these 14 minutes will change your business FOREVER!!! (I came up with this in the shower)

Hey everyone, it's Mike Andes. And my goal in this video in the next 10 to 15 minutes is for you to be able to look back at this time you spent watching this video and say that the 10 and 15 minutes that you spent was the best return for your business you've ever had. And I think that's going to happen. I was literally, if you don't know who I am, I live in the office next door to the gym that I own. And this is where I shoot all my videos. And I just sleep in the closet on the floor. And so because of that I don't have a shower. So I go next door to the gym. I own the gym and I shower there. So it's late at night. I just finished working out. If you see some sweat, that's what it's from. I was working out and I was taking a shower. It's late and I'm in the shower and I literally drew this on the shower wall. You know, like when there's water inside the vinyl on the side, I just drew this out. So this is the first time I've ever drawn this graph out besides in the shower of the gym. And so hopefully it makes sense to you, but I think it's gonna be really good. I was talking to one of our franchisees at Augusta Lawn Care and I was explaining this to him verbally and he understood by the end of it. But I think this graphical representation is really, really helpful and will help you in your small business. I believe that by watching this video, you will put yourself far in advance and ahead of the competition in your local market. If you look at the number of views that this video has, there's a really good chance you're the only person in your industry, in your market watching this video. And I truly believe, if you understand this, you will win the game of small business and especially home improvement businesses. Now what this is, is first off just a graph. Obviously this right here, this bell curve is going to be revenue, alright? So starting at zero revenue here and then we grow in the business more revenue here, all the way up to, you know, technically infinity. But we're just growing the business to a very high number. We could even put like, let's just make a number up, like $3 million in revenue. Okay, this is the bell curve. This line here is fixed expenses. Now if you haven't watched the video, check this one out here where I talk about reducing your fixed expenses and making sure as you go into a seasonality, like a winter time for your Business or into an economic recession that you keep this number down. Because guess what? If I can move this number down, if I can move this fixed expense bar down, guess what? I don't need as much revenue in order to break even. So this point right here is the point at which the business, the minimum amount of revenue I can make in a month or in a year for my business just to break even. That is the break even point. Now for this business, maybe you have some loans, you have a bunch of trucks, equipment, you have hires, you have an office, whatever it might be. For example, this might be $400,000. At 400,000, if I make any less than $400,000 in this business based upon my fixed expenses, I am going to break even. Anything below that, I lose money. Anything above that, I potentially can now actually have a profit. Because this right here is the profit margin. Now if I make less than that, I'm gonna actually lose money. Cause now I have a loss. Now this is what's really interesting and this is what this video I talked about a couple weeks ago about reducing fixed expenses. If I can reduce this fixed expense, if this red line can drop down and now I maybe pay off some debts I reduce, I use pay for performance instead of using dollars per hour to pay my employees. I make sure that I don't have things like salaries, but rather they're again P4P4Psoftware.com, you can hear all about that. And whatever it is, you get rid of a big office space that you're paying $3,000 a month for and you go down to maybe $1,000. That's all ways to reduce your fixed expenses. You can sell off equipment that you have a bunch of debt on, you can reduce your insurance costs, whatever it might be, you reduce your fixed expenses. Alright, if you do that, notice now your break even point comes all the way down to here. And so now, if we go down here now, our revenue might only have to be say $300,000 in order to break even. This again is making your business much more resilient in case it ever slows down, in case business ever dries up. And I know for the past 12, 13, 14 years, people don't even know what slowdown and recession and anything like that means. And so we don't even think about this. We just keep growing fixed expenses. And then we just think the business will keep growing on forever and it doesn't. The party usually ends. And when that happens, whoever has this high, high fixed expenses, then they're the ones who fail. So that's what I've talked about before. Now what I wanna talk about though is the impact of having your pricing and really, how do I maximize my profits? Because this is what's really interesting. Check this out. Where in this graph are you gonna be the most profitable? If we just use this graph. Let's go ahead and draw this line out here. If we just draw this graph out as it is here, which is, here's our revenue and here's a profit. Theoretically, this point right here is going to be the most profitable. Now, what some people would say is, well, why wouldn't I just keep growing the business? I'm gonna explain in just a moment, but this point is the most profitable because any point past this, I'm actually going to decline in revenue. Now the reason I'm having this decline in revenue is I'm baking in. The whole point of this video is to show, based upon your pricing and your close ratio. Just hold with me for just a second. Let's just assume that if your prices were at zero, your prices were at zero. And then we're going to have 100% close ratio. This is our percentage of close ratio, 100%. Now, as we quickly start to charge for our product, obviously we're going to see a steep decline in the amount of people willing to accept every single estimate that we propose. Then what's going to happen is usually this. And that is you kind of start to even out like this as time goes on. And then if you really start to get crazy with your prices, literally your close ratio would drop off to oblivion. So this is like literally 0% close ratio. And so this is what's so cool about small business is the fact that there is a happy medium somewhere in between here that is going to allow you to have the best profits in your small business. And that is going to be one where do I charge in terms of pricing? Because now we've changed this graph to where this is price on the bottom. This is very expensive over here. And this is I'm selling my services for nothing. It's free. And if I do that, I'm now gonna have 100% close ratio. If I sell it at zero and if I increase it to infinity, like extremely expensive, I'm literally gonna sell absolutely no jobs. So there's a balance here. There's gotta be a perfect close ratio. A percent of the estimates that I actually sell that is going to maximize my profits. Now, I'm not trying to say this is to scale or anything like that. But get the gist of what this is saying. Because if I'm like, hey, you know what? I want to close all of my deals. Well, theoretically, if you just charge zero, you're going to be able to win every single estimate you ever give out. But now you start charging. Maybe let's just put some markers on here. Let's say, like this is. This is $25 per hour that you're charging. This is going to be. This is, for the sake of example, $50 per hour. This is $75 per hour. And I know these are low in a lot of industries, but just get my general example here. And then let's just say this is like 100 per hour. So what happens is, as we raise price, our close ratio is going to dip down. Now, some people say, well, if you need more profits, just raise your prices. But the problem is, if I raise my prices, then my close ratio is gonna come down. And this is what happens. This is the curve that happens right here. And that is as you raise prices and you keep raising prices, your close ratio goes down. And eventually it actually takes time to produce estimates. All of a sudden, if your close ratio is 5, 10, 15%, even 20% over here, you literally might be charging the highest prices, have the best margins because your prices are so high. But if you're only closing 10, 15, 20% of your estimates, you're driving around your entire day doing estimates, getting proposals out. And it's extremely costly to go out and get all these estimates, just perform just to get them out. And so you end up actually losing money because your close ratio isn't high enough. Now look what happens, though. There's an optimal amount of close ratio where your price and your close ratio are going to be at its optimum point. Let's just say, for example, right here, this is gonna let you say 50% close ratio. And this is gonna be about $50 per hour. Now, at this point, we're gonna have the peak because this is where we maximize profit. But we haven't raised our prices so much that our close ratio starts to go down to the point where we actually see a decline in our prices. But again, this is the point where we actually have the maximum amount of profit, because I can. I'm raise my price to the $75 per hour. Fantastic. Remember this volume of this above the graph? This line right here is our total profit. This is profit maximization. Profit maximization is right at this point. And so what some people do is like, oh, if I Raise prices, I'm going to lose jobs. You will. Your close ratio will probably go down, let's just say to maybe 40% by raising your prices from 50 to 75. Again, this is just an example, but in doing so you're reducing the amount of jobs you're getting, maybe reducing your revenue as this curve comes down, however, you're maximizing profit because the area above this curve is what you're going to make in profit. Alright? Now if you raise your prices too much and you start going to 80, 90, $100 per hour for your pricing, now all of a sudden you're actually going to going to reduce your profits. Your profits are going to be much lower than what they could have been. Now why is this the case, the case behind all this and the reason I'm making this entire video? And if you. I know I move fast, I know I changed the whole graph here, but here's the really important part of the video and that is if I can get estimates out to my clients for a very low cost, I can charge a premium price without reducing my profits a lot. So get this, if it takes me $10 to be able to submit an estimate proposal in the form of time you have to drive to the property, may have an office staff, a calling service, whatever it might be. It takes money to get proposals out. So that's why your profitability drops so far down when you have a low, low close ratio is the fact it does take money to just give estimates. So the goal in this whole video is for you to get focused on one thing and it how do you reduce the cost of getting an estimate to the client? This might mean trying to do estimates over the phone. This might mean using a satellite image to be able to determine pricing before you get to the job. This might mean doing a drive by estimate instead of having to go meet the client in person where it takes more time and therefore more sunk cost cost in the cost of actually doing an estimate. So this is why most people will not raise prices. Because as they do that and their close ratio goes down, they actually start to lose profits because the sunk cost of doing more bids and getting more estimate proposals out. So there's two trains of thought. One, don't raise your prices, don't have a premium product, or two, how do you make sure that even when your close ratio is low, you're still able to to have a high margin because you don't have the cost of getting the estimate to the client. So whether we drive by estimates, doing estimates over the phone doing my square footage via satellite, whether that be also having where a video is submitted to you and the client actually takes the time to make the video and send it to you. All of those things are things that are going to allow you to actually make more money while you raise prices. And even if your close ratio goes, goes down, it doesn't matter because you don't have the overhead of going to the client's property. The overhead of all the back and forth and communication work, change orders only for them to deny the estimate. And that is what really kills small businesses. A business that needs to raise prices has a ton of demand coming in, lots of people wanting your service. And so the inclination is like, we'll just raise prices. Well, the problem with that is if I just raise prices, yeah, it might be fine because I don't really need the work, but I still gotta go do the estimates. I still gotta get the estimates performed, meet the clients. And that takes time, money and energy. And I gotta like fuel up my vehicle and pay the insurance on the vehicle and the truck to get there. And I gotta pay an office person to set up the estimate and all the scheduling. And that is absolutely true. That is the sunk cost of doing more estimates. So what I want you to realize is that there is a perfect close ratio as well as price that is going to match up with your perfect profit maximization. And that is a beautiful point. And the less sunk cost that you have in doing estimates, performing the estimate, getting the bid to the client, the lower that margin, the less time it takes you to go visit the property, meet the client. That all is costing you money and preventing you from going and doing work in your own business, actually producing revenue. And that's why most people will just turn off their phones. They'll just stop taking new leads, they'll stop taking new customers is simply due to the fact that hey, I can get all the leads in the world, but if I got to just go do the estimates, that's taking me from actually doing the work. And that is what gets people in the trap of not raising their prices and not reaching their profit maximization in their business. I know this was a deep video comment below. What helped you the most? And if I have to, I'll make a follow up video. I tried to condense this one really tight, but I really do believe this will change someone's business if you just understand this and you really focus on how do I get more estimate proposals out without all the sunk cost. So that as I raise my prices. I don't care if my close ratio goes down because I'm not spending so much money just getting the proposals out. Make sure you watch this video here where I talked about getting this red line that fixed expenses down. Because if you can do that, you're gonna make much more profit. And that is the goal of business. Check it out here.