150: The X Factor and How it Drives Higher Profits

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What if a single number could transform how you think about discounts, broken tools, or even your team’s decisions?

In this episode, Steve reveals the "X Factor"—a deceptively simple formula that will make you rethink every dollar in your business. Learn how this tool turned his landscape company from chaos to profitability and why it can do the same for you.

Don’t miss out on this eye-opening method that could save your business thousands and supercharge your bottom line.

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Episode Transcript

Steve (00:00):
You don't have to be this big accounting nerd, doing all
these debits and credits andwhiz bangs and magic in order to
be effective with finance.
This is Boosting your FinancialIQ, where I help business
professionals with financialresponsibility to elevate their
careers and run profitablecompanies.
My hope is that you'll applythese lessons to achieve your
greatest ambitions, cheers andenjoy If you're making financial

(00:24):
decisions in your business.
I'm going to show you how tocompute the X factor, what it is
, how to apply it to drivebetter behavior and, ultimately,
how to increase yourprofitability.
So here's the deal.
It's super easy to compute.
If you go to your incomestatement, your P&L, your profit
and loss statement all the samething and you look at the very
top line, that's going to showyou how much your company does

(00:45):
in revenue or in sales.
Then, if you scroll down to thevery bottom of the same
statement, you'll find netprofit.
Right, that's your net profitmargin.
So if you take your revenue anddivide that by your net profit,
you will come up with your Xfactor.
So let me put some numbers toit.
Let's say your company does amillion dollars in top line

(01:05):
revenue and you have $50,000 innet profit.
Well, a million divided by50,000 is 20.
So that's your X factor.
It's 20.
Let me give you another example.
Let's say you have a milliondollars in revenue and a hundred
thousand dollars in net profit.
A million divided by a hundredthousand is 10.
That's your X factor.
So the higher your profitmargin is, the lower your X

(01:27):
factor will be, which is a goodthing.
So let me explain Back in theday, when I was 16 years old, I
started my first company.
It was a landscape business andmy financial literacy skills
were like zero.
I could barely even read afinancial statement, let alone
understand the levers of profitto really influence our
financial performance.
But as the years went on, I didlearn how to compute the X

(01:50):
factor and that was enough toradically change behaviors and
mindsets throughout myorganization and it increased
our profitability.
So here's the story we used todo these big projects right,
these big landscape projects.
Sometimes jobs were over ahundred thousand or over 500,000
, but we were doing these bigprojects right, these big
landscape projects.
Sometimes jobs were over100,000 or over 500,000, but we
were doing these big jobs right.
And we had these landscape rakes.

(02:10):
They were these big metal rakesand at the time, back in the
late 90s, the early 2000s, theywere over 100 bucks.
So that was a lot of money backthen.
Nowadays it may not seem like alot of money, but it was a lot
of money.
And so we'd have these bigrakes that the crew would use
and they would rake the soil,they'd remove the dirt clods and
they would provide a fine grade, so then we could lay sod down

(02:33):
and then create these beautifullawns for people, right?
So inevitably the crew would beout there, they'd be raking the
soil and then they would leavethe rake on the ground and then
somebody would come along in askidster that's a tractor like a
front end loader, that's whatwe used to scoop up dirt and
rock and move it around the jobsite.
They'd come along in thetractor and they'd run over the

(02:53):
rake because they didn't see itor it was in a blind spot.
They'd back over it, whateverit was, and it would mess up the
rake and of gnarled it intothis pile of metal.
And I'd always get frustratedwhen I was on the site and I saw
another broken rake.
I'm like what the heck?
We just bought five more rakesand you just broke three of them
.
Okay, what's going on.
They're like Steve, just chillout, it's only a hundred dollars

(03:15):
.
You're making all this money onthis job.
It's over a hundred grand.
I think you can afford a brokenrake.
So when I figured out this Xfactor, everything changed, like
I said, because thecommunication changed.
Let's just go with the 20Xexample.
So remember I said a milliondollars in revenue divided by
$50,000 in net profit.
Our numbers were a lot higherbut nonetheless our X factor was

(03:37):
around 20 at the time.
I know kind of sad, but that'swhat it was.
So then I would go to my crewand say look, here's the X
factor and here's how you applyit.
If you take the X factor andyou apply it to a cost or a
discount in your business, itwill tell you how much you have
to do in revenue in order tomake up for that cost, that

(03:57):
discount or that loss.
So in this example with therake it's a hundred dollar rake
Our X factor was 20.
That means a hundred times 20meant that we had to go out
there and do $2,000 more inrevenue in order to pay for that
rake.
Because you have $2,000 inrevenue, you do the math and
we'd end up with a hundreddollars in profit at a 20 X

(04:18):
factor and that would give usjust enough money to go buy
another rake.
And so I told my crew that Isaid, look, we have to go out
there and do $2,000 more work.
So remember that rock you movedon the side of the house the
other day.
When you're sweating, your backwas like breaking and you're
like cursing me out for doingthis.
When it's a hundred degrees,guess what.
We have to go do that again inorder to pay for this rake,

(04:42):
because that's equivalent of$2,000 of more work.
And they're like, oh, okay, Isee.
Then I expanded this example tomy estimators, my sales team,
when they're going out there toclose projects and a customer
would say, hey, look, the job isyours if you can just come down
by $1,000.
And it's like, okay, we'llapply the 20X factor.

(05:05):
So 20 times 1,000 means thatyou have to go out there and
sell $20,000 more of work.
Go execute on that work at thesame margin, just to cover that
$1,000 in discount that youoffered that client.
And they're like, wow.
And their minds are like, right, just exploded.
This changed everything in mybusiness because we got rid of

(05:26):
discounting.
We're like this is the price.
This is what it is.
We were way more careful withour tools and our resources,
which reduced our cost of goodssold, which increased our gross
margin and, ultimately, ourbottom line.
And so it's simple things likethis, like the X factor, that
I'm explaining to you right now,that you could learn and you
could apply to your business and, as you'll notice, you don't

(05:47):
have to be this big accountingnerd, doing all these debits and
credits and whiz bangs andmagic in order to be effective
with finance.
Super simple, right, it's justbasic math, and I know you could
do division because you'resmart and you're way smarter
than that and you can evenhandle more advanced topics.
But that's where the X factoris super powerful.
Compute it in your business,start communicating it to your

(06:09):
team and eyes will open up and,all of a sudden, your financial
performance will improve.
All right, that's what I havefor you.
If you found value in this, asalways, I'd love for you to
share, so we can get the wordout there and until next time,
take care of yourself.