The SECRET of Marketing and Advertising: MIND BLOWING!

Hey everyone, it's Mike Andes and you're listening to the Landscape Business course podcast. Today's a really different episode because it's actually a piece of a training video that I did for the franchisees at Augusta Lawn Care. But I figured it would be good for everyone to hear. We usually do three or four of these every week. But usually they're really, really specific to our brand. And so we're talking about like our marketing techniques and you know, our automations and our forms and documents and things like that. Whereas this, this video today is a little. And it really gets across the point that I try so hard always to talk about investing in your business and how the amount of money you put back into the business and spend on marketing is directly correlated to the growth of your business. So I think it's gonna be really important for those of you who are just starting out, are thinking about starting or you're like wondering why you're plateauing and you really wanna scale the business. And so I'm kind of releasing this one too because we had to cancel our April franchisee training for Augusta Lawn Care just because the coronavirus very hard for people to travel right now. So we have four people coming in July. And so if you'd like to come for that, definitely would want to get started on the process of getting that all set up. Just go to Augusta LongCareServices.com franchise, watch the videos, see if it's something you might be interested, if it would be good for you to join and I'd love to see you here in July. So let's go ahead and jump right into this. It's not super long, but you might want to watch the video if you're listening to the audio only version of this right now. Because I do show some examples and I basically show two different avenues of varying degrees of investing in your business and just how much of an impact it makes on your business. I know there's a lot of variables here that you're going to see that I kind of nullify or I make standard just for the sake of making this a simple example. So please don't, you know, bombard me in the comments about all the things I'm leaving out. I'm just trying to make a general concept and really tried to educate people on the reason why some businesses can scale to a million dollars in revenue in a matter of three years. Some people think that's so impossible when literally what I'm going to show you today is like what we did and then why other businesses, they just seem like they just kind of slowly grow 200, 300,000 and they kind of plateau off and we're going to be talking about that today. If you wonder why a lot of companies plateau on 3 to 400,000 in revenue, if you look today, you'll see the one variable we don't take into account is, is attrition. And some people, they spend enough marketing once they hit about 3 to 400,000 in revenue to basically just get new.

Customers to fill the customers that they lose every year.

And if you stay there, you're basically just going to plateau. So I hope this is a really good kind of push in the right direction for you. Again, we're taking out things like the fact that you're going to have team members and as you grow you're going to need to hire people and there's more equipment and overhead. We're not, not going to talk about that today. I'm trying to make this point and it's something that we showed the franchisees and I thought was good enough and would work for all of you out there as well. So hopefully it's of value and I appreciate it. Thanks so much.

Hey gustonation. So I want to make a quick video today and go over this concept that we talk about a lot. You've probably heard me talk about it before and other people about investing back in your business. I really want to look at why people say that and the difference between someone who does and who does not invest back in their business and why recurring revenue is the magic that makes that worth it so much. So let's go ahead and jump into it. This is not super complicated. I wanted to simplify as much as possible. Alright, so the first thing is. Sorry, first thing is the assumptions. So throughout this examples, these examples, there are assumptions we're making. Number one is that there's a 10x multiple on marketing dollars in the trailing 12 months. So what I mean by that is if I spend $10 on marketing, I expect to get $100 of revenue from those marketing dollars. Now that is actually very, very conservative. I expect 10 to 20 times return on my marketing dollars. So if I spend $10,000, I expect there to be 100 to $200,000 worth of revenue come from those marketing dollars. If it's under 10 times return, there's definitely improvements to the marketing method. The timing, the creative, something was off a lot of time it has to do with timing. But in general, 10 to 20 times is what I'm looking for. For this example to be conservative, we're going to use 10 times multiple. Alright, so this is an assumption we're using in these examples that if you spend $10 on marketing in the following 12 months, you're going to get $100. So 10 times that. Alright? We're going to also assume that one recurring customer has an annual value of $2,000. And this is pretty average. If you're doing mostly maintenance and then you do cleanups and other projects perhaps for the customer, you have other miscellaneous services like gutter cleaning or pressure washing that you can do, then that number comes from. Assume someone has a $40 per week MO, they're going to be looking at $170, $180 per month. If you do it eight times in a year, you're looking at 14, $1500. And then if you do a cleanup of some sort for everyone or view treatments. So we're just going to. Just for the sake of the assumptions, we're going to assume that our recurring customer is $2,000 in annual value, that is gross revenue to the business. We're also going to assume that you have a net profit margin of 20%. And when you're first starting out, that's actually really low. As you grow the business, you get more overhead. That can be something that's really what you're striving for. It's going to be more accurate. But for the sake of the assumptions in these examples, we're going to assume a net profit margin of 20%. And that's what we're really striving for. Once we hit a million plus is that 20% margin marker. But when you're smaller, it is very typical that you're higher than that percentage simply due to the fact that you have less overhead. We're also going to assume in these examples that there's no word of mouth marketing done. There's no one referring you or anything like that. And we're going to do that because I need a counterbalance for the fact that you're going to lose. There's going to be some attrition. And attrition is the amount of recurring customers that you lose every year. And that might be 10%, it might be 12%. Whatever it is for you, that's the percentage of your recurring mowing customers that you lose on an annual basis and not necessarily due to the fact that you're doing a bad job just because they moved or they tore out their lawn or for whatever reason, they no longer need your services. And Maybe you do do a bad job or there's callbacks and there's issues and they do cancel service. So I'm going to take out that 10, 12% maybe attrition of your customers and I'm going to balance it out by not including any word of mouth marketing efforts. So if you do any sort of email marketing like using your existing client list, that costs you $0. If you have a customer that tells their neighbor next door about you, again, zero dollars. And so I'm going to take all of those things off the table just for the sake of these examples to show you the point I'm trying to make. Alright, so I'm being pretty conservative in a lot of these things, like the 10 times multiple in advertising, the $2,000 annual value. I know for some of you, you know you can do a lot more than that by getting two cleanups and treatments and the whole services that you can offer as well as the fact that I'm not even taking account any word of mouth marketing on these examples. Alright, so we're at two different owners, two different franchise owners here at Augusta Lawn Care. Number one guy's name is Bob. Okay? And Bob is going to start his franchise. We're going to assume that day one is like he comes back from training. So he comes back from his three days of training and he's ready to go. And we're not going to take into account the fact that he's bought his equipment already, that all of that's been taken care of. We're looking strictly at, you know, day one coming back after training. He's already paid his initial fee, he's already bought his equipment, he's ready to go. So the variable for Bob is going to be he spends $5,000 on marketing on day one. And when I say marketing on day one, I mean like that first, you know, maybe couple months getting started. Really that first year is he's going to spend $5,000 in marketing. And we're going to assume also for Bob that he's going to continue invest 20% of the profits he makes for back into marketing. So 20% of his profits at the end of the year he's going to invest into marketing and that's how he's going to grow his business.

Alright, so for Bob, his revenue for year number one is $50,000. How do we get that number? $5,000 is what he's spending on marketing. We times that by 10. Remember that's the variable 10 times our return on marketing dollars. So his year one revenue is going to be $50,000. From that, we're going to assume he gets 25 recurring customers, remember, $2,000 per customer per year. Now, if he gets a revenue of $50,000, he's going to profit $10,000, 20%. And using that number, he's going to invest 20% of that into marketing for the next year. So he's going to invest $2,000 into marketing for year number two. So let's keep going and follow along with Bob, see how he does. In year number two. His revenue is going to be $70,000. We got that number because he got $50,000 last year. We're going to assume he keeps all those customers and he added $2,000 worth of marketing to the mix. And with a 10x multiple on that $2,000, we know he's going to get $70,000 in revenue here in year number two, that's going to assume he gets 35 recurring mowing customers. Again, $2,000 a piece. And at a 20% net profit margin, he's going to have in profit at the end of the year. Now he's going to invest 20% of that into year number three's marketing and that's going to be $2,800. You just continue here. This is year number three now for Bob, the franchise owner number one. So year number three, his revenue is now going to be 98,000. Again, that's coming from the $28,000 extra. He went from 70,000 in year two to $98,000 in year number three because he spent $2,800 in marketing and he's a 10x multiple on that in terms of revenue, so added 28,000 in revenue. So now he did $98,000 in revenue. In year number three. He has 49 recurring customers. He will profit.

$19,600 and he will invest 20% of that, which is $3,920 into marketing for year number four. Year number four rolls around and and now his revenue is going to be 137,200. So $137,200. He's now going to have 67 recurring customers. Maybe now maybe considering hiring his first employee, things like that, he's going to profit $27,000, 440 and he will spend 5,488 or 20% of that on marketing figure number five. So again, we're assuming a 20% net profit margin and we're assuming that he spends 20% of that on his marketing. Alright, so now this is year number five for Bob, his revenue is going to be $192,000 and he's going to have 96 recurring customers and he's going to profit $38,000. So this is after five years of being a franchise owner. He has invested 20% of his net profit into the marketing of the business. Alright. Now five years gone by making less than $200,000 in annual revenue as the franchisor. I would say that this is actually a failed franchise. After five years to be doing less than $200,000 in revenue for someone that wants to grow the business is definitely not up to what we would want to see and what's possible. And definitely a profit margin of making $38,000 in profit is nothing to get excited over. You might as well have just stayed getting working his own job. So I want to show the example of now someone named Max, of course, our mascot name. And he is going to do a much better job of investing in his business. And he's going to spend $20,000 on marketing in his first year and he's going to invest 60% instead of 20% of his profits back into marketing. Okay, so these are the only two variables we're changing. The amount of money spending on his first year in marketing and then his percentage of profit that he's going to pump back into the business for marketing. Okay. And you're going to see just the dramatic increase. And this is why it's so important to make sure your first year you are capitalized correctly in terms of either having a loan and having capital that way or having cash saved up to be able to spend money on marketing. These are the two variables that we're changing. He's going to spend $20,000 maxes in comparison to the 5,000 that Bob did in his first year. And he's going to invest 60% of his profits. He's going to invest back in the business, 60% of his profits back into marketing each year. So year number one, he's going to get a revenue of $200,000. How is that possible? Again, he put $20,000 into marketing. 10x multiple is assumed. So he's going to get $200,000 in annual revenue. That's going to assume he has 100 recurring customers at $2,000 each. And from that he's going to have a 20% net profit margin. So he's going to have $40,000 in profit and he's going to invest $24,000 of that $40,000 because he's investing 60% of that profit into the marketing of the business. What's going to happen? Year number two rolls around, he's going to go now to $440,000. How did that happen? He invested $24,000 in the business. So you add the $200,000 he made the first year, added to the $240,000 worth of new revenue that came in from the new marketing efforts, and he made 440,000 in revenue. He's now going to have 220 recurring customers and he's going to profit $88,000. But he's going to be diligent to make sure that he invests in 60% of that money back into the business for marketing for year number three is where it gets interesting. Now year three revenue is going to be $968,000. Alright, how did that happen? This is usually what happens. Year number three is a massive year for a lot of people to invest in their business. Because he took $52,000 and put it into marketing. The amount of business that you can generate with that kind of money is enormous. So he's taking $52,000, 60% of his profits, pumping it back into the business. And year three's revenue is $968,000, almost a million dollars in annual revenue. He's gonna have 484 recurring customers at $2,000 a pop for the whole year. And remember, we're gonna assume he's not getting other projects outside of these recurring customers and he's going to profit $193,600. For most people, they would love to have this, and they would love to have it after three years. And maybe Max decides, you know what, I'm going to stay around a million dollars in revenue. I'm going to stop pumping money in terms of marketing back into the business. I'm going to actually live off of that $193,000 a year and continue to just make the business more efficient and hopefully increase things like the amount of annual revenue per customer and the net profit margin. So these are the things that I really think about when I talk about investing in your business and spending money on marketing. This is real. This is absolutely real. This is how you grow a business very quickly in this market. Now, how is this all possible? This is all made possible by the power of recurring revenue. And I like to say that recurring revenue is a landscapers form of compound interest. You might have heard Warren Buffett and everyone else in the stock market talking about the power of compound interest and how that over time the percentages continue to work for you and make more and more money. That is recurring revenue in the landscaping industry. And the reason if we go back here that Max is able to make $968,000 in year three is because we're assuming that $440,000 he made in year two recurring revenue that continues into year number three. And it just continues to recur. As long as he doesn't lose those customers, that money, that revenue still there. And as he grows the business, he's not pumping dollars into marketing and getting one time jobs, he's getting recurring revenue that can continually build the business. That's compound interest. If you look at the one or two recurring customers, maybe it's not a lot of money. If you look at 1 or 2 percentage points in the stock market, it's not a lot of money. But as you build that and it's recurring revenue and it continues to compound, that is the power of recurring revenue. Now I want to make one final point here and say. One second. I want to say that really the two things that differentiated Max and Bob, and I'm going to go back to the first year of Max. The number one thing that changed here for Max is the amount of money spent on year number one, $20,000. And for a lot of people, that's as much money as they'll spend in their equipment. And that seems mind boggling. But guess what back here, Mr. Bob, he might have spent the same amount of money on his equipment, but because he only spent $5,000 on marketing, year number one was weak. Now Bob, maybe he was strapped for cash, maybe he didn't have access to capital, but if you would have just changed this other variable and that is the amount that he invested back into the business, he would eventually be able to catch up and just take him an extra year or two. And so this is the thing you have to make a decision on. In your business, there's an absolute numbers game. The same way that the stock market is a numbers game when it comes to compound interest. Investing back in your business with a business model that has recurring revenue, like lawn care is absolutely a numbers game. If you put more and more money back into your business and you continually invest back in marketing, and we're going to assume that that marketing is effective and has a 10x multiple on its dollars, which again, as a franchisee you want 10 to 20 times your marketing dollars in the first 12 months. Because again, this is all about compounding. You don't have to pay for that recurring revenue. On year number two, you've already acquired those customers. There is no more marketing expense to keep them as long as you do not lose them to attrition. Alright, so these are the things I really think about. These are the things I believe in. And this is how you scale a business quickly, using recurring revenue and the power of investing back in your business.