Why a 90% Close Rate is Killing Your Home Service Business

Everyone wants to grow their home service business fast and everyone wants to do it without running out of money. Today, I'm going to share you the secret code of how to grow fast with a credit card and within 30 days be able to grow the business faster than you ever dreamed. My name is Mike Andes. I'm the founder of Augusta Lawn Care and HomeWorks, and today I'm sharing a secret code called the 70-30-20 Rule. So if you're first starting out the business, I believe that this rule is the only rule you need to be able to grow very quickly. Now, at Augusta Lawn Care, I've seen over 200 locations get started, and there are some locations that can take 2, 3 years to get to $500,000 in annual revenue, mostly recurring revenue. I've also seen locations that get there within a matter of a couple months. The difference really comes down to whether or not the owner uses this code. So let's break down each of these 3 numbers and what they mean. So 70 is 70% close rate. The reason I want, when you're first getting started and you're trying to grow fast, to be at 70% close rate is it's the perfect balance between growing very quickly and getting your price low enough where a lot of customers are saying yes, but not so many customers saying yes that you're leaving money on the table. What I mean by that is if you had a close rate of 90%, you're like, well, if the goal is to close as many jobs as possible, I should have a 90% close close rate. No, because if you had a 90% close rate, it tells me that you're leaving so much money on the table because there's not enough people saying no. I really want your close rate to be around 70%. Why? Because I believe if you had a 90% close rate and then you raised your prices by 20, 25%, you'd probably get to about 70% close rate. That extra 25% of revenue would just go into marketing and be able to fund all the advertising needed to keep the top of the funnel busy. And so I don't believe that you want to close every single job or 80, 90, 95% of your estimates and you're like, well, I'm hypergrowth, so like I'm going to reduce prices, I'm going to close every job, I'm going to give discounts. Great. I don't want your close rate too far above 70% as an average over the course of a few months. There might be a month or two where you go 75% or 76%, but I don't want over the course of a year, 85%, 90%, 95% close rate. It just means that you're so far underpriced that if you just raise your prices and then put that extra money into marketing, you'd get way more leads than what you're losing by raising the price and reducing your close rate down to 70%. So the first number is I want your close rate to be around 70% if you're trying to grow fast, not above it, but not below it. Don't tell me how profitable your $100,000 annual revenue business is. And it's like, oh my goodness, I'm 60% profitable. But if you're only doing $100,000 in annual revenue, I need you to grow fast. Assuming that you want to grow quickly past $500,000 in annual revenue, we've got to have enough jobs being closed to fill the schedule, book out 2, 3 weeks, and then hire someone. And if your close rate's at 30, 40%, I would consider you in profit mode, meaning you're not trying to grow. Ideally, I'm trying to usually keep my close rate between 50 and 70% if I'm trying to grow the business. If it's above 70%, I need to raise price. If it's right above, right at 70%, it's the perfect marker to be as growth-oriented as possible and pro-growth and offensive as possible with my pricing, with my follow-up, with my sales system, but also not so high that I'm leaving money on the table. All right. 30. This is 30-day customer acquisition payback. In other words, when I buy a customer, I spend money on door hangers, Facebook ads, Google ads, yard signs, whatever marketing you're using. I want to be able to repay myself the customer acquisition cost within 30 days. This is where the credit card comes into play because most of us are able to get a credit card that you don't have to pay any interest on for 30 days. Meaning I get an interest-free loan from my credit card, assuming I pay it off within 30 days. So if I'm able to go out and get a customer for, let's just call it $100, that's my customer acquisition cost. You're like, well, my leads only cost $30. Well, if you're closing 1 in 3, there's about $90 customer acquisition cost. If you have a $50 cost per lead and you close 1 out of 2, that would then assume a $100 customer acquisition cost. The bottom line is the only thing that matters in business is what is money in that's customer acquisition cost and money out. That is lifetime value of the customer. This is the whole equation as to whether or not your business is profitable. The biggest thing is how quickly can I get this customer acquisition cost recouped? Because you might keep a customer for years and make money in the long term with them. But if it takes you 6 months to recoup the initial $100 that you put into buying that customer, in other words, advertising, marketing, and spending money on ads to get that customer, it's gonna be very hard to grow fast because it takes so long to get that money back. So if I give $100 to Facebook and I get a customer back from them, I want to be able to recoup within 30 days that $100. That's where the 20%, this is where the 20, the last part of the code comes into play. Because how much do I actually need to make from the customer in order to be able to qualify for the 30-day customer acquisition cost money back? Or payback. And that is where the 20%— I'm going to assume a 20% margin. So now when I go pay $100 in customer acquisition cost, I'm going to assume a 20% profit margin on any revenue that I'm doing, meaning I need to get $500 of revenue from the customer in 30 days. How do I know that? Because if I have $500 at 20% margin, that gives me $100 in profit. And that pays back my customer acquisition cost. Now, I know this is a quick and dirty way of doing it, but I like to keep it really simple because most of us don't know exactly how much profit we got back from every single customer. But if you can just use the 20% margin rule as a rule of thumb to know that 5 times whatever your customer acquisition cost is, is how much revenue you've got to earn in the first 30 days. We already know that we're trying to close enough jobs at 70%. We know that we want to get back our customer acquisition cost within 30 days. We've got to figure out how much revenue do I need to make from every customer in the first 30 days. And to do that, we're just going to assume that we're going to make 20% profit. Now, I know that not everyone's doing 20% profit, but it's a good rule of thumb. So if we have a $100 customer acquisition cost and then we go ahead and assume we have a 20% margin, you divide that by 0.2 equals $500 of revenue in the first 30 days. And if I do that, I'm going to get 20% profit equals $100 of profit. This profit pays back the $100 customer acquisition cost. That means I can go spend this $100 on a credit card. And by the time that $100 that I paid Facebook or Google or Doorhanger or whatever, by the time I have to pay them back with my credit card balance, I'm able to go get the customer and get enough revenue for them to be able to be profitable and pay back this $100 before my credit card statement starts racking up a bunch of interest. Now, this is what I like to call the infinite money glitch, because if it takes you— let's just assume for a moment that we don't do this. Instead of making $500, let's assume that we just sell this customer one service and we're selling them a recurring service of maybe $200, $200 per month. Okay, well, if we assume 20% profit, that's going to mean that we make $40 of profit per month from this customer, meaning it's going to be 2.5 months before we ever pay back the customer acquisition cost, 'cause $100 is how much we paid to get the customer. I'm getting $40 of profit per month. Again, just as a rounded average using the 20% rule. And that means 2.5 months before I even break even, before I even can pay back the customer acquisition cost. Meaning, if you ever lose the customer in the first 2.5 months, you actually have lost money on this customer. Because until I pay back this $100 that I paid to get the customer, I am in the red. And most of your churn for recurring services is going to actually happen in the first 3 months. A lot of times when people say, "Well, Facebook ads don't work, Google ads don't work, advertising doesn't work, I just do word of mouth," the reason they're saying that is because they lose too many customers too fast. And so when they spend money on advertising, they never actually make this money back, and it feels like the more they spend on ads, the less money they make. The more they spend on ads, the less money they have in their bank account. And it's true, because their service is so bad that they're losing 40, 50% of customers in the first 2 or 3 months. And in every single one of those cases, they're actually losing money, 'cause they're paying $100 to acquire the customer, and they're maybe making $60, $70, or $80 in profit because they lose the customer so quickly. Now, there's two ways to fix this problem. One, reduce churn and keep customers for a lot longer than 2.5 months. Do a better quality service, answer the phone, have better customer service. These are things that improve the, the churn or the amount of customers leaving so that they last longer than 2 or 3 months. Now that we've established that, the other option is to just make sure that within the first 30 days we just sell more stuff to the customer. And this is the thing that most people avoid. It always makes sense to make the customer experience better. In the service industry, we all kind of inherently understand that doing a better service reduces churn and allows that customer to stay past that 3-month mark and allows us to be able to make money on the customer after we've bought them using ads. The thing that is a little harder to understand, or the thing that we a lot of times will avoid, is the fact that we can also just pull money forward into the first month and be able to in the first 30 days pay back that $100. I've got to figure out on that $100 customer acquisition cost, how can I get $500? You're like, well, I only sell certain services on a weekly basis. Great. What other one-time services could you sell in that first month? This is a big reason why Augusta Lawn Care is going into treatments is because a lot of times our average mowing customer is paying us $150 to $200 a month. The problem is that is going to take me 2 to 3 months to recoup my customer acquisition cost, which means I might keep them for a couple years on average. Great, but it's going to be hard for me to grow fast because now I've got to have enough cash on hand to bridge the gap in those first few months. I'd rather in the first 30 days be able to get all that money back to me. So what am I going to do? I'm going to upsell. I am going to make sure that I have an additional service that I can upsell customers a season-specific offer with a season-specific service. And this requires you to change the whole culture of the business. Just this last week, my wife and I, Brianna, we bought, we bought a house. It's inside of the service area for one of Augusta Lawn Care locations. After the first service, we received a video sent to us via text message and it just said, hey, this is the general manager and the crew made this video at your property and wanted to know if you would like us to take care of the flowerbeds. There's a bunch of weeds in the rocks as well. We can take care of it all. It was amazing. And what they do is they use the Field Force mobile app from HomeWorks. They shoot a video, the crew does shoot a video, they attach it, it's all compressed inside the app. They don't have to send it on WhatsApp or YouTube or anything like that. It just compresses right into the app and then they mark it as, hey, this is an upsell. The general manager just looks at the dispatch board and sees, oh, there's an upsell for this customer, clicks on it, takes the video, drops it into iMessage and sends a template that says, hey, this is what the crew said you needed. This is the video showing the actual problems. So Brianna just got a text message with the video from the crew pointing out all the weeds in the beds, what they could do to pull them out, put down some mulch, and the general manager upsold her into another service. That service will cost about $600 to $700. It's going to include weeding all the beds, spraying all the rock, and probably installing some mulch in the front, front flower beds. That $600 or $700 allows us to get past this $500 revenue in the first 30 days. And now instead of just making— let's just call it $150 or $200 in the first month, they're going to make $700 or $800 in the first month. This is why having just a one-trick pony, one service can be difficult to make this happen, especially if it's a recurring nature with a low-ticket item. I want to be able to sell customers a service that they need in the first 30 days. That's in addition to the core offer that they came for. So if they came for mowing, I'm going to know the thoughtful upsells that I could sell them. I could sell them mulch, like flower bed maintenance. That's what they were selling us. We could sell them treatments. This is why Augustus is getting into treatments, because for some reason, treatments, people are just okay doing an annual package and paying for everything upfront, $400, $500, $600, whereas for mowing, they would like to be on a more of a monthly or weekly basis. So treatments, we can do an annual package, get all that money upfront. The other alternative is something like bush trimming. I believe that whatever your service is, and I'm just using Lawn mowing is an example and lawn care is an example. But whatever your core service is, this is your gateway service, the one that everyone shows up for, that everyone thinks they need. I want to be able to promote this and advertise this one. Why? Because I get a really low customer acquisition cost. Generally right now, this time of year, we can get them for like $30 to $40 for a mowing customer because there's high demand. I'm then going to make sure I grease the gears using this upsell culture into these other thoughtful upsells that I can sell them in the first 30 days. And that is how we get the infinite infinite money glitch. We take a video with the crew, we attach it to Field Force, then the office is able to quickly see all the upsells for the day, send those out to customers. And it also, by the way, the general manager doesn't have to go out to the property. They got the video from the crew. So if the customer's like, yes, I would like mulch installed, great. The general manager sees the video from the crew, is able to make the estimate, and then they actually get a bonus for being part of this upsell culture. If the customers accept, an upsell that they propose out in the field, they get extra money. Now, another way to be able to get the $500 in revenue, if you're like, it is impossible for me to be able to sell another service. For example, you're like, I don't want to get into anything besides a very simple service. Okay, I'm on board with you. There's a few ways that we can pull money forward to make sure that you are not financing the growth of the business, but rather your customers. There's a couple of ways. First off is prepayments. It is common in most industries to do the work and then get paid. There is no rule in most states saying that you can't just require that they pay before the job is done. And this might mean more education. This obviously adds a lot of friction to the sales process. But if you're struggling to grow because you don't have enough money in the bank account, why not get prepayment? So, for example, if you can only get $100 a month, ask them, hey, for $1,000, you'll get 12 months of service. So you save $200 if you pay upfront. Now I'm able to take this $1,000 and go buy more customers. This is what allows you to grow fast is by pulling the money forward. You got to be careful with prepayments because you still got to deliver on the 12 months of service in this scenario. And if you run out of money, you got a big problem. So be careful that you're not robbing Peter to pay Paul and like, oh, I got to get the $1,000 so I can go like pay off these debts and like pay for fuel. And then all of a sudden, 8 months later, you're struggling to deliver on service. Be very careful. However, if this $1,000 allows you to go buy 4 or 5 other customers and grow the business substantially faster, that's the type of momentum you can use to grow very quickly. Prepayments. Another one is deposits. So if you're doing project-based work, I never want to be financing a job. In other words, I never want to be buying materials, getting direct labor, subcontractors, or any direct cost associated with a job that's not already the money given to me by the customer. I just see consistently when it comes to project work, because you might be like, well, I don't do recurring work, I do project work. Great. You should never be spending— let's just say it's a $10,000 job. I don't want to be like, okay, I'll get $2,000 upfront to secure your job on the schedule. Great. And then at the end you'll pay $8,000 once you're happy. Sounds great for the customer. The problem is you had $3,000 worth of materials, $2,000 worth of contract labor, and $3,000 worth of other expenses that went into that job. You are deep in the hole, in the red, and you're financing the job. This is why the bigger the jobs get and the more jobs you get, you make less money. You have less money in the bank account because your cash flow is out of whack. And so this is why inside of HomeWorks we have the prepayment option where right next to the deposit, they can just pay for the whole invoice upfront, the entire job, because a lot of people don't want to pay a second time at the end of the job. Like, I'll just pay the whole thing upfront. About 10 to 15% of people just pay for the whole job upfront by having that one button and also having deposit thresholds where before you even get notified that the job has been accepted, they already have had to pay the deposit if it's over a certain dollar amount. So for example, we just have it where it's like anything over $500, I want 50% down. If it's like $150 for a recurring customer, quick upsell, great. Throw on next week's schedule when they're at the property and we'll bill them next week. That's fine. But for any larger job, I do not want to be financing all the materials, all the labor, any subcontracted labor. Those are direct cost or cost of goods sold. I don't want to be funding those on the project. And so I'm going to require that before I even see an accepted estimate notification, that they have paid the deposit. So this is the infinite money glitch. This is the 70-30-20 rule. 70% close rate. Any lower, I want you to get more aggressive on your sales process, your follow-up, really honing in your automations with text and email. 30 days is all you have to recoup the customer acquisition cost and to make sure you actually have a revenue dollar amount that you're targeting. We're going to assume a 20% profit margin. So take your customer acquisition cost, multiply it by 5 or divide it by 20.2, and then you'll be able to come up with how much revenue you need to make in the first 30 days. And if you do this, you'll be able to grow with a credit card without getting any interest, and you'll be able to grow very quickly in your home service business.