The Dangers of Growing a BIG Home Service Business!

Now is where we open it up for the next half hour. If you have any questions whatsoever about your strategy stuff, the business, the planning that we've gone through, anything I can help with whatsoever, I am happy to answer any questions. Just feel free to unmute yourself and we will just jump right in.

All right, Mike, I got one for you. I was on one of your onboarding calls here recently. I think it was earlier this week. Going into next year, we have all the trucks and equipment that we need. We have four trucks, but they were not used full capacity this year. So our goal for next year is to just max those out on capacity. We don't need to buy any more assets, we don't need to buy any more equipment. We just need additional labor hours on, on, on the schedule. So the only thing that I think we'll really see our highest uptick in is going to be marketing spend.

So I'm going to say yep.

Yeah, so last year we did 40,000. We had a higher customer acquisition costs. I dropped it down to 20,000. This year our acquisition costs ended up going down to about $85 per client. So now I know we have a little bit more room to spend in marketing now that we kind of fix that issue because the prior year we're at 250 per client. So mercy my. Yeah, yeah. Agency spent. So we, we changed that and kind of just dialed that more. And so my question is to next year, we're going to end this year out probably around 620. Goal for next year is to be right around 850. I know it's like you had mentioned before, trying to be profitable and growing at the same time. Given that we already have the assets, we probably only have to spend about 20k more this year in marketing. Do you think we would be able to manage to be profitable and also grow?

Okay, what do you want from the business? Like three years? Like if I, if I could ask on your plan, like are you trying to go to a million? Are you trying to stay around 8 to 8:50? What's like the three year vision?

The longer goal is three years to have an additional location to get this one up and running for one GM and one admin person to run and then to go and open up a second location once this first one has been, you know, dialed in. Okay, cool.

So this is what I would do. Not necessarily saying this is what you should do, but this is what I would do.

I think that if you turned off all marketing, you'd still get 60 to 70% of your leads coming in. And I believe that if you did that and then you raised prices on existing customers, you'd be able to get to 7 to 750, but do so with a significantly, if not double, your profit margins.

And I, I genuinely believe that I would actually constrict capacity instead of growing to it. You're at the perfect size to be able to move into profit mode. And if you want to do multiple locations, there's no pride, because this is what I'm afraid of, Shane, is you will grow to 8, 850, and then you're going to find a general. Try to find a general manager, and you, you will have been in growth mode for so long, you don't have enough margin to go hire a general manager. And so what's going to happen at that point is you're going to keep growing and you're like, okay, well, if I get to a million, you get this treadmill. And in my opinion, from 800,000 to like 1.5 million, I don't see any additional profit in the business, usually because you need a second admin person, like a second overhead position. So if I was you, like my. Our locations at Augusta, we teach past 500,000 and then just optimize for profit up to 800,000. And so I generally believe if you just turn off all marketing, you would probably get 60 to 70% of your leads. And if there's enough to replace churn and then have a little bit marginal above that, you then have the power to raise prices.

I was anticipating raising prices where 80 an hour, we're gonna bring it up to 90 an hour, so about a 12% increase, which would then put us probably around 18% profit if we maintain our current numbers, overhead expenses and where we're at now. Uh, so yeah, that I was definitely going to raise prices going into this year.

Yeah, Personally, I would sell a truck. I would like, get my capacity down. I would make it a bit like how, like I would imagine you have what, six to eight employees.

So we have. Yeah, we have seven. So, yeah, right, right in the middle. So we got six. We have five full timers and two part timers.

Yeah, like you can get a general manager to manage six to eight people. And that general manager doesn't need as much skill as if you go to 800,000, you're going to now have nine, 10 employees. That's going to strain a general manager. So because you're optimizing for multiple locations, I recommend for the sake of keeping your overhead Low and reducing the skill required for your gm, which opens up the pool of who you can hire as a gm. I like to keep it under eight employees. So I, I would like that seven, seven employee marker. And I just optimize for profit. Like I would take all that money you're going to spend on marketing. Like, okay, that's going to go in my pocket now. And now I'm just going to, you know, let go of one truck. I'm going to be immediately at capacity, so I'm going to be more profitable. Like the reason I'm so passionate about this and I made the video about it recently in my content is because I did this in my location. And we had our best November ever. We had $50,000 in profit in one month. I don't have that in November typically is one of our lower months in terms of revenue. But I made $50,000 in profit.

Yeah.

So like.

I'm very passionate about this because we raised our prices from 80 to 100. I would go more than 90 guys. A 12% increase. I'd go at least 15%.

Especially if you have pent up demand. Like what, what was your rev. What was your revenue last year like before 2024? What was 2023?

It was 5, 15.

Okay, so you're growing about 15 to 20% a year. I genuinely believe that's being caused by the extra marketing spend. So if you don't market at all, I think you'll get enough leads to just fulfill churn. And if you can do that and then raise prices as you incrementally get more customers and you hit that capacity, I see you making more profit at that size than trying to get to 800,000, extending yourself, getting to 10, 11 employees and then trying to find a general manager on a low margin business.

Yeah, that makes sense.

Does it make sense?

Yeah, yeah.

Okay.

Yeah, yeah. Right now we got, we have a total of five trucks. We have four ramp racks and one landscaping truck. So we've been very underutilized and insurance on those has been not fun to pay.

Yeah, I would honestly like, let's say, let's say it's a thousand dollars you save per month by getting rid of a truck. And then I'm going to also save. You said 40,000. Like that's $4,000 a month in marketing. Let's just call it $3,000 a month in marketing. Well, all of a sudden we need to make $4,000 of just overhead. Let's say we have a, you know, 15, 20% margin business we make $20,000 more a month in revenue just to recoup those that expense. So $20,000, that's times that by 10, like that's $200,000. So yes, you're going to grow to 850,000 next year and you'll make the exact same amount of profit if you just stay where you're currently at and optimized. But because your goal is multiple locations, I would highly recommend keeping it under eight employees. I just see this over and over. It's, it's just you grow the business to the point where you can't get a GM to take over.

Yeah, I understand. Yeah, we do have someone who's set and ready to take over that position. They're just relying on me to set things up for them. You know, last year with where were we at? We had about a 45 close ratio on all of our estimates going out, you know, at $80 a labor hour for mowing and then 100 for landscape and one time projects.

Yep. Yeah. So if you raise prices and we're able to extrapolate, let's just call it two to $3,000 more a month just right off the rip, raising prices 15% at least. And then you were able to cut your marketing spend. You just paid for your general manager.

Yeah. Makes sense. All right. Appreciate it, Mike.

You got it, man. I know it's not sexy anymore to like say like don't stop growing but man, when I see this over and over and then I did it in both of my locations, like, oh, like this makes so much more sense. The general manager was able to take his first vacation since starting a year ago as general manager because he's like, oh man, I have less employees, less trucks. We made bunch of profit. Like this is so much better. So.

Oh, oh, yeah, yeah. I'm all for just doing what's the best decision. I, you know, I have no like romance. I'm like, hey, let's get this as big as we can. I was like, no, I just want, you know, create more employment opportunities for the, the guys in our team and create a lifestyle in which everyone on our team is, you know, can, can enjoy being a part of good stuff.

Thanks, Shane. Jacob, did you have a question? Go ahead.

Yeah, I did. Okay. So I'm in like the same exact position. I'm a little over 600,000. I want to open a new location next year.

I made a, I hired an admin for this year and a general manager and I'm wondering what are like the things I Should focus on for them like KPIs to track.

Yep. So are they both full time, year round?

Yes. Yep. Okay.

Are you working the business full time?

Yeah, I'm gonna focus on sales, marketing, and systems. It's my goal anyways, if that makes sense.

Yep. I'm going to guess that pro, like, cash is a little bit tight because you have three different overhead people working in a $600,000 business. Like, is that. Is it a problem or not really. Am I barking up the wrong tree?

It hasn't really been.

Okay. Yeah.

Actually hasn't been too tight.

Okay.

Next year I am raising what I'm paying though, so I'm.

I'm nervous about that. Okay. Yeah. Because, like, as soon as you get out of the business, you're going to see all the flaws. Right. And so if you're going to do a. Are you going to start the second location next year?

No. So this year my goal is kind of just to. To simplify and like, get ready to copy and paste, like, find what's most profitable.

Yeah.

And I would be recommending that.

Okay.

Because this year I'm like, if I can just focus on sales and marketing. Like last, like, beginning of last year, I was like, creating all these SOPs and it wasn't working. But I realized I wasn't letting them take accountability. I was still jumping in, like, doing the task. So I'm trying to, like, give the responsibility, but I also want to know, like, what to track, like, so I know that they're doing a good job.

Yep.

So when asking for an admin person is like, what are the things they actually move the needle for? And then how do I incentivize against that? It's like, what do you want a good general manager to do? Well, I probably want them to take care of the team. Like, if I'm not there, I need someone to take care of the team. Well, what does that look like? What's a measurement of success when it comes to taking care of the team? Usually it's efficiency score.

Right.

It's the amount of budgeted hours in their clocked hours. So like efficiency score, you can track it inside copilot, you can track inside pay for performance. That is a huge determining factor for me of whether or not a general manager is doing their job. I'm also going to be tracking, if at your size, that general manager is likely going to be working the field a little bit. Now I'm going to have a measurement around that I'm going to have say, look out of a 40 hour work week. I expect 30 budget hours worth of work to get done. Now, that number goes down one hour for every estimate you do that's in person, goes down another hour for every interview you do in terms of hiring. But ultimately, I expect you, as a General Manager, complete 30 budget hours of work a week and then be able to tally and show me the estimates and interviews that were done to subtract from that. So if you have 10 estimates and three interviews, that's 30 -13. I still expect you to complete 17 budget hours worth of work on the dispatch board. And so this is going to be efficiency of the crew and efficiency of the general manager that would be measuring for them.

Okay.

So I was planning on focusing on sales and marketing myself, so I would do the estimates. But we do landscaping and lawn care. But I was kind of hesitant. I wanted to set like a minimum for landscaping. So I want to eliminate a lot of like, the bs, like going and doing jobs that I don't know if it makes sense to go. Like, I think about setting like 800 as a minimum. So I feel like to go and bid a $300 job, the amount of time it takes me to go bid it where I can sit on my computer and bid 50, you know, lawn mowing or, or weed control jobs. So I'm like, does it make sense to just set a minimum price, eliminate it completely?

I just want to.

I feel like simplifying makes sense.

But yeah, I think, I think what you're trying to do is like simplify the sales position before I start sending arbitrary dollar amounts, because there are $600 cleanups that you can do in two or three hours with your crew and make good money and simple services. It's also a great way to upsell existing mowing customers into something and double their lifetime, their annual customer value by selling them a 6 or 700 cleanup when you'd otherwise only make 6 or 700 for the whole year of Boeing, depending on your market.

So the Pulse cleanups, I'm all right with. But like anything, I can't bid for my computer and I can't like systematize. Like, there's certain just random cleanups where someone wants like a couple branches cut and a pile picked up, and it's like, I have to go look at that. But it's only like a 2, 300 job.

And.

Yeah, but you can, you can create systems around this, right? So, for example, you can just have it where it's like, hey, if you. We don't do in person Estimates, you can submit a video. You can make a form where on. On the estimate request form. It's like, hey, if you want mowing, click here. And then as soon as they go to another thing, it's like, great. Submit your video for your project. Right. So when our. When our. Our owners get busy, they have the option to basically make it where it's like they have a banner that basically says, hey, we're accepting mowing customers. If you would like a project, you got to submit your video here.

Okay. That makes.

You're basically just throttling. You're just throttling. Like, you'd only do this if you have so many leads coming in.

Right.

And so I would just have different forms for different times of the year based upon what you're trying to prioritize. The same way that I would do the same thing with scheduling. Like a lot of these bigger projects, I would probably actually try to get them bid, even if it's remotely. And I'd be trying to schedule them in your off season. Right. And you just. You can be more price competitive during the winter too.

Yep.

Okay.

I'm worried too about if I can't, because, like, all the random landscaping jobs are hard to systematize. It's like, how do I ensure quality? Like mowing weed control is very systematized. I can give a guys a training and they're good to go. But I guess all my callbacks are from these random jobs that they miss something. And there's so many little details. And that's why I was thinking about setting the minimum because it's like, for a 300 job, I've had so many callbacks, and I'm like, it's not paying that much. And I don't know, but I guess videos. Videos do work. Those do work for me. If I send a video to the crew, that.

That helps. So.

Yeah.

Yeah.

What you want to be careful of too is like, are we. Are we fixing the problem like the root problem, or we are we just simply dealing with the symptoms?

Right.

So callbacks, in my opinion, are a symptom of something else. Either a too complex service mix, a not enough standardization in the service mix, and. Or a lack of systems around pay for performance because if they're incentivized to not have callbacks, they will have less callbacks. And so I would actually look at something like that. If you're doing simple service, like a $300 cleanup, there should never be a callback because it's extremely simple. Usually, like, it's Cut a few branches, for crying out loud. So usually that's actually a system failure, not actually a system that you need to make a system around it. It's like, there's no pay for performance. They're incentivized to come back to the job site because they'd rather be in the truck driving back to do a callback than they would be doing more jobs. It's like the incentive structure is now messed up. So I actually think the system failure happens because they're not like the downstream. It's a downstream effect of not having paper performance.

Okay, yeah, that makes sense. I. I've been trying to do the pay for performance. I'm signing up for the software next year. I was doing it all my. All myself. I made like, through app sheet and all this crazy stuff. But I'm just gonna get the software and. Yeah, focus on growing the business than.

Trying to do software stuff.

Dude. Good work, Alberto, go ahead.

Hi, Mike. I work with Nathan at Eagle Pro in Idaho. I just had a few questions. So how do you. How much do you expect to make? If you make. If you're in a business that it makes around a half a million dollars in revenue, how much do you expect to have in profit?

Yeah, so I define profit as the. The money that's left over after the owner has been paid in a regular salary. Now, I like to think about distributable cash a little bit differently, but we'll talk about that separate. So in terms of profit, like, on a $500,000 business, I'm asking a couple things. First off, like, what was the revenue last year?

It was about 100,000.

How much was it? 200,000, you said?

No, I think it was a little higher than that. Nathan, do you have that in mind?

The revenue for last year, it was like, around like 260,000 or something. We could get you, like, specific, but we about, like, doubled our revenue or something.

Yeah. So basically, whenever I see a doubling of revenue, I. I almost immediately say, okay, this is in growth mode. I. We're not optimizing for profit. So what profit percentage should you be at? I don't know. You're growing like, you're. It's going to suck cash. You probably have to buy another truck. You probably had to burn through a few employees. You probably had a couple really bad jobs happen because you doubled the size of the business. Right. It's like bug hell and co pilot happened in 2024 because we tripled the size of the business in two months. And so if you're going to, you know, double the size of the business. I'm not actually measuring profitability because you're not optimizing for it. You're optimizing for growth. Now if you grow, grew by 15 or 20% and you raise prices and you hit capacity, then I start actually benchmarking profitability. But you're optimizing for growth right now. So I would be much measuring your growth and you did a great job. You grew over 100% year over year. And so I think it's a, it's a measure of risk because you can artificially increase your, your revenue and your growth by just pumping all of your, your excess cash into the business. But you could also make it really, really profitable by simply not buying a truck, not buying stuff that you need for the business like expendables at the end of the year. So that number gets really weird. I would say personally what we try to do is once we hit over 500,000 annual revenue, we are going into profit mode and that's when I can start measuring this number. And we're trying to over the course of three years in profit mode. And so talking like Jacob and Shane, like that size of business, we're going to take three years once we hit 500,000 to optimize profit, I. E. Raise prices every time we hit capacity. We're going it for three years and get to 800,000 in annual revenue. And like that's impossible. No, if you're charging 65 or $70 an hour and you raise your prices every single year by about 15% and you do that for three years, you will be 800,000 in annual revenue. And our goal is at that point to be making $200,000 in net cash flow. So that's 25% margin. That's after three years of being in profit mode.

So okay, so what if it. Oh sorry. Go ahead, Nick.

So what if it's hard to measure where capacity is at when like literally 80% of all the work is done is done by contractors with all their own equipment and whatnot. And we can easily just add more contractors that can do part time work.

There's still a level of capacity of how many contractors each of you can handle. So yes, theoretically the contractors can do more work, but there's a number of contractors until you break or you need another employee. And so you, you would want to be determining your personal and, and your, have you gone through capacity based growth? Nathan, you know what I'm talking about when I say that.

Yeah, yeah.

Basically you just can't.

Yep.

So instead of tracking budget hours, you're going to be tracking how much revenue can you, each of you manage before you need to hire another person. That would become your capacity. So to your point, if you're like, well, right now I'm going to make up numbers. Let's say you're at 15 or 20 contractors and say, well, technically we could probably handle 40 contractors before we need to hire another person. Well then yes, you're way below capacity and you should stay in growth mode because all your profits are from where you're at now until that point.

Mike. So.

You talked about 70 employees.

And then you said you'd keep it that about a half a million under eight employees. That's what you would be comfortable before you actually open another side. So what do you use the input? Do you use contractors as well or you simply just use employees to do all the work? What are you using employees for?

Just employees. We don't do any contracting. My locations specifically.

Okay. Just the employees. Okay. This is like full time employees where you pay all the benefits and everything. Okay. Okay. And what, what, what did you put any thought, you know of whether to hire employees or do independent contractors? And what, what led you to choose employees versus independent contract?

Yeah, I want to build a brand. So if I'm having contractors go out there, that's putting that in jeopardy. That's really it. Yes. You can scale a subcontracting business. It's harder to build enterprise value because you do not control as much of the business. I'm not against it. You can absolutely crush it in subcontracting. And I obviously was with Nathan and we talked about this. You can crush it. You can make a lot of cash flow. It's just not something I'm interested in terms of brand or the ability to copy and paste this because it's very, very individualized to finding good contract. It's easier for me to find good employees and create a system around that than finding good contractors in different markets.

But it's scalable. Like it's just a different business model. So it's not wrong. Please don't take it as.

Okay. Yeah, well, that answers our question, Mike, regarding just hitting max capacity with what we can actually manage. So that, that definitely 100% answers it. So thank you very much.

Yeah, absolutely. I would just change it.

You're a legend.

Your personal and, and your, your, your labor capacity essentially just become, instead of budget hours, it become number of contractors.

Yeah. Okay.

Or revenue. Revenue might be a Better benchmark on that, so.

Yeah.

Sorry.

Well, hey, you're a legend, Mike, and we appreciated you big time for coming down, so thank you.

You got it, dude. Absolutely.

I wanted to figure out.

How much.

I need to spend in marketing to hit my revenue goal next year. How do I figure this number out?

Okay.

What would you make in revenue in 2024?

$300,000.

Cool.

And what's your target for 2025?

Double that.

So $600,000.

Okay.

And.

If you don't mind me asking, how much cash on hand do you have?

$50,000.

Okay, cool.

Do you know what your customer acquisition cost is? Or that's kind of like you would guess, but you don't actually really know.

Yes, the last time I checked, it was $35.

Okay.

And is that during spring rush? Is that a blended average across the year, or is that for a specific service?

I don't remember what it was in the spring. I. I think it was more expensive in the spring, but I checked. I think last time.

Would you.

What'd you spend in marketing? Would you. Would you spend in marketing this year, like, total?

It was about.

It was between, like, 10 and 11,000.

Okay. And what was your revenue in 2023?

Yeah, it was 180,000.

Cool.

So 180,000. And then this year we did 300,000. Is that correct?

That's right, yeah.

Cool.

So we can do this. This becomes a math problem. So we increased revenue by $120,000 in revenue. You spent $11,000 in marketing. Assuming you do not get any better at marketing, you will need to spend about. You get. You're getting about 11x on your marketing spend, which means if you spend a dollar, you're getting about $11 back. So what? That means if you're trying to grow by $300,000, you will have to spend approximately $30,000 in marketing. Now, do I think you need to spend $30,000 in marketing in order to hit go from 300,000 to 600,000? No, I don't. I also think that your. Your customer acquisition cost is. Is higher than that $35 marker, because if you spent 11, 000 on marketing and you had a $35 customer acquisition cost, you would have had 315 new customers. Right. And so unless you have really, really low, low pricing, I doubt that's the case. So I would probably. If I was first, if I was you, Caleb, I would probably look, okay, how many new customers did I get? And then I would actually figure out what is my customer acquisition cost. And you could probably work that way. But assuming you did know better in marketing, you don't change anything and you don't take any sort of courses or watch the content, et cetera. I think you would probably need $30,000 to do that.