that you get less customers and you increase your profits, or do you go out and buy more trucks, more equipment, get more customers and hire people to increase your capacity? Inside Copilot, we literally have a chart that, that measures this exact thing. And that is, are you at capacity? Are you below capacity? Are you starting to get above capacity? Because if you're above capacity, that is this line right here. You have more jobs than you can actually get completed. You're gonna have to hire more people, you're gonna have to buy more trucks and buy more equipment. I talk in other videos about labor capacity, asset capacity and personal capacity. But at the end of the day, when you hit capacity, if you're raising prices, you're. You're going to be more profitable. If you continue to grow. That's awesome. You're going to grow the Top line revenue more. But you are jeopardizing your profits. And I believe you have to choose one or the other when it comes to your business. While we're here, I want to take a moment to look at what happens if you're switching from growth mode to profit mode. You might be in profit in growth mode and doing, say, a 10% profit margin business. Say, for example, you're running $400,000 in revenue, and after you pay yourself a regular salary, after all expenses, and you have a profit of $40,000, this is after you pay yourself a salary, you're taking $40,000 home. Now, what happens if I raise all of my prices by 20%? So what does that look like? Well, if I'm charging customers $80 per hour or $80 per lawn, however you want to look at it, if I'm going to charge 20% more, that means I'm going to be charging an extra $16. So. So that means now they're going to be paying $96. So an $80 lawn just became a $96 lawn. I increased my prices by 20%. In this case, $16. Now let's take a look at what happens when we raised our prices. Yes, you're going to lose some customers. That's why you will stop growing because you're in profit mode and you raised prices and less of your estimates will get accepted. However, by raising our price from 80 to $96, also only 16 bucks, watch what happens. I raise my prices by 20%. What happens to my revenue If I raise my prices by 20%, it's going to go to $480,000. Without any more jobs, I'm just raising my prices. If I go from 400 to $480,000, this is what's crazy. My profit is simply going to go up $80,000, which means I'm now going to make $120,000 of profit. I. I tripled my profit, triple it by increasing my prices by 20%. And that's the power of switching from growth mode and into profit mode. So as you grow, your business always know two things. One, what is my capacity? How much revenue can I do? How many jobs can I do without having to hire more people and buy more trucks and equipment? Two, I need to know, am I in growth mode or in profit mode? So that when I hit capacity, I know if I'm going to continue to grow or am I going to go into profit mode, Raise prices, reduce the number of customers I have, reduce my close ratio, but increase my profit Margins dramatically. This is why you get into business. This is the magic of creating a brand and a service that people love. It's this very sticky thing, say, oh no, people are all going to leave when I raise it by $16. Here's the thing. If you have the right customers and they came to you because you have a great website, you have great insurance, your trucks are branded correctly and all of those things are right, if you have the right customer, they're not going to leave over 10, 15, 20% price increase. They're just not. Why? Because they don't want to have to go get five other bids and talk to people who don't answer their phone and people don't show up to appointments and people don't show up to do the job, what they're actually asking for and paying for. And so they're going to stick with you, a large percentage of them. We raised prices at my location this past year by over 25%. Guess how many people left? Less than 10% of customers left, but I more than doubled my profit margin. In the lawn care landscaping industry, we are always super conscious about price. But here's the thing. If you create a brand, create a business that people don't want to leave because you do a great job, you have automations and a credit card on file and you show up when you said you were going to. And when they ask for more work, you get an estimate to them within 24 hours and you're available to answer the phone as much as possible and you get back to them on emails. If you do that, they don't want to leave. And by creating a sticky service with a great brand, you're going to be able to raise prices. And when you do that, all of a sudden you have a very interesting business. All right, that's all I got for today. If you want to learn how to make more money and get more customers, click this video here. It'll be great and we'll see you in the next one.
