Flip Your Business: Part 1 Understanding Pricing Components
Flip Your Business: Video Series Part 1
Barret: 00:01 Hey everyone, thanks for joining us we’re really excited about this video series that Jobber and Dirt Monkey University are partnering on. The series is Flip It, how to radically turn your business around, change your business in 30 days. I’m Barrett with Jobber. Jobber is a software platform that helps landscape businesses, lawn care companies, contractors run better businesses and that’s why we’re so excited to partner with Dirt Monkey University. These guys are experts on running really great businesses, they know their numbers, they know how to get things done so we’re so excited to partner with them on this three-part series. I’m not going to do a lot of the talking. I’m gonna let Phil and stand take over. Guys thanks so much for doing this with us, we’re really excited. I’ll let you run with it with part one.
Stan: 00:50 Barret, thank you so much for having us on. Just to introduce myself I’m Stan known as the Dirt Monkey on YouTube. Phil, professor Phil within Dirt Monkey University, we both own and still to this day run construction companies. I do landscaping, excavating, hardscaping. I have a lawn care company and I have a construction company. Phil still running his businesses and between the two of us we’ve probably did at least $100 million dollars worth of projects, probably completed I can’t tell you how many millions and millions of dollars worth of projects. And from a personal standpoint I started by sleeping in the side of an old nasty dump truck. So if you can take it from absolute ground zero and build it up to a company that now runs itself if I can do that as a 46 year old Pollock. I guarantee you by the time we’re done with this webinar series we are going to teach you guys how to do the exact same thing. Now professor Phil as we call them within Dirt Monkey Universities created this training program, Phil take it away, bud.
Phil: 01:55 Well I want guys to understand that regardless of where you’re at right now if you have any part of your business that you want to turn around or need to turn around it does not take a long time to do that. And I’m not saying these aren’t things that you’re going to stick with and continue to improve over the course of a year, or two year, or three years. But I’m saying that there are radical actions that you can and should take in your business today that in 30 days will make your current business look nothing like what it looked like 30 days prior. And I’m gonna give those to you today so you can do that. Guys, there wasn’t people around to give out this kind of information when I started my business, and if there had been it wouldn’t have taken me so many hoops and hurdles and trials to go through to learn some of this stuff. So now that we can put this together and deliver it across mass media and through webinars this is just a chance for you to if you’re experiencing just some of the growing pains of being in business to turn it all around and do it in a very fast period of time.
Stan: 02:58 Okay, so Phil you’ve broken this down into a three part series, what do we come covering in today’s series?
Phil: 03:05 Okay, no matter where you’re at I’m of the philosophy that you always start with the math, you always start with the numbers, something that is not going to lie to you but tell you the truth. Our emotions tend to lie to us. We sometimes will sit and stew on questions maybe I need new people, maybe I need to do this or buy this piece of equipment, always start with the mathematics of your business. Look at your numbers, know them inside and out and if you’re not tracking them start tracking them. If you are tracking them, understand them even better, so I want to go through some of the basic pricing components that you need to understand. Revenue is just being the total sales that you generate in your company. I want to make a clear differentiation between your cost of goods sold, and your overhead because the number one place that I think gets clouded in mystery or gray area is what your overhead number truly actually is, and how to recover that overhead through the maybe 220 or 240 working days per year that you’re going to have. And that’s an average number for a business not working weekends and not working a few weeks during the winter.
Phil: 04:14 The cost of goods sold is the amount of money that you spend on items that are directly related to the production of a job, most common item here is going to be your materials. If you’re a general contractor, it’s going to your subcontractors. If you’re a grading company it’s going to be your equipment. So this is just if you don’t ever run a job you won’t have a number that goes in here. Your overhead on the other hand our bills that are gonna keep coming in whether you are running jobs or not. So if you’re looking at a profit and loss statement off of QuickBooks, you print a report say and here’s your profit and loss, your income, and your expenses. Your expenses will not always separate this out, this is something that you have to go down your expense list and be like, okay, this is my phone bill, this is my truck payment, these are things that are overhead costs. And then you go in and take your supplies, for instance, and separate that out, so the difference between this because if you try to keep them together it’s going to skew your operating cost per hour.
Phil: 05:21 So when you get done with that you’re going to have what’s left over your profit and this is where our eyes tend to go. If you’ve ever looked at a profit and loss statement at the end of the year we look at everything, and we scroll right to the bottom what’s our net profit say? That is the number that is if all your other numbers are input correctly that’s going to show your financial gain or your loss after your overhead and your direct costs. So I just want you to know that these are the main components on the most important probably of your three financial statements, which is your profit-
Stan: 05:56 Okay, I want to [crosstalk 00:06:01], Phil, I want to simplify this just a little bit because some of this could be a bit overwhelming if this happens to be the first time some of these guys may be seeing this. Now if you’re seeing this for the first time and you are a Dirt Monkey University Master Mind member. We’ve got these systems broke down on … every single one of these systems we’ve breaking it down and taught you guys how to do, so go back into the library of our webinars and you’ll find this. But for today I want to just take the overhead as an example. This is once you’ve figured out once you can use that for three months, six months, maybe up to a year but then you’re going to have to recalculate that periodically to make sure that you do it. And to calculate your overhead is basically it should take you less than how long do you think, Phil, maybe less than a day to get that [inaudible 00:06:54] out.
Phil: 06:53 Yeah, if you’re doing it the very first time I would plan on one day, and I wouldn’t break it up. I mean I would just plan to hunker down on one day and figure out all your costs, your labor, this is when you’re gonna call your insurance company, you’re gonna call your payroll company and they’re gonna give you … you’re gonna factor in if there’s if you pay guys overtime, if they have any vacation benefits where they take a week’s worth of vacation during the year, this is all figured into your overhead rate. So yeah about a day for your first time. If this is your second time doing it year after year this can be done in two, three hours.
Stan: 07:33 Yeah, absolutely so it’s how to eat an elephant one bite at a time the first time you sit down is the biggest bite, after that it gets a lot easier. All right, so where are we going from here, Phil?
Phil: 07:42 We’ll go to the next slide. These are some of the numbers that I want you to keep very close to you that you should know off of the top of your head. Your overhead per day and your overhead per man-hour, these are the two most important numbers that you’re going to be using when you are bidding and estimating jobs. On a job your materials are your materials, very easy to figure out what your materials are going to cost. The biggest variable between you and another company is how much you’re estimating on labor and how much time it’s going to take to complete a job. If company a can complete a job in two days and you’ve estimated three days, you have a 33% difference between that company and your company. On the flip side of that if you estimate two days for a job and it actually takes you three days, you’ve now had a 33% overage on that job. You must know to the penny what it costs you to put a man in the field or to put in most cases once you understand what it cost you to put one man in a field re-create an assembly. If you’re always sending out a three-man crew, an f-550 truck, and a skid steer machine, we assemble that together and we develop a one cost per hour to put that assembly on to a job.
Phil: 09:05 So every day let’s say you come up with a number of $400, you say, okay every day of my crew, this assembly goes out to work, it cost me $400, before I’ve made a dime I must earn $400, so that’s one of the numbers you want to memorize and know. Then you want to memorize revenue per day in revenue per hour, you should have a revenue goal a lot of guys so after people understand the overhead goal you’ll find people doing jobs let’s say they do $20,000 worth of jobs in a week when there’s 5 days in a week. That means that they’re able to produce $4,000 of revenue per day, now it’s not always going to hit that but it could be your target. So you know if you’re bidding a job and you’ve you’ve just been a $1,500 job and it’s gonna take your crew the whole day, there’s a very good chance a very high likelihood you’ve underbid that project. But you know if you’re hitting three to $4,500 in a day, or $3000- 4500, you’re in that sweet spot where you’re probably making very good money, so that’s a good number and a good goal and a good goal to have in mind.
Phil: 10:08 So you look at next year and you say I want to have a $220,000 company next year, and I have 220 working days available to me in the year, it’s very quick and easy. I need to sell $1,000 dollars a day, $300 of that’s going to go to my overhead, $700 of that is going to go to materials and to me. Then you also want to have and this is the number most people don’t have. I mean a lot of people get it at overhead, they don’t always do revenue but a sales goal per day and a sales goal per week and per month, this is huge because a lot of people are sitting at a company that’s a certain size, maybe $150,000. They say, you know what, we got a lot of customers, they really love our work. I want $250,000 next year. The first thing I do is backtrack all of that math and I want to know exactly what is my sales goal next year.
Phil: 10:59 I want my company to be $250,000, how much do I need to sell per week, per month, per day, what is so I can back that up because once I know my sales target I can start to hit it because if I say, okay look I got to sell $10,000 a week, and my average job size might be $2,000 that means I have to sell five jobs every single week that means one job a day. I’m always breaking it down to understand them the dollars per day that I need to sell, my crew needs to produce and what it actually costs me. Once I know these numbers and they’re intertwined, and I really have a good solid understanding of it, hitting my goals become very, very easy. I know look if I gotta sell $10,000 a week, I’d better be and[inaudible 00:11:49] I have a 50% close [crosstalk 00:11:56]-
Stan: 11:56 You’re breaking up, your Internet’s going pretty small at the moment so I want to interject real quick. Phil says to know and memorize these numbers I want you to take it one step further, memorizing these numbers is not actually what you need to do. You actually need to write them down and put them in a place that you can literally look at them every single day of the week because once you do that you’ve set that bar that you’ve got to achieve them. If you don’t see him and you just memorize them it’s easy to get overwhelmed with something else, or the phone rings, or something else happens and the last thing you’re thinking about are these three critical numbers that are really the ultimate success of your business. But if you have it wrote down and plastered right next to your desk when you’re on the phone talking to a customer and you’re trying to do a sales estimate or you’re talking to one of your crew foreman’s and he’s having a problem. And he’s telling you, he’s making up an excuse that, oh it’s gonna take me an extra day. You realize that at that point you can put your foot down and say, well no, we’ve got to accomplish it within this time frame or when you’re looking at the sales number if you’re going, I’m behind on my sales schedule, I’ve got to sit here, I’ve gotta buckle down.
Stan: 13:06 I’ve got to make three more phone calls tonight and hopefully close one more deal if I’m going to meet my daily revenue. So uI think we’re on to the next slide by now, Phil, are you back with us?
Phil: 13:17 I am, hopefully you can hear me okay.
Stan: 13:20 I will be interrupting you, your Internet’s kind of going in and out a little bit so there might [crosstalk 00:13:26] I interrupt you, but [crosstalk 00:13:27].
Phil: 13:26 We got a snowstorm so that might be knocking things down. We talk a lot about the power of micro changes, it’s not any big giant massive change that gets you to where you want to be it’s a lot of small changes, incremental changes. So what I want you to do if you’re just getting started is take your financials and divide them up into three categories. I want you to look at your cost of goods sold, your overhead, and the price that you’re actually charging clients for your services. And then we want to make some micro adjustments just some real small easy to implement adjustments that can be done literally overnight. And we can go to the next slide and I’ll show you what those adjustments are.
Stan: 14:13 So what you guys are about to see we’ve done lengthy lessons on over at Dirt Monkey Universities mastermind group, and I think we use the 3%, 5%, and 10% rule, didn’t we Phil?
Phil: 14:27 Yeah, we’re gonna do it here.
Stan: 14:28 Are we doing both 3, 5, and 10% today?
Phil: 14:31 3, 5, and 10, yes.
Stan: 14:34 This is probably one of my favorite parts of the training that we’ve ever done because what you’re about to see is going to blow your mind, so let’s get into it.
Phil: 14:45 So I consider this money under the mattress, this is hidden money that’s already in your company. Let’s look at a company that in this case, this is data pulled from an actual company that had revenue of just a little over $192,000. These are the amounts of their cost of goods sold and their overhead, so when they figured it all out after these expenses their net income was about $38,000 about 20%, which is somewhat of an industry standard. What we did is we went in and we made a three percent, this is a tiny, tiny adjustment across these three different categories. So what you’re seeing is the summary, a review of what I showed you in the previous screen. The second column is if you raised your price by 3%, so if you have $100 dollar job now you’re charging $103 for that job. A $1,000 job would be $1030 job, these small incremental changes, you lower your cost of goods sold, find a way. You go in there get frugal, find a way to save three percent on that job, make your waste factor a little bit less, improve your efficiency on how fast the guys load and unload in the morning, don’t let them stop at the gas station on the way to the job. Three percent is there it is low-hanging fruit, and then lower your overhead by three percent. You go through your overhead and you find a way to reduce your cellphone bill, reduce your insurance payment, lower, renegotiate your rent, do something to make a three percent adjustment, it’s tiny. How much additional money does that put in your pocket? When you get down to these small three percent adjustments you’re doing nothing, very easy. You’ve got over $10,000 back in your pocket on a $38,000 dollar company profit, I mean that’s like what 20% or so that you’ve increased.
Stan: 16:37 So literally by just making this 3% micro change which is something that gets your toe in the door, this extra $10,000 is literal pure profit that’s almost a 25% increase in your profit for this actual real-life company for the year. A 3% change across the board leads to an almost 25% change in your profits for the business for the entire year. This is a micro change guys, this isn’t a macro change. We’re not asking you to reinvent the wheel, we’re not asking you to go out and spend tons of money buying major pieces of equipment and improving your efficiency dramatically. We’re asking you to juice to exactly run your business the way you’re running it but tighten your belt. Now we’re gonna take that one step further and ask you now that how to do the three percent, we’re going to challenge you to do the five percent. Phil, show the, what happens then?
Phil: 17:39 I mean your five percent change and I would call this still low-lying fruit. I mean this is just easier to do than you think, and it’s money that’s already in your business. You don’t have to buy and sell another job, buy another piece of equipment, hire another employee, it’s money that’s already right there by you getting a little bit smarter about how it’s run, over 17,000 dollars in your pocket. I mean this is huge amounts of money that this translates into by being just a little bit smarter and understanding these numbers more intimately.
Stan: 18:16 So we’ve taken the original profit which was $38,000 for the entire year by making a 5% percent change we’ve added over $17,000 in profit for that year, which is almost 50%. We’ve improved the profit margin for the entire year by making just a 5% in the profit, but now it gets pretty exciting this is where both Phil and I start smiling, and Barry where we’re going with this when we do a 10% change, which is absolutely literally achievable. Phil’s done it, I’ve done it, we’ve done bigger changes than 10% guys. We have done changes of upwards of 20 to 25, 50% literal, literal. And this is what we teach so let’s show them what a 10% change does, Phil.
Phil: 19:13 Yeah, I mean you’ve doubled your business, you’ve doubled your net margin, again you haven’t added any overhead, you haven’t added any pieces of equipment, you just put almost twice as much money in your pocket. So you go and you start to think like I’ve been running my business and working in all these hours during the week, what’s the reward if all the money that comes in is going back out and you end up tired. And you think that the only way to make a major shift in your company is to sell more, that’s the mindset that we’re in is to think like, okay I’m working my tail off, I need to sell more work. And we’re telling you that without even moving that, without even introducing the concept of selling more work because that’s actually easy to do, is working internally to find out can you make some of these small micro changes, but this is huge. So I ask you on this 10% price increase people might say like on there’s no way I’d get 10%. Can you find a way to deliver $40 more value on a $400 job? Can you show up faster, deliver your quotes faster, be more professional, somehow communicate to the client that you are worth 10% more than what you were going to charge them.
Phil: 20:25 So I mean these are small amounts an extra $100 on a $1,000 dollar job. If you’re doing small pressure washing jobs or lawn maintenance jobs and you’re doing $40 cuts or $40 quick jobs, can you charge for four more bucks?
Stan: 20:37 I don’t care what kind of a contractor you are, guys if you are in the contracting field, let’s say you perform a service. The reason you’re performing service whether it’s from lawn care, to landscaping, to hardscaping, to doing building additions, to being a remodeling contractor, to being in general construction, or roofing, is people are hiring you based on a certain level of trust and it’s not based on price necessarily. Some customers base their sole purchasing decision on price a majority, a larger percentage of them base their purchasing decision because you as a contractor made them feel comfortable because it’s a service you’re providing. It’s a service that if they were handy, if they were capable, if they wanted to do it they could. They could fix their own sink, they could roof their own house. Yes, they could roof their own house, look on YouTube they teach you how to roof to your own house. They can do it, they don’t want to. They don’t want to, they want to put their work in somebody’s hands that they feel comfortable, and this is what we’re talking about when you make them feel comfortable a 10% change, they don’t care.
Stan: 21:51 In fact as a contractor I have lost almost as many jobs because I’ve been the low price as I have because I’ve been the high price, and this is kind of a weird thing I need to really clarify this. I’ve been the lowest price on some jobs and the customer call mr. & mrs. Smith, can you just explained to me why I didn’t get the job? Well you were the low price and we just feel maybe you left something out and I’m like, I’ll raise my price, I promise you I’ll raise my price right now, but it’s too late at that point. And the point is it’s not about price when we get into what we do. It’s about creating the perceived value and creating the trust, and then you can easily implement it 10%. I mean if I’m not I’ll tell you straight up from a personal standpoint if I’m not the highest price now or the second highest price, I don’t even try. I mean it’s got if I’m a third lowest highest price I have missed something, right, there’s absolutely no reason if they say I hired you because you’re the lowest price I’m like let’s talk here, let me think about this so it’s very easy.
Stan: 23:02 But all right, where are we going with this next, Phil?
Phil: 23:06 This is where confidence comes in, when your numbers you can stand absolutely confident, not firm, it’s not a defensive position it’s just a confidence … I mean I tell customers all the time, no, I can’t lower my [inaudible 00:23:22]. And get asked, people do ask like we really love you, but can you lower your price? No, I can’t, but here’s what I can do for you I can make sure this job gets done correctly, on time, exactly as I’ve described it with no surprises unless there’s something outside of the scope of work that we haven’t already discussed or there’s something that’s in a clause that we’ve clearly outlined. But I’m not afraid because I know my price I know that if I’m looking … and this is where it gets to be a problem. If you’re growing your company and this is the first time you’ve done a $5,000, or $10,000, or $20,000 project you get all excited you get emotional. You’ll be like, oh this is what I’ve been waiting for, I got the big $15,000 renovation job laying it right in front of me. And I met with him last night and then they asked me could I do it for $14,000 and I told him yes because you’re all excited and you’re all into it. No, this is where you got to stand strong and because when you start negotiating on your …
Phil: 24:17 Look, if you lose money on a $500 job it’s a lot different than if you lose it on a $15,000 job, you can really lose a lot of money on that. Stand strong to your price and constantly communicate the value. You start running your company from a position of strength and you start making decisions that you absolutely know are going to make your numbers what they need to be because there’s nothing better than printing off that financial statement at the end of the month and being like, okay I made profit on this job, on this job, on this job, and just go down the line. You should be making profit on every single job so you always overcome that price by adding value. If you’re going to add ten percent to your price find a way to add 20% in value just value added.
Stan: 25:03 Closing thoughts, Phil, what is our next webinar going to be on?
Phil: 25:09 I actually have to go back to the first because we’ve broken this up into the … I don’t know if I have what’s coming up next or if we want to just quickly scroll back to that first slide. And I can show you what we’re gonna get into oh I love the next one, we talked about the magic of margin. I love talking about net profit, net margin of profit monster jobs. There are certain jobs that will call out to you, the Phil, Phil [crosstalk 00:25:36]. They’ll call your name [crosstalk 00:25:40]. You know what they are and I swear to you after a while you start to get to know them from the second you pick up the phone call. Something in their voice tells you I’m willing to pay, this is urgent, I’m only gonna look at you please come fill and exceed my needs and you’re hired. And that’s what you do, these are profit monster jobs. I’m gonna tell you to quickly identify them and to get in there and just become the man on these jobs. And then we’ll close it out by talking about setting goals and the number one thing that you must get right in your business, guys, 30 days and this can totally transform your business.
Stan: 26:25 Absolutely, and we go in-depth over at Dirt Monkey University in our mastermind group, this is what we talk about every single day of the week we’ve got over 350 contractors that work together. So over inside of our mastermind group what they’re doing is these guys are setting themselves apart from the herd. We do not talk about competition we talk about cooperation. And what happens is we’ve got contractors from different areas all coming together, they’re meeting, they’re helping each other grow their businesses, they’re lifting each other up because when you have a team of people. When you go online you’re like I’m stuck, I just broke a water line, I just ran into a truck what do I do and you got five guys coming on going, I did that last year, this is how I handled it. It just helps you relax a little bit, takes just a little bit of weight off your shoulders and it allows you to focus on other things in your business, that’s our goal over at Dirt Monkey University.
Stan: 27:25 So I want to thank Steve and Barrett from Jobber for helping us for allowing us to come on. Make sure you guys stay tuned because profit monsters is huge.
Barret: 27:41 Thanks guys that was awesome I like so much great information from the micro changes. And I just want to reiterate too about the mastermind group, when you’re talking about the three percent changes of [crosstalk 00:27:53] people that are watching thinking how can I do this? I’ve been at the mastermind group and the cooperation the collaboration you can ask those questions it’s such an awesome network of contractors that you guys have built, so definitely check out the mastermind group, Dirt Monkey University. Stay tuned for part two, my mind is blown with all the information from part one so can’t wait for part two, looking forward to it guys.
Stan: 28:18 Great, thank you.
Flip Your Business: Video Series Part 2 and 3
If you enjoyed this video series access the remaining parts, 2 and 3, make sure you scroll to the top!
The magic of margin and your bottom line—essentially the amount of money you put into your bank account at the end of the week, month, and year.
A simple formula to help you reach your sales goal for the year.