Your Trucks and Trailers Are Killing Your Profit

So let's go and talk about Profit Mode and the $1 million lie that you've been told in the home service industry. So this graphic basically is this entire video and this entire summation of the book, honestly, in one picture. And that is we get off the growth mode addiction that all of us have been trained to be on, where you buy more trucks, you hire more people, you take on more debt, and you just keep growing. And I have constantly said to people, do not quit when you feel like there's chaos in the business until you have spent a full calendar year from January to December in profit mode, where you did not buy a single new truck and you didn't increase the number of employees that you hired. Now you're going to have churn of employees, but if you had 5 last year, you have 5 this year. Okay? This is what we call profit mode. When you, instead of buying more trucks, hire more people, getting more debt, you enter profit mode where we raise prices, we increase our profits, and we reduce our close ratio. Now, one key facet that's so important, this is why most people will not enter profit mode, is they are afraid that if they raise prices, they know that inherently their close rate will go down to some degree. They'll lose some customers, their close rate will go down. As long as you have a great website, as long as you have a great brand that's driving enough leads to replace churn, inside of your business, you should be able to at least maintain the number of customers you're serving. So the objective in profit mode is I don't spend money on ads as little as possible. Maybe during the slow season, you pay some just to be able to keep the crew busy. I'm okay with that. I don't want to be dipping way down in revenue in my off-season and dropping below 50% of revenue in my worst month compared to my best month. I don't want that. So I might spend some on ads, but the whole objective here is I don't spend a bunch of money on ads and that my organic traffic to my site, the referrals, and most importantly, the upsells that I'm able to sell my existing customers, keep my crew busy and I don't have to spend money on ads. But those upsells and all of those organic traffic and all those referrals is enough to replace the churn from my business that has a lot of recurring revenue. So if I have 120 customers and I'm at capacity, Capacity is when I must hire more people or get more trucks or I can't serve anyone else. That's capacity. And that would be growth mode. If I went and bought more trucks, hire more people and expanded my capacity to 200 customers, that would be growth mode. Profit mode is when I say, hey, look, I'm only going to serve 120 customers. I'm not going to buy more trucks. I'm not going to hire more people. I'm not going to get more equipment. I'm not going to keep advertising and growing to get more customers. I'm just going to raise my prices every single time I get above 120 customers. And your level of confidence to raise prices and go into profit mode every single time you hit capacity increases when you know you have enough leads to replace churn. And for anyone that's ever said they entered profit mode, which I actually don't know of anyone, but assume for a moment you have heard someone, I raised my prices, I lost a bunch of my customers, and more important, my close rate dropped way down and I couldn't close any more jobs. What they have done is they have not been able to replace their churn with the number of new leads coming in to be able to replace that churn. And so if I'm losing 10 customers a month to churn, people move, people pass away, whatever it might be, or bad service and they leave. I need to make sure I get at least 10 new customers, which might mean I need 20 more leads every single month passively from people seeing my trucks, seeing my crew, referrals, upsells. I might need those 20 leads 10 new jobs every single month in order to replace that churn. So you can mathematically look at, okay, if I turn off all my ads, would I actually have enough leads to just replace the churn that I'm experiencing every month? You got to run the math. Now, don't overthink this. If you're growing quickly, growth is a byproduct of having higher value than price. You're getting more customers because they're leaving your competitors or they're joining your service because they see more value than the price you're charging. That's why you have an increasing number of customers. So what you do is you raise the price, thereby cutting out the people who value your service the least, and then you make more profits. So you hit capacity, you're tempted, as you have in the past, to buy more trucks, hire more people, get more equipment, potentially go into more debt, but we're not going to do that. That treadmill has been well-worn in the home service industry. And people grow a $2, $3, $4 million business and hardly see profit. Work 60, 70, 80 hours a week in their business every single day. I see this all the time. And we somehow always think that on the other side of growing the top-line revenue, getting more employees and getting more trucks, somehow the business is going to get better. And so profit mode is a fundamental foundation cornerstone of the copy and paste millionaire. So warning, I believe that most people should build a business that does $800,000 to $1 million in annual revenue. Crossing $500,000, $600,000 in revenue, putting into profit mode, and then slowly growing it over the course of time as they raise prices to $800,000 to $1 million, having 6 to 8 employees, being managed by one person, either the owner or general manager that they hire. I think that the vast majority of people watching this should stop at one location at this size. And so as much as I talk about building a GM+ model and growing to 1.5 to 3 million, as much as I talk about copy and paste, I think that the vast majority of people should not do that. Instead, they should probably stick with one location that has $800,000 to $1 million in revenue, has a whole bunch of systems that we talk about, incentives for their team, and optimize for their non-business goals. I actually believe this. So as much as I write this book, I write this book for the successful businesses because these other 3 that I wrote, The Off Season, P4P, and Total Business Turnaround, is for struggling businesses. This one is for the per— the people, the 10% of my audience that is going to do multiple locations or grow beyond $1.5 million. But the vast majority of people, in my opinion, should just optimize at this size business, be able to take $200,000 in distributions after growing the business for 5, 7, 8 years, getting it to optimized profitability, optimized pricing, optimized simplified services, recurring revenue. And I do believe that the vast majority should not grow beyond that. So let's go ahead and do the math on profit mode versus growth mode. Now, there's a bunch of variables. I try to keep this as simple as possible. So if you're like, well, what about this, the variable? You're probably right. I'm just making a point here. If last year your revenue was $800,000 and your profit was $100,000, that would be a 12.5% profit margin. All right, so 12% profit. Let's assume your hourly rate is $80. We decide we're gonna keep growing this bad boy. Same prices, $80 an hour, but you're gonna have to buy 2 more trucks and trailer setups. So that's gonna cost you $100,000. You're gonna put $50,000 in cash and then get some debt, $50,000 of debt, to be able to expand the business. So you grow to $1.2 million in revenue next year. Let's go. 50% growth. Let's go. You're going to profit 12.5%, same exact amount, $150,000 in profit. However, you have to minus out the $50,000 cash outlet that you're going to have on that equipment. We're not even going to take into account the debt, just the cash outlay. Now you have $100,000 in cash instead of $150,000. On $1.2 million, $100,000 in cash ain't so much. We're not talking about 7%, 8% profit margins. Now let's talk about if we go into growth mode. Same exact business, $800,000 in revenue, profit last year was $100K, we had 12.5% profit margin. There's a lot of businesses at this size. Honestly, you're scraping by, last couple months of the year are good with cleanups and you wrap it up the season, you get to like $100,000 in profit. Awesome. Let's go into profit mode. $90 per hour. We're gonna go from $80 to $90. This is not a big jump, folks. I would recommend going to $100, and then this math gets really wacky, but let's just assume $90 per hour. We raise prices to all our existing customers and all new jobs that come in, $90 an hour. So because of that, we raised our prices by, what is it, like 12%, something like that? Which I don't recommend. In the book, I talk about raising prices by at least 15%. I like more like 20% plus. Let's assume we're just raising it by 15, wait, what is it, 12, 13%, whatever. We're going to grow our revenue to $850,000 in revenue. If we go from $80 per hour to $90 per hour, we make $850,000 next year. But we're going to make $150,000 in profit. And so our profit margins are now 17.6%. Because we just raised prices, we didn't buy more trucks, we didn't hire any more people. We just drew $50,000 in extra revenue and put it right to the bottom line because all we did was Send an email and tell people that their prices are higher. Last year at Augusta Lawn Care, the average location grew revenue by more than 27%, and we're on track to beat that this year. If you want to see why, go to augustalawncareservices.com/franchise and watch over 50 videos and case studies of different owners that took their independent lawn care business and turned it into Augusta Lawn Care. So let's compare these two. Profit mode versus growth mode for next year. If we go into growth mode, right side, $1.2 million revenue, cash profit $100,000, 8.3%. You're like, well, no, no, no, we made more profit, but we had the cash out. Great. But this is the pain that you're feeling in growth mode and why growth sucks cash. It also keeps you very cash poor. And the reason I talk about this, because people will quit when they have 4, 5, 6, 7% profit margins. And it happens all the time because it's so stressful. From a cash flow perspective. So 8.3% profit margin. Over on the left side, we only changed one thing. We raised our hourly rate to $90. In doing so, instead of $1.2 million, we only made $850,000 in annual revenue, but we profited $150,000. 17.6% profit. Not bad. And guess what? Next year, I'm going to do the exact same thing and probably get to 20% plus profit margins, which is the goal of the Copy and Paste Millionaire. Pretty cool. Make more money, have to serve less customers, have less employees, have less trucks to maintain. That's a business that I think most of us could run. Here's the thing, this actually hides the real problem, because next year, the person in growth mode that went to $1.2 million got 2 more trucks, hired more people. They're gonna have to increase their insurance, probably have to upgrade their shop space. By growing by 50%, you're gonna have to upgrade, probably double your rent. Hire a full-time salesperson, 'cause $1.2 million now, if we're gonna keep growing, like, we gotta hire a salesperson. And we're gonna get an office manager full-time. It's actually then that the crash crunch begins and margins drop. It's not actually right here. 'Cause we can survive this. We can survive this and we can continue to stay in growth mode. But what crushes you is when you have to then make huge investments in overhead expenses, like a, an estimator and all of a sudden, oh man, I have so many trucks, they're breaking down. I need a shop maintenance, like I need someone, a mechanic. Straight overhead. Office manager, straight overhead. And all of a sudden you're stuck at $1.2 million and you're making no more money. You're making less money than you were at $800,000 in annual revenue. And yes, eventually you'll pay off the loans. Eventually you'll be able to raise prices. And that's what I hear all the time. Eventually we'll raise the prices. Eventually we'll make money. Eventually we'll be in profit mode. But we keep growing. And if we actually boil it down to the brass tacks, is we're doing it because of ego. I know what it's like to have the trucks lined up along the road and everyone feels good. You do shop tours, you have your trailers all lined up. I understand that need to feel like you've made it, accomplished, especially when maybe when you were younger, you were kind of like the dumb kid in school. Maybe you dropped out, maybe you didn't finish, and you were considered the kind of like the black sheep of the family. I understand the need to then prove yourself with more tangible evidence that you're successful, like trucks and equipment, but it's not going to make you more profitable. And it's not going to build you into a business that the copy and paste millionaire method actually applies, where you have systems and procedures and healthy profit margins. It's just going to inflate the amount of equipment that you have, and that makes you look good in front of other people. And if you look at the posts on social media that do well in home services, it is the ones where they post equipment, is the ones that they post trucks, and everyone likes it. And I have nothing against that. I don't have nothing against the influencers that do that. That is fantastic for them. I am glad that they get new equipment, but 99.99% of us don't make money on social media. We don't make any money from likes. We don't make any money from people seeing our new equipment. The equipment is a tool to build the business, and the business is built with contracts, contacts, and customers. And those things come from marketing. Those things come from raising our prices. Those things come from systems. But if I— Take the same photo. I did this last week. I did a photo of equipment and then 2 days later, I posted a photo of an org chart. 100x more views was on the piece of equipment compared to an org chart. The org chart is the thing that will make you money, that makes the business profitable and allows you to sell this business one day to someone else who wants to be on that org chart. It is the thing that allows you to attract talent, allows you to be able to move people up inside of their career inside of your organization and retain great people. Not the trucks and equipment. The trucks and equipment are a tool for you to be able to get the job done and get paid by a customer. Profit mode versus growth mode. Also, not to mention, the owner in profit mode will have a longer tenured crew because you're not hiring new people. So if you look at the average tenure of your team members and technicians out in the field, just the average, If you have to go into— if you're in growth mode, you're hiring new people, which reduces— because they're a 1-month, 2-month, 3-month tenor— it reduces the average tenure of your team, which increases mistakes, which increases the drag on your high performers because they're training now, so reduces their efficiency. So I'm assuming in these examples that you stay at the same efficiency. Not true. Nay, nay. When you start going in growth mode and adding employees and adding new customers, You have chaos, more callbacks, more mistakes, more damage cases, less efficiency from your highest performing crew members. Also, not to mention, the owner in profit mode will have better customers. Why? 'Cause they're not promoting and doing advertising where the lead quality is gonna be lower than the people that saw your truck, that got a referral from their friends and family, that saw your Google reviews, that looked you up online. Those are better customers. Not to mention, the owner in profit mode will also be able to afford better compensation and benefits. Because now when you have doubling of your profit margin from 8% to 17%, effectively, and everyone just sells themselves on the fact that, oh no, like, I'll pay off the debt eventually and then I'll have better profit margins. But no one does. People quit before they ever get there. And so we're on this treadmill. If we actually boil it down, it's because of pride. Instead of just running a profitable business that has a few less trucks, has less employees, that doesn't do a bunch of marketing and ads because I don't need my ego to be inflated by people screenshotting and sending it to me and saying, your ads look great. I would rather just send out text messages and emails from HomeWorks and be able to get upsells of my customers where, like my general manager had last week, $8,000 of extra revenue within 24 hours from sending a text message. That same number of estimates accepted, I think it was like 18 estimates accepted, would have cost me Hundreds of dollars, thousands of dollars if I would have spent money on ads. But yet we go spend the money on the ads, we spend the money on the trucks, we spend money on hiring more people, getting more shop space and expanding revenue and never actually making profit. The whole objective of running a business is to make profit. It is not to buy more trucks and hire more people. It is to make profit. And then that profit allows and affords you to be able to do all the things as to why you started a business. Like taking your family on vacation, being able to afford when people get in a jam, be able to pay for their medical bills, being able to help your team, be able to offer benefits, be able to get them to the next stage of their career, be able to create an actual career path where for 8 or 10 years that they work for you, you can actually get them above minimum wage. That's what that chart actually hides. The $1 million lie is that success starts at $1 million. Because of that, we stay in this growth treadmill, grow at all costs, and we take on massive debt. Inside this book, I do not believe that. I do not believe that 7 figures is where success starts. I have seen too many times where business owners that run a $700,000-$800,000 annual revenue business, 4, 5, 6 employees, absolutely crushing on profit margins with a whole bunch of recurring revenue. Their, their sales are automated, their admin and backend is virtual. Their operations are clean, tight. Team members are well-paid because everyone knows exactly what to do and systems are in place. Alternatively, you can stop growing, make profit, and the business serves you, your family, and your goals. That is the million-dollar lie. And in the book, we talk about growing past $500,000 and entering profit mode. Because if you get to $500,000 in annual revenue and then over the course of a few years, keep raising your prices every time you hit capacity, Assuming that you have a great brand, you have good trucks, you have a website to drive leads to your business and replace churn, you'll be able to build a business that over the course of a few years gets to $800,000, $900,000 in annual revenue. You have 4, 5, 6, 7, 8 employees max, and it's very, very profitable. I believe the vast majority of people should do that one thing. And if you're that crazy and ambitious and entrepreneurial and you want to keep going, copy and paste that model. Instead of trying to figure out how do I then do a sales management position? How do I then figure out how to do an operations manager? How do I figure out how to build all of these other— Just keep doing the same thing. Copy and paste it. That's the entire essence of the book.