Calculating + Increasing Gross Profit in Roofing ( w/ Adam Sand)

How many companies really get past 10 and 20 million in the roofing industry?

It's somewhere between 0.75 and 2%.

They go past 10?

Yeah.

Oh, my God. That's incredible. Why is knowing your gross profit margin important?

It tells you how much money you have left over to run your business. If the customer doesn't see the value and they don't understand the value, then they're not going to pay you more for it. If we theorize that gross profit margin would include a commission. Right. Well, then how do we drive down our cost of sales?

Hey, how's it going? It's Tim Brown, and this is the Hook Better Leads podcast. And today I have Adam sand on. I think it's your third or fourth time on the Hook Better Leads podcast. So the. Probably my most frequent guest. How are you, man?

Hey, man, thank you so much. It's always a pleasure to come on. It's a great honor to, like, kind of serve the roofing industry in the way that I can, to just try and help people get past the level one and two problems, because, you know, we really try and get to those level three problems. And the more people that are getting past the level one and two problems, the better the industry is overall, 100%.

And I think, like, because you're very sophisticated on numbers, I think sometimes, like, people may hear you speak and feel a little intimidated. And so I asked Adam before we started to just kind of simplify some of these concepts down for us, because I know that he can go off on, like, a genius rant sometimes, and it's hard to follow. So we're simplifying. What. What are we simplifying today? We're simplifying gross profit margin and gross margin so that my. I want to get a little bit of your background before we move on, but, like, one minute of Adam sand background for those who haven't watched a ton of this.

Yeah. So basically, we're a consulting firm that does custom CRMs and custom software builds for the roofing and other industries. And essentially what we do is we take things that people already know and love, like Sumoquote or HubSpot, and we do things that will help them generate more revenue, understand their businesses, process and. And run, like, manage their businesses better.

Love it. I want to talk about gross profit. Why is knowing your gross profit margin important for a roofing company?

Well, it tells you how much money you have left over to run your business. If you read a very simple book like Profit first from Michael Wikalowitz, he'll talk about taking your profit first. And he has this like 5 bank account method that is essentially used to try and put money in boxes so that you know how much you have left to spend in these different boxes. You don't necessarily need to have five bank accounts to do it, but it makes up for having lesser quality accounting principles. And if you know your gross profit, then you know how much money is going to be left over and then you know how many bullets you have in your gun to go deploy in the effort of creating growth and scale.

So I'm just gonna be transparent right now. We've been working on getting like our overhead down. So, like at certain points in our business, and I mean, this might be dramatic or weird for the roofing industry, but for us it's like 35. We're trying to get it down to under 30%. Are. We have like a kind of a big office, you know, and a lot of, a lot of people. So it tends to be, you know, W2 employees. I wonder, I wondered out loud recently what the, the overhead percentage was for roofing. And I did get a lot of different answers. Some people, I think in the store, a little bit more of the storm market, we're Talking about like 10 to 15 or 15 to 20, those types of numbers. And then for people that do have W2, it tends to be higher and like the 25, 30% range in roofing. And then markup and profit, A contractor's guide says 20 to 46% is kind of a benchmark. So just to kind of like, okay, so that's one bucket is like the overhead bucket, and that's over here. And then is the rest of it gross margin?

No, that would be your net profit after that. Because what your gross margin is, everything is they call above a line, so it's above the line of cost of goods sold. So the challenge, right, is for roofers.

Is the, the shingles and the labor normally. Right.

And then you'll have some conversation and disposal. And then you'll have some conversation around equipment rentals. Right. Depending on, like, if you're going to do a larger job, you might rent a tele handler or a certain kind of disposal option. Right.

All of the stuff that goes into one specific job and is an expense for that job.

Correct? Right.

And so everyone that's working on that job too. Because even if you had W2, like Shinglers, you would count those as cost of goods sold, Is that correct?

Yeah. Because if you're going to spend, if you're going to sell a $10,000 roofing job and you spend $3,000 on material and $3,000 on labor. Well, now you have $6,000 of cost of goods sold. If you spend $500 on disposal, well, now you have a 35% gross margin, right. You're left over with $3,500.

Okay, so that's a really good way to look at it, right? Like the 3500 bucks, that's gross margin. And then overhead has to come out of that.

So overhead has to come out of that. The challenge is how many $10,000 jobs are you going to do? You're making overhead decisions on monthly or even annual basis, but you're not necessarily sure exactly how many ten thousand dollar jobs you're going to do. So that's the scary part, right, Is that your, you know that you're doing a 35% gross margin, which is great, or a 40% gross margin, which is what most roofers should be targeting. So you have to take your rate sheets that you're paying your subs, and you have to take your costs from your suppliers. And you need to use a tool, everything from a spreadsheet to, you know, our favorite sumo quote to say, apply a 40% margin to any costs I put into this job and then that will tell you what you're going to be left over with. But then you have to do enough of that because your overhead could be, let's say you do 30 of those jobs a month at the 3,500, right? So now you're left over with 30 times 3,500. So it's going to be 90,015. So 105,000 that you're left over with. Well, if your overhead is say 90,000 ish per month, well then your overhead is about 30% of your total revenue. But if you get 10 or 15 days of rain that month, now you're only going to do 20 jobs. So now you're only left with, I should have picked an easier number in 3570. $70,000 gross profit. And because your overhead is 90,000, well then now your overhead is 120%. Or, sorry, it's like 9. Now it's 40% of your net revenue. Yeah, but it represents more than you have left over. You know what I mean?

Before we talk about levers to increase profit mark, like gross profit mark, because there are obviously things you can do, I want to talk about two different, like directions you can go with this, right? Because I see a lot of roofers that take Option one, which is like, I'm just gonna go very low overhead in general, like, because it's scary, you know what I mean? That that amount of responsibility is scary if you have office employees and people that are going to be around no matter what. Or up here in Minnesota in the winter.

Right.

Like, having a bunch of people sitting around is terrifying, even if it's three months of freezing cold and snow and where you can't do installs. So that one method is just to like, keep overhead super, super low. Right. And then the other thing is, the other direction is like, all right, well, we have to figure out how to make as many jobs consistently as we possibly can, because I want to grow this company and I want to go, you know, I want. I want to get. I want to make my company big. I want to go past 10 million, 20 million. Question for you before we. So those are kind of some options, but, like, how many companies really get past 10 and 20 million in the roofing industry? Isn't it. It's got to be like less than 5%, right?

Well, it's about, it's about. Oh, I had the numbers on this. It's. I could get you the exact number, but it's somewhere between point 75 and 2% that are.

They go past 10.

Yeah.

Oh, my God, that's incredible. It's kind of like you think about personal income and I think, you know, like, fun to think about personal income sometimes. Like, if, if you go past, I think there's like 300,000 or something like that. Like, you're in the top 5%. I think it is.

Yeah. They talk about it with the, with the tax stuff in the government that there's no new taxes on people making under 400,000, which represents the top 1% of SOC.

Yeah. And I basically, there's like these couple numbers that you can pass like, with your personal income. And I know why it's cool is because I know a lot of roofing company owners that qualify for top 10, 5 and 1% of personal earners. And I like that. I like, I'm excited for the roofing industry in that way. Okay, so what are the levers that we can pull in our company to increase that profit margin? And like, is there stuff that we can do to increase this to increase.

Your gross profit margin?

Profit margin, Excuse me.

Yeah, so to increase gross profit margin, you generally have to increase the perceived value of your service. The problem in the roofing industry today is that it has been so systematically level set in that you have monetized.

Right. I think you're right.

You have. Right, you have the same shingles and being installed the same way by the same people using the same tools in the same amount of time for more or less the same price. There's no Louis Vuitton of GAF shingle roofers that charge 10 times as much, and there's no Walmart of GAF shingle roofers charging 1/10 as much. They're all within 10% of each other. And it generally comes down to marketing and sales, which is why the bulk of the industry focuses on marketing and sales. Coaching the lever upon which you can create more perceived value in the client is really understanding why a customer chooses to do business with someone when they're buying something they ultimately don't want to buy. They kind of need to buy. And it's going like it's going to come down to your story as a business owner and trying to make it so that people would want the invisible hand of capitalism to want your brand to win. The way you do that from a tactical perspective is you have to learn how to tell the story of your company so they fall in love with your business and they would want you to win. They would want a company like yours to succeed. The next step is trying to find something that you can do that that's unique. Everything that everybody buys tells a story about themselves. You buy an iPhone, it tells a different story about who you are than an Android phone. So finding some kind of upgrade or parallel service that you can include doesn't matter if it's. I mean, the easy one is gutters. That's the one that everybody does. But if you can find something like chimney refinishing or permanent Christmas lights or rain chains or solar, a solar readiness package, right, you can find ways to make it so when people buy from you, they get to tell a story about who they are, which means you then need to find out who is your ideal customer avatar. And not just everybody who needs a roof, which is very tempting. But until you're at like, there's certain breakpoints in business. From 0 to 1 million, from 1 to 3, from 3 to 8, from 8 to 15, from 15 to 25. And it's like first you're just figuring out what you're doing, right? And then you're from, you know, from one to three, you're figuring out how you do it. And then from 3 to 8, you're figuring out who can help. And then from 8 to 15, you're figuring out how do you duplicate and streamline processes and get core leadership in place. And then from 15 to 25 it's how do we put, how do we optimize our systems? And then from 25 to 45 it's how do we get executive leadership in place and improve our accounting processes? Because now you're doing a lot of accrual based accounting and WIP statements. So knowing where you're at is going to be key. Because of what I really have started to see is that people start solving for break point three three when they're on break point one.

I just want to note here to the gross profit margin and how I feel like what you're talking about is, is branding and brand story and stuff like that. I do know that like part of that a lot of people address in the sales pro, like they, they talk about their company story. That's part of what they're trying to do. Not saying it's always successful, but that's what they're trying to do is talk about the company story and how we help in the community and we volunteer and 1% of profit goes to whatever. You know, like there's something there where they're trying to get into the heartstrings of people with the story and the community. And you obviously mentioned a lot of other really good things there. The, the difference makers though, like so you get out of commodity into specialty almost. And it's different because we have this special item that's also included the, the solar readiness package, for instance. And why does that help gross profit.

Margin when it comes down to, you know, trying to find business in the winter when, when the storm's over, when there's no fresh damage to work, we'll go back to Hill Trace, we'll track down a swath that, you know, most contractors haven't had the opportunity to go out and address yet because they're so busy chasing the big storm. You know, as long as we've got a date within reason, we can chase that storm. We can pick up jobs, we can.

Pick up leads because you allow yourself like to have to get past the commodity. You go to a burger joint and you buy a burger and they're making 10% net profit on the burger, but they're making 90% net profit on the, on the fries and the soft drink. And so that solar readiness package is something you can charge, you know, you pay 89 for, but you can charge 500 for. And so you have to find ways to get paid for the things you're already doing as well. So for example, most of the roofing companies that you and I know are probably using CompanyCam. And many of the users of CompanyCam are sending the timeline link to the customer. And the timeline link for those who don't know is a thing that allows them to upload pictures throughout the day, taking the photos in companycam and the customer can watch their roof come together and progress. And this adds a lot of feeling that they're staying in the loop. If you go read 100 roofing companies, Google reviews and copy all the text and spit it into some kind of thing and say, what are the most common things people say? Being kept in the loop is one of the most common things that homeowners say was a reason that they would recommend the company.

I recently shared something suggesting that I love that method too. Like grab all your reviews and you can export, I'm trying to remember the tool that you can export reviews from, but it's. There's a tool where you can export reviews. I wish I knew. You can pull all of them and then put them into ChatGPT and say, you know, based on these reviews, what would you say are the three top things that are unique and interesting about this company and that we should share as differentiating features as far as marketing goes or something? And it will. I, first of all, I've always suggested the look at reviews method and like kind of pull key things that you're seeing. This just makes it so easy and beautiful. So I strongly suggest checking that out. It is incredible. I'm going to find the tool. Excuse me? I'm definitely going to find the tool here in a second.

Yeah. So once you understand what the customers want and you go, okay, well, we're going to send the timeline link. But then if you ask a roofing company owner how much do you charge for that? And they'll kind of look at you funny. It was like, well, yeah, like you're, you're, you're, you're doing the roof, you know, you're installing the shingles, you're cleaning up the grass, like all the stuff that's in your quote, right. But how much you charge them for the company cam timeline link. And they're going to like be like, well, nothing. And it's like, well, if you're not presenting that in your proposal as something that you do, then you're doing it for free. You need to increase, as I said earlier, the perceived value. If the customer doesn't see the value and they don't understand the value, then they're not Going to pay you more for it. Because this is not about silver bullets, it's about golden BBs. Because, you know, to shift directions to something that kind of gets away from something that feels eerily like a pitch for Hook. You can talk about some stuff that Hook can't have a impact on, which is like, how do we drive down our cost of goods sold? Because the other easy way to increase gross profit margin is to find a way to get things done for cheaper, right? And so, you know, one of our clients up north who has to figure out the same problems that a lot of the people around you have, Oberg Roofing, they do a catch all crew and the catch all crew sets up the catch all for them. So first of all, of course it's in their proposal. So it increases the perceived value, but then it becomes a negotiation point with the subcontractors because they set up the site protection and because those people, that's all they do, they do it faster and then they also tear it back down. So then it's less work for the subcontractors to clean up the site. So then it drives down the cost. They make the investment once into the catch all crew at a lower incremental cost per site setup. Because those people don't have to get paid a roofer's wage to set up tarps. And it provides a better customer experience, of course. But then they make that investment once as a capital expense and then their operating expenses go down, which increases their costs of goods or decreases their cost of goods sold, which increases gross profit margin. It only hurt net profit margin once. But a capital expenditure done at the right time in the business can also, you know, improve your, you know, your tax appetite, right? So you can reduce your, your tax for a great year and invest that into future. Right? Because you have to think easy money is going out of the world right now. And I don't want to make this a big rant that, you know, goes beyond what we're supposed to talk about, but it will get harder in the future. And so making good investments into your business from a capital expense perspective to reduce operating expense is good. The other thing to do is again, golden BB's negotiate a pay on time discount with your supplier because your supplier will usually give you a 1 or 2% kickback if you pay on time. So by making an investment into your accounting practices to make sure that you're running a better cash flow forecast, you can make sure to pay on time, which will reduce interest. You pay first of all. But Then also get a 2% credit back. So if you're doing 30, $10,000 jobs a month and you're spending about 30% of your COGS or 30% of your revenue on material, then you're now looking at around $90,000 cost of material. And if you put 2% of that number back into your net profit at the end of the month because you pay on time, well, 2% of that, it's not a small number, it's not a huge number, but it's not a small number because that 2% is going to be about eighteen hundred dollars. Well, eighteen hundred dollars on a hundred thousand dollars is 1.8%. You just increased your, yeah.

Real money. Anything like past like a half a percent starts to matter, you know what I mean? Like it's like, damn, that's a chunk of money, right?

And so there's lots of little things like that that come into increasing. You know, if you get on account with your, with your disposal company, you can usually save money with your disposal company. If you're doing bins, if you give exclusivity to your bin company that's doing your disposal bins, you can save some money there. So as a CEO, your job is to spend as much time walking the four corners of your business. The four corners being leadership development, process development, innovative campaigns, and business development. And business development is a place where you can increase net gross profits because you're working on the relationships of the people that you count on. So if you're providing more work for your subcontractors than you were two years ago, is it time to discuss the fact that they have less administrative drag to running their subcontracting business? Because they just show up and work for you every day and they don't have to keep going and working for other people. And because you have clear expectations as to on site management and stuff like that, they're getting consistent work. They're following the same process every time. So therefore their business is easier to run and they would probably rather work for you all the time for $4 less a bundle or $2 less a bundle. Because they're able to grow their crews and they're able to get to the point where instead of them just being one guy with a truck and five, you know, bros that he goes out with every day, he can maybe get to the point of having two or three crews and he can focus on running those crews. And now he's concerned about volume. And if you can create volume for your sub, then you can start Talking. You can start talking discounts. Right.

I want to note, too, like, who is making those negotiations. Nor. It's not noting. I'm. I have a question. Who is making the negotiations normally with the subcontractor? Do you know? Is it usually the owner at the.

Level that we're speaking to? Yes.

And who else? Like, in bigger. Is there bigger companies? Is there somebody else?

Then it would be your production manager.

I just want to know that, like, it. It probably matters, and I. I think, like, being persuasive with them. Right. Like. Like, yeah, if you're trying to get a discount, you got to sell that discount to them a little bit. Right. With, like, the. With the certainty that Adam's talking about. Like, if you can. If you could get this many jobs every month and we're here for you, like, there is a little negotiation there. I'm just saying you could put somebody on that. That stinks in negotiating and not get any deal.

There's. There's another conversation to be had around where you allocate your salesperson's commission to. Because is it a cost of goods sold? I mean, you wouldn't have the roof sold if you didn't have the salesperson.

Yeah, generally I always put that in, like, overhead, but.

Right. And it. This is why it's a constant conversation, because it's not a cost of the goods sold from the perspective of how are you investing your money into developing your product or service. But if we've theorized that gross profit margin would include a commission. Right. Well, then how do we drive down our cost of sales? Maybe it's our cost of goods sold. It's just a cost of sales.

Hey, I feel like I can offer a little bit of. Just to mix it up here. I can offer a little bit on that and, like, something I'm just pushing on with our guys and, you know, in content and stuff is just around, like, trying to turn every deal into, like, 1.3 deals. You know what I mean, by getting more referrals. So that's, like, something I just really strongly suggest. And I have to note it's where. It's where, like, we're talking about lead babies. I've got the candy out, and Adam's getting some of those candy soon. And Adam's like, I. What time is it right now there, Adam? Are you, like, in the middle of the Evening or something?

8:36 in the morning.

8:36 in the morning. Okay. Yeah. I don't really know time zones, but the point is, is, like, I love when A company tells me they have lead babies, that. That's a client of ours. I love it because it means we're doing our job well. But when the tide goes back out, because there's always, like, there's seasons and, and the, the leads are coming in big time, and then it comes out. And then, you know what somebody said on a podcast the other day? Like, the. When the tide goes out, we see who's swimming naked. Yeah, we're above it. Yeah. It's such a good quote because, like, if they don't know how to create opportunities for themselves, that's. That's where the lead babies thing becomes a problem. Like whether they're, you know, creating more referrals from homeowners from just their network. You have a lot of friends, you know, a lot of people. You go to church, whatever you're doing, like, their network and other homeowners, whether it's insurance agents and you know, where else can they get referrals? I mean, that's a. That's a spot. That's a big, like, mining opportunity to. That would decrease gross. That would increase gross profit margin. Because like you said, the cost of new business is going down. It's getting.

Yeah. If you're theorizing that sales. Well, that'll be cost of markets that would make your net profit go up. Because now you're like, here's a way to look at a way you could use. And again, I don't know. This. This might be like a past 3 million. Not many, not 20 million. No, no.

We're. We're talking a lot of times the 3 to 10. I'm just like, I really. I empathize with people that are lower. Like, they're early because I don't feel super sophisticated with money. And so, like, I want to know more about this. I'm trying to learn about this stuff, but my brain doesn't naturally, like, grasp it. It grasps like, let's make some sour candy and coordinate a commercial. Like, and I'm good at that stuff. And then I have my wife and we have a fractional cfo. You know what I mean? Like, so. But I love learning about it because I know that as I get more information about money, like how to deal with this stuff, that it's going to allow us to be more accurate with our ROI reporting and stuff like that with our clients.

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So, couple things. One thing that you know, when you're in that three to $8 million kind of phase in business again, it's what do you do? How do you do it? Who's going to help? Right. So you're in the who's going to help business. A lot of times what happens is when you're in the who to help who's going to help me phase, you end up, you're showing up late to the party there and you're throwing compensation at people to make up for the lack of experience that comes from being a leader. If you don't, like, if you haven't got a lot of experience being a leader, you're kind of like, I'll overpay for this position because, gosh, there's so much profit right now. If I could just have someone take care of this, I'm sure I could grow the business over here. So then you overpay for certain positions, whether it's accounting, office manager, sales guys, production manager, you end up overpaying for those positions. And you should assume that anybody you hire is going to do it at 40% as good as you. So if you want killers in your business, it doesn't depend on how much you pay them. It depends on you being the all star first. Because any, because if you're, if you got a hundred points, if you're like kind of like John Maxwell's leader, law of the lid, right? So like, if your lid is at seven, well, anybody you bring in is going to be at a 4, because if they're a 7, they wouldn't work for you. And if they're a 6, they're already thinking about leaving. But if yours is at a 10, then you're going to be getting a six. Right. And so leadership development is a big, like, personal development. Leadership bill is a big factor. It, it doesn't seem like something that would show up on a balance sheet in a business. Yeah, but there's a reason why some guys are so good and so profitable. And it's nothing that they're doing from a capital expense or operating expense perspective. It's their leadership ability.

I know, just to kind of like, you know, tie this back into gross. I Know, I know it directly correlates but gross profit margin, something I'll see is like people before a storm year or whatever, they've got a good, they've got a deal that would make sense in a retail situation or like lower deal flow. And then when they get through the year, they've got like all their salespeople, even the mediocre ones are going over like 150, which. And then literally there's this that they start stopping because they don't really want more than they don't care. They don't want. They'll. They aren't willing to trade the, on a lifestyle perspective more of their time for more money because they just burn themselves out over the summer or whatever. So like it's weird sometimes like that I think that can affect, you know, because then you have like unprofitable but well paid or like, you know, unproductive but well paid salespeople sitting around.

Yeah, you have because you, you want them to respond to 100 leads a month, but they only need to respond to 40 to get their 16 deals. That makes them 300,000. That allows them to make 15 grand on their 5% commission structure. And so now you've got these leads that are going unanswered because the level of ambition in your team exceeds their natural set point for what they believe in themselves and how much work they want to sacrifice. There's two, two approaches to solve that problem. One is to design a sales system that spreads the workload out to people who have the unique skill sets. This is the whole inside, outside sales thing. And then you can pay less per sale to more people who will function at a higher level in the, in each of the duties required to sell or sell it. The other thing comes back to leadership, which is essentially coaching your people to understand that if they, that a million dollars isn't what it used to be. Right. If you ask people what a million seconds is, they, they could guess. They could maybe put it in their head and you'll tell them it's. Then you eventually say, well it's like 12 days. How long is a billion seconds? And they couldn't even guess like their, their math. Like guess like how much is a billion seconds? If, and you know, you don't know a million seconds is 12 days. Just from your head. What do you think of. What's that?

Three years?

33 years.

Holy.

So it's like we don't have a. So we use. Society generally uses the word millionaire and billionaire almost interchangeably. You know what I mean, and it's like, we. There's 15 million millionaires in the world and 2,000 billionaires. It's a. There's an ocean between the two. And so we still think that a million dollars is a lot of money, but if you have a million dollars at 40 in the bank, you're back working by 56. So we really have to teach our salespeople how to be better, how to understand what they need to do. It's like they need to make twice as much as they're making and live on half as much as they are currently. And they're not done until they have 10 million in the bank.

And, like, just a note, too, like, personal responsibility, I do think that that's very motivating to people, too. Like, Nathan Tebidau was podcast and he was saying, like, you're also, like, ensuring other people have jobs. Like, there's. There's office staff here that, like, we need to. If you're stopping, you might be satisfied. But like people, it does put. It makes it more likely that we shrink instead of grow.

You talk a lot about the hero. The hero salesperson that stands in the gap. You don't want your. You don't want your primadonnas and you don't want your monkeys. You want your heroes. Yeah, right. Yeah. And the heroes stand in the gap. And he. That. That is exactly a lot of what we're talking about here is. Is leadership. And this is, you know, why I go a lot on record saying things like 80 of roofers don't deserve to exist. It's. It's not that they don't deserve it. It's just they're not doing the things required. Right. The things that are required is that they have to walk those four corners. And one of those things is leadership development. And that starts with you.

Mm, I love that. I love that we're kind of ending on leadership development. I want to note, too, that how actually a question. I keep on saying it's a note, but it's actually a question. My question to you is, how big do you think the roofing. How much money is the roofing market? Like, what. I know that it's been like 7, 20 billion or something like that, but I've heard estimates up to a hundred.

Yeah, I think that it's somewhere. I think that it's somewhere around 50, because 90, like, because I've done one calcul. Because the number's hard to find. Right? It's hard to find. It's murky and it's so weather dependent. It's federal government, state government dependent because it depends on when. Like a huge side of the roofing industry is federal and state construction, right? Like a military base redoing its roofs pumps a lot of money into the local economy. So there's a lot that goes into it. But here's some math that I know. 97 million people live in the top 25 counties in the United States, right? By population, the home ownership rate average, right? And again, this is something that's tough because it's Airbnbs and stuff, but it's around 59%. So there's approximately 17,460,000 single family dwellings in that area. Now if they replace their $15,000 roof every 20 years, that's a 10 billion dollar a year market. So we have to think. So that's like one way that you can look at it because then you can say, okay, that represents roughly a quarter of the country, right? So you can multiply that by four and then you have to add commercial, then you have to mix in insurance, right? And that kind of stuff. Then you know, the other way to look at it is the, you can look at it based on like the NRCA top 100, right? So the top 100, the top companies at 997 million and the last company is like 17 million. And half the companies report, you know what I mean? A lot of companies don't report to the NRCA. So you're probably looking at the top 200 companies somewhere. Like number 200 ends at around 17 million. So that can be another way to give you a really good perspective as to size. The long story short, home services as a industry vertical represents 48% of the GDP. It's massive. That's how big it is. So insane. So it's like you're, and that's a number that's actually provided by like ages like, like that. It's, it's massive.

And I had no idea. That's insane.

Like it's absolutely massive. And so how big it is doesn't matter because you, Angie, like Google, like nobody, you know what I mean? It's bigger than all the other things that have been, you know, had technological disruption. It's bigger than all of them. Like it's home services is massive. And you owe it to yourself to get your piece of the pie that is directly related to your capability to lead others and to provide, to provide stable, secure, safe and gainful employment to good people that you nurture and develop. And if you will get exactly what you deserve and no more in the macro in the long term.

Adam, some people hate you.

Why is that?

Smaller roofers. I've seen them. I've seen them talk shit. Can we talk about it?

Of course.

Okay. My question to you is, do you hate small companies?

No, I don't hate them at all.

They feel threatened by the things you say, is what I should say.

They should. It's.

I've heard people, like, literally say.

Can.

I just open up this. Yeah. Somebody said, like, I came to that one industry event and a guy said we were supposed to. It was like, in Minnesota. And the guy was like, and he's a good. I mean, they're actually not that small. It's like 7 million or something. But he's like. Then Adam said that we were. Or he didn't know your name. He just said some guy said that we weren't supposed to exist or something. He said, we're all going to. Basically, he was like, we're all these companies are going to die or something like that. And he was, like, frustrated by it. And I'm only telling you this because I. Frankly, Adam, I don't think that, like, I think we have to have people that kind of are annoyed by us for us to win in the current, like, attention economy. I feel like it's really hard to not. If you're going to say things that are interesting enough for some people to be mad. It's also interesting for most of us just to, like, be able to pay attention, because it's hard to pay attention to everybody.

Here's. Here's. Here's the thing. The. The industry. This is not just in roofers. This is in realtors. This is a lot of places.

Agencies.

A lot. Yeah, agencies. It's true. Right? 80% of Facebook ad guys don't deserve to exist. I bet you a roofer could stand behind that. And so just because you wonder if you're on the 80% or 20% side of that equation doesn't make what I'm saying wrong. It makes you uncomfortable. Right? The insidious thing about victimhood is that you're right. You probably are a victim of something. But how does that truth serve you? Tom Bilyeu says it. Said it in a blog post that got him all kinds of shade. He said, if you get hit by a drunk driver at night, it's your fault. Now, of course, we can go ahead and come up with all the reasons why it's not your fault. And you know what? You're right. But the exercise of Taking personal responsibility over everything that happens. John Maxwell's law of the mirror. You know, anything that happens in your business is direct reflection of you. The act of taking personal responsibility over every circumstance in your life will give you the power to make change in your life. I'm not saying that the $7 million roofers will die because of the hundred million dollar roofing companies. What I'm saying is that there's massive change coming to the industry. And if you're not aware of the fact that there are people with a lot of resources who are absolutely convinced that they can package these companies up and buy 30 companies doing $3 million or $10 million and they can give them three to five to seven years multiple on their profit. So if your $7 million friend doing $700,000 net profit, he gets four times that, he sells his company for $2.8 million, they believe that they will roll those companies up. And they all and everybody kind of knows this right now, that they're going to roll those companies up into a hundred million dollar company and they'll get 10 times. So then they paid 2.8 for that company. But then when they sell it, they'll get 7 million on the sale. What not a lot of people are thinking about is what's next. The people who buy that company for 10 years, they believe they're still buying a company for a discount on future profits. They still feel like when they buy it for the equivalent of 10 years of the current profit, that there will be still meat left on the bone with the opportunity in the roofing industry. And that's where you're going to see the hundred year brands emerge. We only have a few airline companies, a few postal services, we only have a few phone service companies. We only have, you know, a few of all these things. Few automaker brands.

Yeah, I, Adam, I want to keep on going with a couple rapid fire questions here. I'm challenging you for fun. If there was two to, let's say you were to sell your roofing company in two to 10 years from your point of view and somebody was ramping up. Now let's say that's the seven million dollar guy for fun. Um, and when, how would you build it up and when would you sell? When would be from your point of view, when would be a perfect time? If it wasn't like now, like when would be the, the best time based on this, this, this opportunity? Because it's kind of like a surging oppor. Opportunity of like buyers are flooding in kind of scenario.

I would say, well the answer is always when someone pays you more than you think it's worth. Yeah but I would say that your. The valuation curve goes up based on the private equity industries perspective on what the breakpoints are. So they pay you more based on 0 to 1, 1 to 3, 3 to 8, age 15, 15 to 25, 25 to 45, you get a bump.

So evaluation to one of those. If you can get past eight, if you can get past 15, like, like.

That'S putting things that people understand when you buy. I've never lost money on a car because I worked in the car industry and I know how to buy and sell cars. The car everybody says the minute you drive it off the lots worth 15% less or whatever, some number. Well then don't sell it the minute you drive it off the lot, dummy. Right. But when you. But you're. That you get the initial drop and then you get a steady hold in your car's value up until 59000 are. I'm using kilometers in my head 59,000 kilometers or three years. Right, right before that comprehensive warranty runs out. Because the minute you go after that, the car is worth less. And then it holds value until five years and 100,000 km when the powertrain warranty runs out. And those are the two that you might know about. The next big one is when the car hits seven and a half years and 160,000 kilometers, which is 100,000 miles. That's when banks will no longer give financing for it over 18 months. So what this is is it's understanding the breakpoints and value of something. That's the exercise that people need to do. Yeah, right. It's understanding that the private equity firms look at your business and think if they've passed break point four, they've solved problems X, Y and Z. Let's go confirm that these circumstances exist and to which degree they have solved them and then we'll give them between four and six times EBITDA because of this.

Yeah. I think weirdly enough like the my competitors that are selling right now, the roofing marketing companies or home service marketing companies are getting something like that as well. Like so I was told over for forex ebitda, which is pretty sweet like for a marketing company.

So niche you guys have mrr, right? Which is the golden baby of equity firms. Right. They want monthly recurring revenue. Roofing companies with managed services. Same thing. If they do managed repair programs, if they do commercial maintenance programs, well then they have relationships and recurring revenue. So Then they get a point for that. So it's like at the 25 million dollar range, a commercial roofing company should usually have a commercial maintenance program. To what degree does that circumstance exist and how have they solved for it? So then they do their further investigation but they have their ranges. They oversimplify it because it really is simple. And that's why I think people hate me is because we as I am.

I hope I didn't really throw you down a rabbit hole on that one. There's just a couple.

People to be challenged to be better business owners. I want the industry to evolve.

Yeah. I just am noting like so two of my competitors just sold recently roofer marketers to Job Nimbus and then Rhino Strategic Solutions sold to the people that own Blue Corona, which is another home services marketing company. And I'm guessing they were like over 30 million. And I, I think roofer marketers, I, I'm not trying to throw out all their dirt or whatever, but I think they're like 3 to 5 and they'd got over. I think they got 5x or more EBITDA. That's just way too revealing. I shouldn't be doing this. Naughty, naughty. But I think there's other ones that are getting sold too right now. So I'm just like paying attention to it for ourselves too. But I plan on having this company for another 10 years. So because I one, I'm kind of committed to the, the, the mission and who knows, you'll see me selling like two years or something. But now like I'm, I am trying to be, I'm trying to be committed to the mission. I feel like we're doing something good and I think sometimes when you get sold competing interests come in stakeholder interest. Right. Like there is a certain element to that. I'm not trying to be like high and mighty. I just think there's more concerns, right. And like one of them happens to be profit and that's great. And I don't think I do believe you can offer an amazing service and be very profitable. It's just sometimes when you have stakeholders they want like as much profit as possible and sometimes that competes with quality and that's one thing that I get focused on and I sometimes I, I probably have told you like I don't, I'm not like excited about like 10 years from now corporate roofing because I didn't like serving roofer corporate, corporate people before I came into roofing. And I also feel like I'm just like concerned about that the competition between like a healthy profit, like past a healthy profit, where it starts to cut into the quality of service. Like, that's where I get, like, I'm a little bit. I don't know if I wanted all the roll up because I feel like sometimes that competes with the, the, the buyer experience and the value that's being provided. And I think, I'm sure that you believe differently because if you're rooting for it, you probably don't believe that it's going to.

I think you have more than enough time because the private equity firms are rolling up for three years on average. Right. And the private equity firms are then going to package those companies up and resell them for 10 years. So you got 13 years.

Perfect, because I'm selling 10.

There you go. So you got lots of time.

All right. Well, hey, Adam, I really, really appreciate you being on. It's been a little bit longer than our normal podcast. Obviously, Adam is incredible. And not only does custom sumo quote builds, but they also help you. You can audit your CRM and they'll help you build better systems to be more profitable and more fulfilled. I know that that's something Adam is concerned with, with a lot of the roofing companies, because as Adam likes to say, there's a spot where the. There's diminishing returns on the. The amount of money you. You could get a couple hundred thousand more, but it wouldn't necessarily affect your quality of life.

Yeah.

And so he wants. He wants your quality of life to go up, and that's. That's where your systems need to improve. Otherwise, you're just going to have a job and not a business.

Yeah, that's it. You nailed it. The ideal customer avatar.

Yeah. And so if you're that person, that, that, that's starting to be the case where you know that a couple hundred thousand dollars would be. Wouldn't matter that much for your quality of life, but your business running more smoothly would be. Reach out to Adam and RBP Consulting. Now I want to see if Adam can do a pitch for us.

Pitchfork Agency. Right. Well, in my experience, having had multiple clients of ours work with Hook Agency, I've heard that it's been awesome experience. But the biggest eye opener was when we came to do a CRM audit at Hook Agency. And I got to peel behind the curtain, which is something that I enjoy because I look at a business as its makeup of its people and its processes and the systems in which they operate. And the coolest thing that I learned was the amount of effort that goes into the site speed and hookified elements that and the lesser known factors on SEO. Then, then the, you know, the kind of the basics, the stuff that you get the emails from Bangladesh about and they really focus on building a website that could be a moat around your business in a duff market. And as we start to see the industry and world change as part of the natural cycle of life in capitalism, having something that is considered to be infrastructure in your business is good and hook agency can do that.

It's a good point. I appreciate it. Now I just wanted to see because I've been practicing yours. I'm just seeing if you're you. Yeah, it's good.

I mean I don't, I don't know the. I, I guess I could have included things like ideal customer avatar between 3 to 10 million dollars and looking as.

Long as you know. Because like ultimately, you know what the principle that this, this is definitely becoming a longer podcast. But the principle that it goes to is like we need referral partners like both of us do. Like it's especially in a niche market, but even in local markets if you're a roofing company, like having some other people that really understand the value proposition that talk to your customers on a regular basis, that's a, that's a powerful thing. So that's what we're trying to, I think that's what I'm trying to do. Try to understand where we're not, you know, hey, I can't fix certain things on companies.

Yeah. Well that's, that's why we launched our, our referral program last week. Right. Was because we recognize that we have a lot of people who do us the kindness of, of referring us and they've done it for free for a long time. And so we launched this paid referral program because I want people like you and others to, when they, when they refer us for our common services that they can make something in return. I think that's something all roofers need to be looking at too is who's talking to your customer. Right. And then how can you incentivize those people to think about you at the right time? Right. First, try and help them get them a customer. That's a great way to do it. Second, try and find a way for them to make money each time they do it and make it easy for them to do it.

100 man.

Yeah.

Hey, I really appreciate everyone watching this one. Thank you for talking us, talking us through this particular concept which seems like a simple one, but it is a little bit more complex. Because we're trying to. I think we're all trying to increase our gross profit margin.

Net profit margin is what we really want.

Okay, well, tell me a little next podcast first. We gotta get this gross profit margin or something.

Yes. Now let's talk about net profit, which is a real fun one.

All right, well, in three months, you'll see Adam Sandon again talking about net profit and or whenever he's willing to do it. But I appreciate you guys for watching this. It's put on by hookagency.com hook agency all over social. What is your dot com, Adam, if people want to connect with you?

Roofingbusinesspartner.com awesome.

Thank you, everyone, and appreciate it.