this almost put me OUT OF BUSINESS!

Hey, everyone, it's Mike Andes. And today I'm going to be breaking down the true cost to your business to not closing estimates. A lot of people only look at their profit and loss statement. What they don't look at is the money that never came in because they didn't close, the estimates that they went and did bids and proposals for, but never actually closed the job. Now, today I'm going to. Just for the sake of example, I'm going to use Keith Kalfus in a video he recently made, and he talked about where he got 300 leads and phone calls coming in, and that became 30 estimates. Estimates or proposals that he would send out to customers. And then out of that, he had a three jobs that were actually sold. Three jobs sold. So literally 1% of the people that called him converted to jobs. And then 10% was his close ratio, going from 30 estimates all the way down to three jobs that were accepted. So let's go ahead and play the clip again. As usual, this is not about Keith. This is not about trying to pick on him. All of us can learn from this. I just wanted to use his example because I know so many people watch him and learn from his teachings. And I want to break it down a little bit more. Here we go.

We did, out of 300 phone calls, 30 in person quotes and only closed three new jobs. Could you imagine taking 300 phone calls and only closing three jobs? You'd be like, that's insane.

I closed 90%.

We took 300 new phone calls, qualified 30 of those. Right? So that means that literally 90 out of 100 phone calls, we conversate with them over the phone, and we have a script. And if the customer is not a good fit, we figure that out over the phone before driving to their property. And so we do like 10 quotes out of every 100 phone calls. Right? And then from those, we would close about half of those 50%. Well, this brought the close rate all the way down to 10%.

All right, so basically what Keith does is he has 300 calls come in, and he actually has a calling service that will take these 300 calls. Now, what I want you to realize is that qualifying 300 phone calls costs money. It's not free. So if we actually break this down, let's look at the cost this 300 leads, let's assume that each phone call to qualify, the customer is going to take, let's just say six minutes. Okay? So six minutes times 300, that's going to be 1800 minutes of just qualifying the Customers. Now, he pays Jill's office to answer his phones and they charge about a dollar and fifty cents per minute. It's as high as $2.50. But let's just say say $1.50 for the sake of this example, to be conservative. So if you multiply 1.$5, multiply 1800 hours, literally the cost of just taking those phone calls is gonna be $2,700 just to take on those leads. So what I want you to realize is that if we're gonna look at a cost of $2,700, $2,700, that means if we have a 20% profit margin, that means we have to multiply this by five, multiply by five, and that's gonna equal what 5,13,500 do of revenue that has to be created in the business at a 20% profit margin in order to get $2,700 in profit, which is just going to pay off the cost of accepting those 300 leads. And so the reason I'm making this video today is because some people will say, okay, I need a lot of leads. No, you don't need a lot of leads if you're only going to close literally 1% of them. Okay? If we're looking at 1% of these jobs, of these leads becoming actual paying jobs, look at the cost it's having on the business to just take in the lead. Now the other thing, this was just for the leads, just to qualify the leads, make sure they're a good fit. And I think Keith is doing the right thing here because he's not trying to grow his business really big. He's been very clear about that. He wants the best customers. He wants customers are willing to pay a premium price. And he's doing it right for his business. But realize that qualifying leads will still cost you. So $2,700 is just to qualify the leads. The other thing he's got to do is go do 30 proposals. Alright? So he specifically said, hey, I did 10% of the leads that came in. I was like, yep, they're a good fit. And I'm going to go do 30 propos. Now, if, let's just say it takes an hour of his time to go do a proposal, meet the customer, create an estimate proposal in terms of pricing and all the rest of it. So if we do one hour per estimate and let's assume that he charges, let's just say $70 per hour. So $70 per hour multiplied by 30 estimate proposals, again, we're coming out to $2,100 is the cost of making these leads. These people that are qualified to actually go get that proposal sent to them. Okay, so we literally, before we even have done any work just to qualify these 300 leads, which is a lot of leads in one month, and then to actually go do 30 estimates, because instead of working out in the field for 30 hours, he's going to go do, you know, go do an estimate that's $70 per hour he could have got. Otherwise. We're literally $2,100 for the estimate proposals, plus $2,700. We're looking at approximately $4,800 per month that is costing us to get absolutely nothing done yet we haven't even done. Now, if we look at $4,800, let's just say it's $4,800. Now if we are multiplying that by a 0.2 or 20% profit margin, then we literally have to make like almost $25,000. Let me just round down like about $24,000. Okay? Just in revenue. You've got to make this in revenue just to cover the cost of the 4800 to just qualify and get estimate proposals out. Now, the reason I'm saying all of this is you can't have a 10% close ratio. And this is why Ke changes in his business and did the right thing by making sure that this number, his close ratio improved. He can no longer have a 10% close ratio. In my opinion. If this close ratio right here is under 20%, you need to adjust something. Now, pricing is the easiest thing to adjust quickly. And that's what Keith did. He reverted back because this number used to be 50% for him. He raised prices and it dove all the way down to 10%. So he knew right away there's a direct correlation with his pricing, so he changed it right away. There's other things you can change to increase your close ratio, like response time, automations, perfections, professionalism, your website, etc. But what I want to focus on today is this. If you have under a 20% close ratio, it's probably never going to be a profitable business simply because there is cost to getting estimates. There is cost to getting proposals sent out to customers, taking the phone calls, all of these leads. So the question is, what can we do in order to fix this problem? Like, man, I'm getting all these leads, all these leads are coming in and my close ratio is low. All the rest of it, this is what I would recommend doing. Instead of having 300 leads coming in the top of the funnel. What I would suggest is how do we qualify the customer on the website prior to them coming to be a phone call? Because this is costing us money every single time someone calls, Every time someone submits an estimate request form, can I make sure that my service page on my website is dialed in? Can I make sure that the estimate request form, estimate request form on my website has enough qualifying data already? Asking what services they want, asking what their budget is like? I'm not a big fan of, of having big estimate request forms with a lot of information that the client has to input. If you're trying to grow and expand really quickly, but if you're trying to weed out literally 99% of the leads that come in, I would recommend that before they even call you, they have to go through some sort of process. I would probably disable the phone calls so they can't call. They have to submit a form, and on that form do all the things that you would otherwise do on the phone call so that ideally, Instead of having 300 leads come in, I would love to see him have like 50 leads come in. Because then out of those 50, he can still have the same amount of even if he got those same three jobs, at least now he's more efficient because he doesn't have to spend $4,800 on getting all these estimate proposals out, all of these phone calls out. Because now out of those 50 leads, guess what? 30 are gonna be estimate proposals. So I'm only gonna lose the 20 that maybe I don't want because of whatever reason, but I'm still gonna get those 30 proposals that I need in order to close those three jobs. Now, again, that's just fixing the top of the funnel. So right there, we just fixed the top issue, which went from 300 down to a 30 estimates. So literally 90% drop off here just because they were not qualified. And so how can you qualify them before they even become an estimate proposal without having to call you, contact you, submit an estimate request form, do this on your website, Design your website in a way that is very clear. Which customers you want to serve, which services you want to offer, so that people are not calling you and becoming leads and wasting your time and money trying to get estimate proposals out or just qualifying them over the phone or via email. So that's the first step. That's the way that we can fix this first issue. There are 90% drop off here. You can fix your website, take off the phone calls, let people just submit a Big form with their budget and whether or not they've done service with you before, whatever it might be, however you're qualifying the customer in this process. Now the next thing we got to fix is the close ratio. Now, I made an entire video about close ratio, how important it is. Watch that video here. I'll put it up at the end of this video. It's the most important thing. If you're trying to grow your business, especially past a quarter million dollars in annual revenue, you've got to have, in my opinion, above 20% close ratio. Anything less than 20% close ratio, you are leaving money on the table. And that's why Keith immediately put his prices back down. Because you're actually going to make more money having lower prices. But if you can have a 50% close ratio instead of 10%, you are literally getting five times as much business and you will make more money. So there's this perfect balance. I don't want this close ratio to be too high because if it's 70, 80, 90% and people who brag about that, I'm like, look, you're leaving money on the table. I'd rather you go from a 90%. I close every single job. And Keith alluded to this in his video. People saying that in the comments, like, look, that means you're leaving money on the table. You should raise your prices. So that way this close ratio does go down to more along 50, 40%. If you're in that maturity stage of your business where you're trying to get more profit from it, I'd like this number to be usually between 30 and 50%. Okay, this is for profit. This is when you're trying to maximize profit. And you're like, well, isn't everyone trying to maximize profit? No. If you're trying to grow really quickly, I like to see a 50 to 70% close ratio. During the phase when you're trying to grow really quickly, rapidly. Because this means you're not losing and being inefficient on the process of qualifying, getting estimates out, it costs money to drive out to customer's property, meet with them, then you gotta go crunch the numbers and you or an office person have to send it out. That costs money. And so just realize that getting leads costs money. You have to input them and then you have to qualify them. And then taking those qualified leads and giving them estimate proposals also cost you money. So you've gotta really, there's this balance of I don't wanna close too many jobs. Cause it means my pricing is too low and I want to raise price inflation's happening. I got to. But if you do that too dramatically, if you raise your prices too much and this all of a sudden goes down all the way down to 10% like it did for Keith, you've got to immediately react because you are going to lose more money in trying to take 300 leads all the way down to three jobs. You will not be able to make it an efficient and profitable business. I hope that was helpful. Watch this video here. Like I said, it's good to talk more about close ratio, just how important it is for your small business, especially in your first few years as you're growing to 250,000 in annual revenue.