When to Raise Your Prices (Coaching Call w/ Mike Andes)

We are a very niche business. We offer one service and one service only, and that's mold removal, nothing else. And not mold, but moles. Like in the, in the yard.

Yep.

We're in our second year. We've grown it to 240,000. We offer two different plans for people to choose from. Either a yearly program or just a one time. We call it a quick fix.

Really the thing is, is, is it a scalable business when you're just one product, one niche, nothing else? Can we scale it to 5, 6, 7, $800,000 at a single location or do you think it's going to stay on the bottom? You know, like around 300, 400,000.

Like figure out your total addressable market and then figuring out like what percentage of that you reasonably think you can get is the important part, right? If moles are a big problem in your area and 10% of houses have it, well, we have a big total addressable market, huge amount of competition. So I think most of us underestimate two things. One, our total addressable market. Because everyone's like, I have like dominated markets. Like, look, you have a million dollar business and there's probably $20 million worth of revenue being done within 10 mile radius of you, for example. And so most of us underestimate the total address of market and then overestimate the percentage of that market share that we control. And so the question is like, you know, do you dominate in terms of every single company, every single house that has moles is using you? If the answer to that is no, it's like, okay, do we need to educate about our service? Do we need to get in front of more people? Do we need to create affiliate relationships with landscapers and lawn care people that are always in these areas but have no idea how to fix it? Like, I would be going that, that path. I'd have a B2B path. I'd have a B2C path. In terms of my marketing, I'd be going after 10, 20, 30 different landscapers and lawn care guys, sprinkler repair guys, specifically about like, hey, refer me, I give you a cut, etc, and I'd be going after them hard. But I don't think, I think the vast majority of us think we need to add more services. And the reason that that's so difficult is because if you add more services, you will make more revenue. I guarantee you yes. So the answer like, do I, if I, if I add more services, will I grow more revenue? The answer is yes. Same thing with adding more service. Area. The answer is yes, you will grow revenue. The question is, is that the kind of revenue you want? Because I really like the idea of having one service. And the question is, well, can I build a million dollar business? Simply comes down to is there a million dollars worth of revenue in your market? Right. And so I think the vast majority of us underestimate that. They're like, I think you could definitely build a million dollar business on just moles. Okay, cool.

Yeah, I mean, that's where that's. I've been doing it part time.

We've.

I've got another company this year and my wife has another company. We are selling her business so we can go full in on the mole stuff because we see the long term, it's really the residual side of it. My other business doesn't offer residual side. And so we see the long term. It's just, that's our goal. I mean, we service all of Middle Tennessee, so mainly Nashville. And so it is. We have probably about four direct competitors as far as getting into the landscapers. We tried doing that last year. What type of percentage makes it enticing for them to even want to, you know, reference us? And I think the biggest thing that I found out was getting to the technicians is insanely hard because it's not the people at the office that are referring us out, it's trying to get to those technicians. And we had a few meetings with some irrigation companies, but it was always with the general manager. And the general manager just said, passing it on. And lo and behold, they're probably not passing on their information. So I guess two other questions then would be like, what, What's a percentage base that entices a technician and how do we facilitate that and then how do we get to those ticks?

Yeah, So a couple of things. First off, what do you, what do you spend on customer acquisition cost? Like, what are you willing to spend? Like your highest. What are you willing to spend for a customer?

I mean, it's one of our services. The one off is 450 bucks for four weeks. I could probably spend half of that and be, okay, so 50 of that. If it's a yearly customer, their, their yearly value is 1500 bucks.

I mean, I could probably spend half of that too. If they said, if they were to sit there and sell something along the lines of that.

Yeah. Then I would be saying like 200. Right. Like, because, you know, your lowest package, you're going to be able to retain the cost of that 200 and still at least break even. So $200 for a tech. So, for example, you be like, hey, the business gets 100 bucks and the technician gets 100 bucks. All I need is you to scan this QR code on this laminated Q, you know, card. It's going to have like a mole on one side and a QR code on the other. You scan this with the customer. You fill out this very basic form. And on that form, it's your name and your business name. And I'm going to give you both a hundred bucks if they sign up.

Cool.

Okay.

And then you go to the business owner. They want a hundred dollars for doing nothing, and then you give it out to their techs. You're like, hey, can I just give this to your crew? They'll get a hundred dollars, you'll get a hundred dollars. You don't have to do a single thing, and it'll serve your customers better. Like, you have so much margin there to work with.

Yep. Okay.

Sweet.

Yep.

Cool. Go ahead, Edhar.

Do you think flyers still have as.

Good of a return rate as the online sphere does? Especially right now when business is slow?

Really just trying to get your name.

Out there and so on. It really comes down to the offer. Like, I can get a lousy flyer that simply just has a list of all my services and my phone number on it, and it'll convert extremely poorly, like 0.1%. I can take that same flyer, put a killer offer on it, and get 1 or 2% response rate. And so I think sometimes people judge not just flyers, but like Facebook ads. It's like, well, look, did you change the creative? Did you have five or ten variations? You try pictures and video, did you try change out the headline? Like, these are the type of things that the creative matters. And so the creative and the offer matter. And so I would, I would say for most people that say it doesn't work, I can prove someone in their market that has the right creative and the right offer, and they crush it. So I'm much more focused on, like, the offer and the creative. I would say, as a broad stroke.

In a lot of markets, it's cheaper to go direct to the consumer. Like, go knock on their door or do door hangers or give them a flyer, etc. Mostly because it's scalable. It's a numbers game. As long as you have a good offer and good creative on that, it can convert. Now, the thing is, you gotta have a strategy around. Okay, how many doors do I knock per hour? How many flyers do I hand out per Hour. You have to have a system in place. It's a little hard to track then like, oh, spend more money on Facebook ads, spend more money on Google. And so typically, if you have more money, I'm going online. And if I have less money but more time, I'm going door hangers, yard signs. A little more guerrilla marketing style. But we've also seen like some of our biggest locations will still scale up door hangers. It's simply a matter of like, how many door hangers do I knock per hour and what's my conversion on that and if I pay someone X amount per hour, what, what's my customer acquisition cost?

Okay.

There are billion dollar companies built on literally door knocking, solar, et cetera. So like, you know, it's not necessarily fun, but if you don't have money, it's definitely the, the route to go if you have the time to go knock on doors or the systems in place to be able to ensure that, you know, quality control is happening for people that are putting them out. Awesome.

Thank you.

You got it.

So I was looking at my numbers and I have, my average ticket is about $79 per yard.

Yep.

So we do about 100. We do 123 yards a week.

Yeah.

I got one guy that does it by himself and I'm trying to figure out at what point can I jump into the mix of like going out and helping him or working because I have another job. But I, I started the company, I wanted to jump into it. I had also we do trees as well and the trees pay for all that. But he just put his two weeks in, so I gotta try to figure that out pretty quickly.

Yeah, I would say. Was this your first year, Zach, or your second year? How long you been doing it?

Oh, I, it was my dad's business. So we're celebrating four years.

Wow. Okay, so.

But I think it's a matter real small. So like we're trying to grow it a little bigger.

I got you. Yeah. Like, I think it's two different questions. One is, you know, do you go full time? Second one is, do you hire an employee? You know how to hire an employee? Essentially, like this person probably has been with you for a while in the past and knows the routes, et cetera. So are you kind of questioning, should you just go ahead and be that person and jump in? Is that what you're kind of thinking?

I just can't justify leaving my full time job for this. I bought it from dad because he wanted to retire and it's been, it's been our family for longer than I've been alive. So it was trying to help them and make a little bit of money because I bought it with only 80 accounts. And we're up in the 120 now.

And we had.

Before the hurricane, we were doing almost 160. So we doubled in size in a year because the door flyers.

Yep. Yeah. So, like, I think it just comes down to, like, if you have confidence that you can double the business again, that starts to look very interesting in terms of you, quote, unquote, jumping in, like you said. I think if, you know, depending on what you're currently making and the replacement value of that, like, how much you have to make in the business to replace your income, it's likely that hiring someone is a better move. Right. So if you can. If you're making twice as much as what you would be, hiring someone to do the work, you should go get. Get someone to do the work. Especially if you create systems in place where you don't have to be there, you're probably not having to answer the phone. It's somewhat like on call. Like, you don't have to be super bothered throughout your day at your job. So, like, I would probably try trying to find an employee. I would say it'd be important to try to get some system of pay for performance so that way they are accountable to actually get the work done, gets, you know, get moving. Otherwise you're going to be like, you have. The employee is leaving now. Have they been around for, like, a long time?

No, it was my best friend, but he's moving.

But how long has he been with the company?

Oh, like a year.

Oh, okay.

Okay. So I trained him and we. It's. It's just such a simple route system.

Cool. So, yeah, so then I think. I think you could do that again. Like, it's like you're gonna have to find someone else, obviously. And, And I think creating the systems this time would be beneficial because if you're gonna scale how you train this person, et cetera, should be documented. So next time you can copy and paste. And it's not so much of a stressor whether they leave and you have to replace them or you're getting a second and a third and a fourth person. So I drew trying to like, hey, this time instead of just training them, I'm gonna actually, how do I document the system of training somebody so that you can do this multiple times in the future? That'd be my focus. And then if you're thinking about jumping in your time is gonna be much more valuable from a sales and like, management style in terms of your use of time. Cause your current job is a higher leverage than you out in field working. And so the only way to really jump into business and make sense of it is you start managing three, four, five people or doing sales.

Do you actually want to jump in into the business and actually do, like, run it, or is that the eventual goal or you're trying to avoid that?

I do trees for a living, so it kind of works. But like, I'm also. I'm busy with trees every day, so if busy, I'll send the tree guys over to help with the lawns for a couple hours. But it's not something that they want to do or want to do on a regular basis.

How. How much bigger is the trees compared to the lawns in terms of revenue?

We do about 30,000amonth with trees, and we do 10,000amonth with.

Lawns.

Do you think. Do you think the lawns is a distraction?

I get all my customers from my lawns.

Ah, perfect.

So it works really good together like that. But I can't justify jumping on a mower instead of getting out of a tree.

Totally.

Yeah. So I think. I think this is one of those things where it's like, this is top of the funnel. The goal is probably to get. You can get a customer much cheaper doing from lawns, and then you upsell them in trees. And so if you can create a system around hiring, that'd be my big focus. So that you can scale the lawn side, which then drives tons of leads the more profitable side of the trees. Okay, so it sounds like you have it pretty dialed in in terms like the route, et cetera. It's just like, how do I systematize the hiring process so it doesn't create anxiety when someone leaves? Because I want to be able to take a green person and make them profitable within one week. And so if you document this first one, it's gonna be painful because you don't have this now, but create that system on this one. So in the future, if they leave, or if you need a second, third, fourth person, as the business grows, you're just like, plug and play. And then this becomes your engine, your marketing engine for your tree service. Okay, thanks. You got it.

Am I good to go?

Go for it.

Okay, so when it comes to upselling, as far as. Is that something that the employees will upsell for us, you know, or we could even do it, but if the employees on the property Are they supposed to price it, or do we have to go out there and price it, or do you try to just do. Have them take pictures of it and price it that way?

Yeah, so it depends on what service you're trying to upsell. So if you're trying to upsell a service that's super basic that you think you can give standard pricing for, you could make that in the email or text message part of the deal, like pricing. Usually what I recommend is the upsell, text or email is simply just like, hey, we were. The crew is at your property. They thought they looked at your XYZ flower beds, thought you needed mulch, whatever it is. And I'm just trying to say. Getting them to say, I want an estimate. Usually. I'm usually not pitching them a price because, again, it kind of feels a little bit out of the blue for them. But if I'm just very cordial, like, hey, we write your property saw this might. Might be a need for you. People are very accepting of that, and they usually appreciate it. Even if they say no.

Yeah, okay. That. That's something on my side is just I'm. I seem to always be trying to train the guys or run them, which we don't have P4P implemented. So I feel like once we implement P4P, that'll free me up more, so then I can actually get to all the quotes and be more the sales guy. So. Yep.

And you could. You could give your crew, like, hey, like, it's 10, whatever, like $ amount per upsell, and then maybe you increase it if they. If they actually close. Right.

Okay. Yeah. Yep. I've got one more, and this was from a lady that kind of come up today, but I've had it in the past where, whether it be a complaint or just pricing or anything like that, they try to compare me or anybody else to other businesses. Right.

As simple as, you know, like, I'll use this as an example, which we do, for the most part, do card on files. But I've had it said before where, you know, I've never had another long company ask for a card on file. Why is that something y' all do? Or why do. Why should I do that? Right. What do you normally tell people or have your general managers tell people when they start trying to compare businesses?

I would just always agree with them. Like, if no one else is doing it. Yeah, you bet your bottom dollar we're the only ones doing it. That's why. Like. And then you turn to a positive, like, the reason we do is to save you time. The reason we do that is that we don't have to have an admin person and pass that to you. The reason we do this, we don't have to take checks to the bank. You don't have to write out checks and stuff gets lost in the mail. Like you just turn this around to be a positive thing. I just agree with them and make it positive. So if they start comparing prices, like, yeah, we're way more expensive and here's why. Like we do X, Y and Z and compared to all those other people, they don't do that. So like, I think if people start comparing you, I, I embrace it. I just like make sure you're better than everyone else.

Okay. All right.

I have a couple questions. So this year we. Money on the Bank. We got 211,000. I'm keeping 400 for next. No, I'm keeping 40,000 for next season. For the beginning of the season in debt, we have 80,000, which is a few, a few brand new mowers and a new truck. Thinking about just be completely debt free and I would still have 91k that could be towards, could be put towards something else.

Now my question is, should I invest that money towards a new admin person or. Because right now I do everything from. I'm, I'm in a field with everybody. I'm doing maintenance, I'm doing paperwork. As you can see right now. Just so much work that goes along with it.

So I don't know what, what, what do you think would be the best decision if you were you at this point?

Yeah. So just so I hear you right, you have $211,000 in revenue. We have $40,000 in cash in the bank of the business. And we have another.

We have 2,211, 000 revenue on a bank right now.

Just sitting there, money in the bank like cash. Right.

Okay.

Okay. I thought it was revenue. Got it. Okay. Yeah.

So just. And so I'm keeping 40,000 to start off the season. I got you 80,000 in debt. So we have left over 91k.

I got you.

Where do I go about that now?

So the question is like you're going to pay everything off. It sounds like using the cash, thinking about it.

Yeah.

What percentage of interest are you paying on the trucks and equipment?

Trucks right now I believe is 7.3.

Okay.

The equipment is nothing. Is like 1.1.6.

So yeah, personally I'd probably keep the debt on, on the equipment if it's, if it's, it's 1.6. Like, it's just inflation is higher than that. If you have interest rate underneath inflation rate, typically you should just keep the debt. Okay, so that would be my recommendation. Assume you're aggressively trying to grow. Now, if you're like, hey, I don't really need to grow. I just want to be risk free, then, yes, pay off the debt. Right. There's a. There's a sense of like, hey, I own everything. I don't have debt. That is nice. But in terms of who, who what to do with the rest of the money, I'm apprehensive to, say, an admin person because you're only doing 200,000 revenue now. What do you think you're going to do in revenue next year?

No. So this year, gross, we did just around 756,000.

Oh, okay. I apologize. I kept hearing 211 is your revenue. My bad. Okay.

That's what I have in cash.

Okay, that makes way more sense. Okay, fantastic.

All right. We were.

I was out in a different field. Okay. We got 211,000. Bank got the 40,000 that you want to keep for next year, plus the, the $90,000 of debt, and we got a $750,000 business. Okay. We are tracking. Okay. Do you want to keep growing or do you just want to make more profit?

So this is. I do want to grow, but I want to grow slowly and be able to control everything, not just go balls to the walls and lose my mind. Because as of right now, I still lose my mind. Mean just dealing with either clients or employees.

Okay, cool. So I. I know, I know. My recommendation is then, okay, great, I would raise prices across the board at least 15%. And then I would use that profit that's going to be created by. If you hit $700,000 and increase revenue, increase your prices by 15%, you're literally going to generate $110,000, a straight profit. That money is going to go to an admin person. And then if you want to keep growing, you're getting an operations person. Now, right now, you're juggling sales, operations and admin yourself. If you got one person admin, it's probably going to cost you 60, maybe 70 grand a year with taxes, et cetera, benefits. 70 grand. You can pay for that with one price increase. So by raising the prices, you're going to, a, make the business more profitable, and B, you're going to get some sanity back by having admin covered. Because at 750,000, you need an admin person.

That's what We, I just got done with all the paperwork today and that's what we closed at 756. But it's everything I've been doing everything non stop from. I've been working Monday from Monday.

You have the cash like this. This is not, this is not even a question. This is like if I was talking to you as my brother, I'd be like, you raise prices immediately or when you hit capacity, like are you at capacity right now? Would you need to buy more trucks if you're.

I'm not a capacity right now. I have.

Could you sell the truck that's new and get by?

No, I would be a capacity if I sold the truck that's new. The reason why we had to grab a new, a new truck is because the truck that we had, the engine went. So it was more, more expensive to put an engine on an old truck than to buy a new truck, you know. So I think it was to put a new engine on the truck was going to be around 10 grand. I'm like, I'm just going to put the thing right towards a new truck. And then, and then I also have my personal truck that what I'm doing this year is putting a dump insert, a dump insert on the pickup and send it out to the guys, you know, and just, yeah, going at it.

This one's easy because you're not trying to go hyper growth and you're like, hey, I was going to be profitable. I want to grow slowly. I say you raised price by a minimum. Minimum 15%. I would actually shoot you for like 25% but that might be scary for you. We did 28% this last year and I lost 10% of customers. Okay, okay. Highly recommend you go above 15%. Do not do a 10% price increase. Minimum 15%. You do that, you will immediately drive enough revenue to the bottom line to get one full time admin person and have more profit in the business. One full time person. Taking that off your plate, Go ahead.

I do, I do raise prices every year. I go just under 10% every year.

No, we're doing 20. 20 is the difference between 40 and.

Yelling at me, huh?

Yeah, but who cares? You're going to fill them up. You're going to fill up with more customers in spring rush. Like wait till spring rush when you're just bombarded in work. You have so much work coming in, you can't handle it. You're losing your mind. What you're going to do is you're going to do two things. One, you're going to schedule your price increases and tell customers and hey, in three weeks your prices are going up. And at the same time you're going to hire an admin person to start on that day. And now you will know that that price increase will cover the cost of that admin person 100% and give you more profit in the bank. So you're going to get your sanity back. And by you getting your sanity back, you'll make the business more profitable in five other areas and make it more efficient because you have the bandwidth to actually think about pay for performance, think about marketing, think about sales, think about your website because right now you're wrapped up in admin and operations, correct?

Yeah, very, very true.

You will replace the customers you lose that are mad at you. And yes, 5% of them will freak out or whatever. You'll, you'll lose them. Whoop. To do like let them go to voicemail. Goodness gracious. And then what you're going to do is you're going to take all that extra money, go hire an admin person and then you have more bandwidth to go do sales and replace those five customers in a matter of three to four weeks. Just do it. None of this 5, 6, 7% increases stuff. 20% baby, let's go.

I do 10 just on the 10% guy.

Just not a chance.

But okay. I'm just taking notes right now. I really appreciate you taking the time. Thank you.

You got it.

Thank you very much.

If I can go ahead or somebody else but I'd, I'd like to ask. All right. So somewhat similar business. We're. I think we're gonna be around 620 or something like that after we do taxes and revenue and all that.

I had a part time girl that was working about 15 hours. She was helping me on the books and stuff like that. I have a bookkeeper and all that.

As far as I want to see where you say I just did quick math and I would say we're probably running like 4% profit now. We're, we're also growing. I'm not really concerned about profit. I'm just trying to grow. And I will say this. We're. We do multiple services. We don't just do one service. Right. So I know that's not what you're a fan of but I just enjoyed the different, different aspects. I would. We're going to be around 120000 just in debt on equipment and trucks and well, not even trucks. All the trucks paid off, just equipment.

My question is Is I'm not really concerned about losing customers. I think like you said, if we raise prices 20 or something like that, we would still keep most of them. I'm just curious, what is your thought? My goal is still to continue to grow, to max out our trucks and then from there I just buy more trucks or whatever I do. Right.

So, okay, so we're talking about both side of our mouths because the first. Here's the first thing.

Yeah.

We have said, like, unless you hate money, you should probably raise prices. Because you just said that we will raise prices by 20, not many people will leave. So the only reason you wouldn't raise prices if you hate money.

Okay. Yeah.

Now the other thing is you are speaking on both sides of your mouth in terms of saying, hey, we're gonna, we want to grow. But I'm also doing to do a very profit driven thing, which is raise prices, which is counterintuitive growth. Correct. And so I would get laser, like focused on which of these paths am I on. If you want to increase profits when you hit capacity, you do not buy another truck, you do not hire another person, you raise prices, then. Okay, it is a binary decision in terms of when do we raise prices and so whether it be next spring, okay, we're maxed out, we need another truck. Now you're at a point to make the decision, am I in profit mode or am I in growth mode? Growth mode is going to be I go buy a truck, I keep growing this thing. Let's go. The other alternative is I raise prices by 20%, I lose 10% of my customers and I take a month or two to replace them with other well paying customers.

Yeah. No.

So saying that I want to grow and I want to raise prices, you're kind of. Usually I see someone that's unclear in terms of do you want to make more money or do you want to grow more? It is a binary decision. And when you hit capacity, you have the decision to make.

Yeah. It's one or the other. You can't be in the middle. Right?

Yep. Then you run a fast growing company with no cash. Yeah.

Yep.

All right, that's a wrap.