The Pay-for-Performance Model That Attracts A-Players - Mike Andes - Profit & Grit with Tyler

Episode Transcript
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SPEAKER_02 (00:01):
I pay crews over$30 an hour to mow lawns and I still
make a profit.
Hourly pay is killing yourbusiness.

SPEAKER_00 (00:09):
Welcome to Profit and Grit with Tyler, where blue
collar owners and insiders spillthe real story behind their
hustle, building businesses thatthrive through sweat and smarts.
We'll dig into their journeysfrom scaling chaos to growing
the bottom line with lessons andgrit that pay off big.
Here's your host, the bluecollar CFO, Tyler Martin.

SPEAKER_01 (00:32):
So today we have Mike Andes joining us.
He's a guy who's quietly builtone of the most systematized,
tech-powered service businessesout there.
He's the founder of Augusta LawnCare, now with over 170
franchise locations.
He's also the creator of CopilotCRM.
This is a CRM.

(00:54):
It's used by home servicebusinesses like HVAC, plumbing,
electrical, and of course lawncare.
This conversation dives into howhis near-death experience forced
Mike to systematize everything,why he pays more to his staff to
save more, and how automation ischanging the game.

(01:15):
And last but not least, whatnearly took him out completely.
Let's chat with Mike now.
Hey Mike, welcome to the Prophetand Great Show.
How are you doing today?
Fantastic.
Thanks for having me on, Tyler.
Thanks for being here.
Hey, could you give me just aquick summary?
I'd love to know a little bitabout what you do professionally
and then a personal note aboutyourself.

SPEAKER_02 (01:32):
Yeah.
So we have 190 plus locationshere at Augusta Lawn Care.
I'm the founder.
They're franchised in the US,Canada, and Australia.
And then we do a bunch of mediaon do turnarounds fly around the
country, trying to help othersmall business owners in the
home service industry.
And then also have software atCopilot CRM for home service
business owners to hopefullyscale up their company.

SPEAKER_01 (01:50):
Yeah, that's great.
And I do just want to, youmentioned it, but I want to dig
a little deeper.
I love your YouTube videos.
I think there is so mucheducational material in those.
You go out around and youactually go to their locations.
You deal with turnaroundsituations.
And I think it is such a coolone, I think it helps a lot of
business owners feel likethey're not the only ones
struggling because I think a lotof times we feel that way.

(02:12):
At least that's what I hear frommy own clients.
And then two, there's just awealth of knowledge in there in
terms of how you the advice thatthey get, the the things that
they need to do to improve theirbusiness.
So that's a huge resource too.
I don't want to, I I know it'sjust we're just in the opening,
but I don't want to gloss overthat because I think it's such a
great resource.

SPEAKER_02 (02:28):
Yeah, I think the the goal in that is to try to
have education by observationinstead of education by theory.
It's pretty easy to walk up to awhiteboard and start showing all
the theory of business, butsometimes it's just easier to
see it in other people and belike, okay, I'm not the only
one.
And at the very least, it'slike, hey, I'm not the only one
struggling.
Because so often the times theonly things you see on social
media or on YouTube is the winsand people doing well.

(02:49):
Uh, and so if you arestruggling, you're not the only
one.
And furthermore, there is thepossibility you can turn it
around given certain businessprinciples being changed.

SPEAKER_01 (02:56):
How often when you get into those scenarios, do you
ever have like a preconceivedfeeling like, oh man, there's
just no hope here?
Or are you always going inreally positive?
Like you felt like there, youknow, no matter what, you're
gonna be able to have an impact?

SPEAKER_02 (03:08):
There's certainly, you know, you get jaded after a
while of seeing so many thatdon't take execute, you know,
execute after you leave.
And so, but I'm pleasantlysurprised.
Even the other day we were outin Tennessee and we went to a
location that was doing amillion dollars in revenue.
And I went and told the team,like, I don't think this guy's
gonna change.
Uh, there's just been too muchhistory of him not taking uh
instruction and education andexecuting.

(03:29):
By the end of talking to him, Ithink, okay, hey, you know what?
I think there's a plan in place.
I think he's humble enough tolearn.
And I think that's really thefirst step.
And if they don't have thathumility, then they can't change
the business quickly.
And a lot of times when we'regoing in, they're on the brink
of collapse.
And so if they don't changequickly, the business can fail.
And so um, it's kind of a highstakes situation.
But I certainly have been wrongon some of those occasions when
I'm like, I don't think they'regonna change, or vice versa.

(03:51):
I'm like, oh yeah, they're gonnado great.
And then six weeks later,nothing's changed.

SPEAKER_01 (03:54):
I think that's one of the hardest things in my
professional services is youwant to help people.
And it took me a long time tounderstand this is you know,
it's really up to them.
Like you can give themknowledge, you can give them
processes, you can have theroadmap, but the execution, I
think, is where people reallystumble.
Like they just, I don't know whyit is, but just as humans, we

(04:14):
have trouble just actuallymoving forward.

SPEAKER_02 (04:16):
Yeah, no, and and and that's the part I really
identify with in terms of beingstuck and feeling like you're
working 80, 90 hours a week,there's no money in the bank
account, you don't know what todo.
And it's not necessarily thatI'm super smart coming in and
showing what's wrong in thebusiness.
I think most people could lookat someone else's business and
be like, oh, yeah, change thesefive things.
But it's a it's just a differentperspective.
And if as long as someone'swilling to be humble enough to

(04:37):
listen to someone else that doeshave a third-party view, uh a
lot of times the business can bechanged uh and turned around.
Yeah, that's good stuff.

SPEAKER_01 (04:43):
Okay, where I'd love to start out with, you had a
wake-up call, I guess I wouldcall it for lack of better
words.
And your entire business modelchanged after you had a PTO
shaft accident.
And as I understand it, PTO islike this circling type of uh
shaft that sounds pretty scary.
Can you take us through that?
What happened?

SPEAKER_02 (05:01):
Yeah, the power takeoff is underneath a dump
truck, kind of spins underneathand is what powers the actual
dumping mechanism.
And so I had a big dump truck,uh 4L7000, like a 1991 old dump
truck.
And we were uh that morning, Iwas going to a job site, I was
gonna dump three yards ofcobble, show the crew around the
job, and then go back to theoffice and then do estimates the
rest of the day.

(05:22):
And unfortunately, the the leverinside of the cab had broken
that turned the shaft on, thePTO.
And so I was going underneaththe dump truck and just manually
turned it on.
And I I had done that probably20, 30 times that week already.
But I went underneath thatmorning, I had a hoodie on, and
the hoodie got caught in the PTOonce it got started.
And so kind of within a splitsecond, it was cinched up my my
t-shirt and then my sweateraround my neck.

(05:44):
And I thought, you know, I kindof had a split second that being
pinched up against the uhgearbox kind of hit my um, you
can still kind of see the someof the scars in the bicep.
And so that kind of kept me fromspinning over and over.
And that's usually what happensis is if you get caught in a
PTO.
And so um, yeah, it was kind ofa wake-up call, a couple weeks
of not being able to work,realizing the business was built
on my personality, me working ahundred hours a week instead of

(06:06):
systems and procedures.
And so that was kind of like theturning point.
I had already gone to get mymaster's in business.
And so I already knew liketheoretically how a business
should should operate onsystems, but spending the next
few months turning the business,my own business around, creating
systems and procedures, uh, andthen documenting that uh on
YouTube and landscape businesscourse just to be able to give
that back to the community.
Uh so hopefully someone elseavoided all the mistakes I made.

SPEAKER_01 (06:29):
What happened like within your business itself when
you were gone for those few likeweeks?
Like what was taking place?

SPEAKER_02 (06:35):
Yeah, like fortunately, I had a couple of
really, really good people thatkept the business afloat.
But I think from a financialperspective, if I had dependents
and had to be taking money outof the business, I probably
would have gone bankruptotherwise.
Fortunately, I was single, I wasliving at home, my expenses are
super low.
So I was able to get through it.
But when you're really, reallytight on cash, and like I was,
if I would have been having totake out personal expenses, it

(06:56):
would have been you knowcatastrophic.
And so I think there's a lot ofpeople in the home services and
many businesses that are living,you know, basically paycheck to
paycheck.
And an event like that wouldwipe them out.
And so I realized that I had nosystems.
I'm I was literally on thehospital bed, FaceTiming my
crew, so showing them the nextjob site, because I didn't have
systems around job notes andestimate videos and showing them
what they should be doing.
I was the bottleneck for all ofthat.

(07:17):
And so kind of deconstrainingthe business and taking out the
bottlenecks, allowing theentrepreneur to focus on being
more of the architect instead ofworking inside the business is
really the objective of a lot ofthe systems that we talk about.

SPEAKER_01 (07:27):
Wow.
Did that that experience in someway shape, reshape or change
your leadership style?

SPEAKER_02 (07:33):
I think it probably shaped a lot of the why, why we
do the content, why we do thesoftware, why I did the
franchise, why I started makingvideos on YouTube, why it's all
free.
I simply just want to preventthe person that I was at, you
know, 19, 20 years old trying tofigure all that out and making
tons of mistakes.
I want to prevent the personthat is 30, 40 years old, has
multiple kids, and a spouse thatthey're trying to take care of.

(07:53):
If that happened to them, itwould have been a probably
bankruptcy.
And so hopefully trying toprevent them from that pain.
And I know it's like to bethere.
And I just want to hopefullyprevent that from other people
going to the same thing.

SPEAKER_01 (08:03):
Yeah.
Okay.
I want to shift gears a littlebit.
I want to talk about this modelthat you have, this P for P pay
for performance.
You pay, I think, somewherearound$30 an hour for folks to
mow lawns, which is a prettyfair rate.
I mean, that's a good, goodrate.
What's the purpose of thatmodel?
What's your thought process onit?
Kind of take me through how itworks.

SPEAKER_02 (08:24):
Yeah, so P for P is stands for pay for performance.
It's not like it's super new.
There's certain like piece workand there's commission-based
pay, et cetera.
So the essence of it is like theharder you work, the more money
you make.
And I think most business ownerswant to pay their employees
based upon that way, but thenthey have like 10 different
reasons why it won't work.
Well, I have shop time.
What happens if I need them touh work with someone that is of
lesser skill?

(08:44):
What if I'm they're training?
Uh, what happens if someonemakes a mistake?
Is it are they gonna go superfast and make a bunch of damages
to my customer's property andthen they're making a bunch of
money at the same time?
So there were all these reasonsas to why P4P wouldn't work.
And that's why most people don'tdo P4P.
But we just systematically wentthrough each of those things I
just mentioned and many more andfigured out a way to calibrate

(09:05):
that and make sure we could keeptrack of it for big projects,
for mowing routes, for shoptime, for training, all of these
things.
And so that was really theessence of it.
We created software on it, butultimately the the training of
it can be done in Excel if itneeds to be, is originally where
we started it.
And so yeah, it was just afunction of like, I want to pay
people based upon how hard theywork.

(09:25):
Basically, it's just apercentage of the labor revenue
they earn for the business iswhat they they get in their
paycheck.
Uh and we obviously honor acertain minimum base pay and
making sure that they're gettingovertime and um all the laws are
dotted and crossed.
But uh, we're making sure thatif you're willing to show up,
work harder, put more effort in,you do make more money.
And so uh if you're able to payyour average employee, you know,

(09:48):
eight,$10,$12 more per hour thanthe going rate in your market,
you get the best talent.
And the best team members wantto work with hardworking people.
And so the the number one way todiscourage an A player is put
them with a whole bunch of B andC players that are simply just
trying to pass the timethroughout the day.
And when you pay someone by thehour, it's that you're simply
incentivizing them to make thejob take longer.
Whereas from a business owner'sperspective, you make more money

(10:10):
the shorter the job takes.
And so the goal with P for P isjust get everyone aligned, going
the same direction, which islet's get this job done
efficiently and to the custsatisfaction of the customer.
And if we might meet those tworequirements, we should all be
able to make more money.
And uh by doing that, weeliminate a lot of waste.

SPEAKER_01 (10:24):
Yeah.
How do you handle?
So I totally get you the hourlypeople are gonna stretch it out,
pay for performance, they'regonna try to drive revenue.
But I also have heard sometimespeople will kind of just rush
through the work.
And so they may not give as gooda quality work just because
they're trying to get to thenext job and they're trying to
get it done.
How do you counteract that or ormitigate that from happening?

unknown (10:45):
Yeah.

SPEAKER_02 (10:45):
So we have a function called yellow slips.
And so P per P rewards quantity,the speed at which you're doing
work.
Sure.
And so you have to have acountermeasure of quality,
otherwise, to your point, peoplewould just rush through things.
And so yellow slips or callbacksor complaints from customers
trigger yellow slip.
And when a yellow slip pops upand someone has to go back to
the property, well, the laborrevenue has already been earned.

(11:08):
So them going back to theproperty and fixing the mistake,
et cetera, has there's no morerevenue being made.
It's gonna sink their P for P.
Also, they have to then readthat yellow slip in front of the
team as an educational purposeto be able to teach everyone,
hey, this is what I did wrong,here's what I had to go do,
here's the customer's name,their address, and you know,
this is the mistake I made andhow I rectified it.
And it's not necessarily like aberating of them, but it's it's

(11:29):
more of a function of us alllearning.
And many times the thing is too,once you institute P for P and
then you have profit sharing, ifsomeone's consistently doing
this and we're losing customers,they're making damage cases, now
it's affecting the profitabilityof the whole business and the
entire team will push thatperson out.
And so many times when it comesto hourly labors, you can go
weeks and months go by beforeyou fire someone.

(11:50):
Then all of a sudden you hearall these stories versus when
the entire team is trying to beas productive and efficient and
profitable as possible.
Now, within a day or two, ifsomeone's doing that sort of
thing, uh, if they're going toofast, if they're making damage
cases, if they're damagingequipment, if they're slacking
off, the team is immediatelytrying to reject them and push
them out.
And so it's it's really aself-cleansing mechanism for the

(12:10):
team out in the field.
And yellow slips really keepthat person from ever making a
bonus.
And if someone keeps hittingbase pay, eventually that's the
person we're gonna have to letgo because they're
underperforming and they'rebringing that on the average uh,
you know, crew uh efficiency.

SPEAKER_01 (12:22):
Sure.
I love, you know, as a leader, Ican tell you you're a good
leader and you're humble becauseyou frame the yellow slips and
having to share it in front ofthe group as it's a tool for
education.
And I totally agree with you.
I think that's a great angle tolook at it.
But the truth of it also is it'shuman nature.
No one that has pride in theirwork wants to stand up in front

(12:43):
of their group, regardless ofeducational or not.
And so it's also a deterrent,for lack of better words,
without you having to say, hey,I'm trying to put you down or
this is punitive or whatever.
I mean, it kind of justself-governs itself in that
regard, I guess is what I'd say,which is pretty cool.

SPEAKER_02 (12:58):
Yeah, like you want your team if the accountability
is taking full ownership of thewins and the losses that you
have.
And so the wins are like the jobwas done more efficiently than
you thought.
You figure out a way to get thejob done faster.
Uh the customers were superhappy.
Great, you're gonna make waymore money on P4P.
But also, on the downside, ifyou make a mistake, if you
forget something, if you don'tdo a walkthrough, if you damage
property, there's downsides tothat.

(13:20):
And so it's a self-regulatedsystem that we're now as the
owner, I'm not having tomicromanage or tell people what
they're doing wrong.
It self-monitors, the team tellseach other, they hold each other
accountable.
And in front of each otherduring a team meeting, we all
learn.
But also, yes, there's actuallyabsolutely social pressure when
it comes to I would rather takethe hit financially and go work
a little bit longer at this jobthan have a yellow slip and have

(13:41):
to tell my entire team what Idid wrong.

SPEAKER_01 (13:43):
When you go out to these turnarounds, I'll call
them, when you're talking withpeople, I'm sure this comes up,
this type of model.
What's the pushback you get?
Like, what do owners say to youon why or do they give you
pushback?
Because I know within my owncareer, sometimes I get
pushback.
Oh, we just can't do it thatway.
Oh, we don't want to do it thatway.
What do you get pushback everwhen you go out there?

SPEAKER_02 (14:02):
Most of the time, the reason people actually don't
is one, all the differentreasons why they think it can't
work in terms of like, well, Ihave big projects and I have
small jobs.
I have really skilled employeesand I have lower level skilled
employees.
I have people who do aredrivers, I have non-drivers.
So like there's those reasons.
But I actually think the biggestreason most people don't do P4P
is because they don't actuallyhave accurate budget hours.

(14:24):
They don't know how long theestimates are not accurate.
And so if you don't haveaccurate budget hours, if you
don't know what your hourly rateis, then if you institute P4P,
it's going to show that to yourteam that you don't know what
you're actually talking about.
And then there's huge culturalbacklash.
And so most of the time, likethe foundation that being able
to do P4P is you have an hourlyrate, you have budget hours on
every single task, every singlejob, you know what your labor

(14:46):
rates are.
Uh, and if you don't do that,then you just you launch P4P.
And if your budget hours are 10and it takes them 30, well,
they're all hitting base pay andgoing to be super mad at you.
And so you've got to have acertain level of accuracy.
And this also forces thebusiness to be able to simplify
and standardize the services soyou can have accurate estimates.
Because if you do haveinaccurate estimates, it now
affects the paycheck of the teamand they're gonna hold you

(15:07):
accountable to that.

SPEAKER_01 (15:07):
Yeah.
Would this work for something inyour mind, like for like an HVAC
company or a plumbing company,where I do think, like, you
know, I think with Pricebook,they have a pretty complex
amount of different things.
Could it work in a model likethat?
What's your thought process?

SPEAKER_02 (15:20):
Yeah, as long as you have the very minimum you want
to have what labor revenue isgenerated for the business and
then the product revenue.
Because the product revenue isthings like, you know, if you're
installing a new furnace or anAC unit, like you're not gonna
give a cut of that revenue tothe technician.
The technician earns the valuethey add is the labor.
And so how efficient theyperform that labor is the

(15:40):
mechanism by which I'm gonnameasure their performance.
And so as long as youdistinguish between the material
markup or the product markup andthe labor, then you should be
able to do this, no problem.
We actually have like using theP4P software, we have like
restaurants that do this, wehave some like all crazy amounts
of other services that youwouldn't ever think actually use
P4P.
But they just simply, okay, ifif we are cleaning hotel rooms,

(16:01):
for example, if we can just say,okay, the budget hours in each
room, two hours.
Great.
That's what's allocated.
If they do it in 30 minutes,they get paid as if they did it,
it took two.
If they take three hours, theyget paid as if they did two.
So like it's just a function ofdo you have the labor broken out
from the product?
And that for HVAC, that'susually the biggest thing I see
people not doing.
Is like they're like, well, thenew furnace is$5,000.

(16:24):
Well, what's the breakout of thematerial and the markup of that
material versus the laborrevenue?
So as long as you break outlabor revenue, then you can do
it.
Got it.

SPEAKER_01 (16:32):
Okay.
Do you have any data in terms oflike how it changed your numbers
in terms of whether it beincreased efficiency,
productivity, or any type ofdata points?

SPEAKER_02 (16:42):
Yeah, like the reason I believe in is because
like the year I instituted itwas the the year after my
accident.
And it was because like thebusiness had no money.
People that deserved payincreases in the business
weren't getting them.
People that had just been aroundfor a long time were making more
money, but they didn't reallyearn it.
They weren't working as fast.
There's new people making lessmoney per hour, but making the
business three times as muchbecause they are hustling.

(17:04):
Like it just didn't make anysense.
There was no meritocracy.
It was like very, very random.
And so I did it as a really amatter of I had to do this.
Like I had to switch to thismodel to make money.
And so the year after we did it,I went from basically break-even
to$280,000 of distributions fromthat first location.
And I went from working 80, 90hours a week at the office to

(17:24):
one hour a week.
And so I know the power fromfrom like from my perspective as
the owner.
And so when I I talked thispassionately about it and we
built the software andeverything for it, it's just
because like I just want peopleto use it.
I want people to be able to seethe the influence in their
business.
I want to see the culture changein the industry as a whole,
where team members feel likethey have a place to go.
The harder they work, the moremoney they do make.

(17:45):
Uh and you know, merit isrewarded.

SPEAKER_01 (17:48):
Yeah, very cool.
Good stuff.
Hey, I want to uh switch gearsinto just your whole technology.
So you've built Co-Pilot CRM.
It's a product that leans intoor is for, I should say, for
home service businesses.
I'd love to talk about likewhat's the upside of using that?
How does that fit into your ownbusiness?
Who is it ideally designed for?

(18:08):
Is it any certain types of homeservice businesses?
That would be a good startingpoint for me.

SPEAKER_02 (18:12):
Yeah, I think it's really designed for someone to
build their business over amillion in revenue.
Uh, if someone's wanting to go alot smaller, you probably need
something as powerful asCopilot.
And so we built it as likethere's lots of different
software.
There's so many differentoptions.
And so there were just so manydifferent areas where like none
of them fit exactly what weneeded at Augusta and what I
wanted in the software.
So the reason we built it waslike, hey, we can just we just

(18:33):
need to take control of this.
And we know it'll be a bumpycouple of years to kind of get
up to speed, get the team andthe engineering, all that done,
and uh getting that team naileddown.
But once done, we can have theability to kind of fill in a lot
of the holes that I saw.
And so it really focuses mostlyon like getting more customers.
So whether we mass texting allof your customers, mass
emailing.

(18:53):
Um, there's a lot of thisfunctionality, even around like
budgeted hours and using that aslike how to schedule, like it's
all based on budget hours.
Budget hours is the is thepremise for scheduling, it's the
premise for dispatch, it's thepremise for my pricing, it's the
premise for my pay forperformance.
And so we just built it allaround like the core concepts
that we talk about.

SPEAKER_01 (19:09):
And that's that's really why we did it.
Got it.
And how is AI playing into thatnow?
And where do you in fact, whatgeneral question?
Where do you think AI playsright now with home service
businesses?
And then how does it alsointeract with your software?

SPEAKER_02 (19:22):
Yeah, I think right now it really increases the
efficiency of the admin person.
So they should be able toproduce 30, 40% more because
emails can get automaticallywritten for them, estimates can
get drawn up for themimmediately, pricing can get
done immediately.
Um, they can take transcriptsfrom a video that the estimator
made and immediately make anestimate just using, you know,
AI and the transcripts.
So there's a lot of power interms of the admin side that it

(19:43):
can get much more efficient, aswell as on the sales side to be
able to automate a lot of tasksin terms of follow-up, text and
email based upon certaintriggers, what you do with it.
So there's a lot of power there.
I think in the future, uhscheduling and dispatch, um, if
someone has accurate budgethours, if they have accurate
pricing, if they actually putall the data around their team
into the software, there should,if they have budget hours, for

(20:04):
example, there should be anability to use AI to be able to
automatically schedule jobs.
Customer could click accept andimmediately they know the date
of service.
That's where I where I thinkit'll go in the future.
But right now, I think a lot ofit is the time of the admin
person writing emails, digestinginformation, finding
information, uh creating pricingproposals.

SPEAKER_01 (20:22):
That that's the part that really can be sped up.
Yeah.
You know, you mentioned about,you know, there's other packages
out there.
I'm not going to name any ofthem, but there's other packages
out there, and you didn't reallyfind one that did what you
wanted.
What was it specifically?
I imagine part of it is the P4P.
Was there anything else that youwere seeing that, hey, this just
doesn't fit what I wanted to do?

SPEAKER_02 (20:41):
Yeah, P4P was a big part of because we all operate
on pay for performance.
And basically, it would takeabout one minute per day per
employee to manually do thenumbers.
And so it wasn't huge, but whenyou start getting 15, 20
employees and then you time thatby 20 days and in no calendar
weekdays in a in a month, thatstarts to add up.
And so being able to sync allthat information to pay

(21:02):
P4Psoftware.com, all of it justautomatically creates the time
cards, creates the reports,gives the efficiency scores, has
a dashboard, that saves us a lotof time.
Also, the ability to be able to,like when we schedule a job, use
budget hours to look on thecalendar and say, okay, when is
the next available slot?
So we lean so heavily on budgethours because we just believe
that's the core element ofeverything in the business,

(21:23):
whether it be scheduling,dispatching, pricing,
everything.
And so that was really the mainfocus.
And then also to really use itas a marketing engine.
It's very difficult and costly,I should say, when you take
another platform and you have toconnect it with something else
to like do mass texting, forexample, and do mass email well.
And so that was some of thereasons.

(21:44):
I think the main thing is as welook forward to what AI is going
to do, it's also a matter oflike 10, 20 down years down the
road where robotics are going tobe.
We knew we wanted to have a legup in that.
And most important is I saw somany softwares doing a great
job, honestly, in the industry.
And I really could care lesswhen we use Copilers, like, get
organized, get in a CRM.
That's my main thing.
But the whole I saw is peoplewere given so much information,

(22:07):
so much reports, but theydidn't, and it was clear like
okay, great, my close ratiodown.
What am I supposed to do aboutthat?
Like, why?
And so I believe that all theinformation inside of a CRM is
the only thing that's requiredthat I need as a coach to be
able to tell someone what to do.
And so when I go on turnarounds,like the first half of my talk
with them is just likeexploratory, like what's your
close ratio, what percentage ofyour revenues recurring, you

(22:28):
know, how far is your servicearea?
And these things are alreadyinside of the CRM.
And so our goal is to be able totell the business owner what to
do next, like when to hire, whento raise prices, which services
they should cut out.
These are things that I think wecan do with software and the
information is there.
It's just a matter of how do wesynthesize this and give it
someone with full accuracy.
So like if you just let thesoftware tell you what to do,
it'll tell you when to hire,it'll tell you when to raise

(22:48):
prices, it'll tell you how yourclose ratio can be impacted,
it'll tell you what emails tosend.
And that's really the objectivedown the road is for it to tell
people what to do.

SPEAKER_01 (22:55):
Yeah.
You know, you kind of answeredthe question, but I still want
to ask it and just get yourfeedback.
What do you see when when you dogo and talk with these uh
companies that that need aturnaround or in a bad
situation?
What are the KPIs that they domiss most?
Because I'm I'm envisioningyou're asking them like all
these questions and they'reprobably giving you a blank
stare.

SPEAKER_02 (23:14):
Yeah, like the cornerstone is close ratio,
because the most basic is likewhat percentage of your
estimates that you send getaccepted?
Because if that's under 30%, wehave a big problem with funnel,
like the sales processtypically, follow-up process,
interact with the customer, theway that we're communicating
with them.
Um, if it's over 70%, usuallyit's a pricing, like immediately
raise your prices.
This is low-hanging fruit.

(23:34):
And then if it's somewhere inbetween, it's like, how do we
optimize this?
How do we take all the leaks inthe sales process and fix all of
them to where now it goes from50% to 70%?
And then I can raise prices.
I think the ultimate lever inevery business is to raise
prices.
And so if I can just my closeratio high enough by optimizing
my entire sales process, I canraise prices.
Because if you can raise pricesby 20% in your home service
business, you double yourprofits.
And so the whole objective of ahome service business should be

(23:57):
create high enough stickinesswith your customers that when
you raise prices by 20%, theystay with you.
If you just generate, just ifthat's your only focus, then
you'll double profits.
And so I think the vast majorityof us never raise prices.
We always stay in growth mode.
We're always trying to get moretrucks, get more employees, get
more debt, get more revenue, butwe never actually stop and like,
okay, like instead of doingthat, I'm just going to stop
marketing, stop hiring, stopbuying more trucks, and raise my

(24:20):
prices.
Because when you do that, youjust doubled your profit.
And so that's really my focus isuh pushing uh business owners to
do that.
Because with that doubling ofprofit, you now have the cash
flow to be able to take thebusiness to the next level.
Maybe wait six or 12 months, butyou now have the cash flow to do
so.

SPEAKER_01 (24:34):
So do you have some general rules in terms of like
where your marketing budgetshould be as a percentage of
revenue, what your operatingoverhead should be, what your
net profit margin.
Do you some have some generalguidelines of where you'd like
to see businesses at?

SPEAKER_02 (24:48):
I try to simplify it much more because it's so
industry specific.
It's based upon so manydifferent factors in terms of
how much capital you have, howfast you're trying to grow.
I just try to say, say, are youin growth mode or you're in
profit mode?
Growth mode is when you hitcapacity and you have so much
work coming in that you can'tyou cannot stay up with it.
When you hit that capacity, doyou buy more trucks and hire
more people?
If so, you're in growth mode.

(25:08):
On the flip side, if you hitcapacity and you have so much
work coming in, you're all youremployees are working full time,
your trucks are out every singleday, and you hit when you hit
capacity there, if you raiseprices and you do not hire
people and you do not buy moretrucks, then you're in profit
mode.
And I believe it needs to be abinary decision.
And someone's like, I want totry to grow and increase profits
this year.
I believe you're trying tostraddle those two things and
makes it very difficult to makedecisions in the business.

(25:30):
It's like, are we trying to growor are we trying to become more
profitable?
And those are two very contrarythings because when you raise
prices, you you push down yourclose ratio.
And so I think I just try tokeep it very simple in terms of
that, instead of saying, like,oh, a certain percentage,
because like if you're doing15%, does that mean you're doing
good and I should not raise myprices?
No, if you can raise your priceby 15% more, you just double
your profit.

(25:50):
Like, there's nothing wrong with30% margins.
And so I think the vast majorityof us just never get to where we
raise prices and we're always inthis grow, grow, grow thing,
like growing a bigger businessfor some reason, as if it's
gonna like lead to anacquisition or something like
when less than 1% of us aregonna get bought out.
So, like, let's make a businessthat makes profit, and then
doing that will allow us to havethe cash flow if needs be down

(26:10):
the road to grow.

SPEAKER_01 (26:11):
Right.
Good stuff.
Hey, I want to kind of step backa little bit and talk about an
issue that you had.
You at one point lost about 70%of your customers, and it was
attributed to delegating to thewrong person.
And I know you have sincesystematized and a lot of things
have changed, but I'd love tojust kind of go back to that
moment because I think there's agood learning lesson.
What happened there?

SPEAKER_02 (26:30):
Yeah, like whenever you do a price increase, it has
to be done right.
And so at the very beginning,when I raised prices, I didn't
know what I was doing.
I thought it was like it wasbased upon the time of year.
I thought it was based upon, youknow, am I am I busy right now?
There was no mechanism for likewhen do I raise prices with
confidence?
It's like it shouldn't be basedon like, oh, I need money in the
bank, I should raise prices.
It's more a function of what aremy capacities in terms of my

(26:52):
assets?
Like, are all my trucks beingused every single day?
And then my employees, are allmy employees being used every
day?
Do they have to work overtime?
And so if you hit that point,you actually need to lose
customers.
If you're already overworkingeveryone, all your trucks are
being used every day.
You either have to go buy trucksand hire more people, or you
have to raise prices to losecustomers.
And so instead of raising priceswilly-and-illy, or like, I got

(27:14):
to time it right during like thespring rush, or when everyone
else is busy, or like during theoffseason, do I give them three
weeks?
Like, look, I'm gonna get to thepoint where I need to lose a
chunk of my customers.
And at the very beginning, Ijust basically say, hey, I need
more money, I will raise prices.
Well, if you lose all yourcustomers because you are priced
out of the market, you're notdoing a great job, your quality
is low, you're gonna lose a tonof customers.
And so being much more precisein terms of when do I raise

(27:37):
prices, knowing that I do needto lose customers.
And I'm actually, I'm actuallylike, this happens all the time
at Augusta.
People are like, they hitcapacity and they raise prices
by 20, 25%, and they don't losehardly maybe one or two percent
of their customers.
And like, oh, snap, I shouldhave raised their price, my
price is more.
And so doing that in a much moresurgical and precise way is
really the thing that I missedearly on.
And when you raise price at thewrong time, when you raise

(27:58):
prices based upon things besidescapacity, that's when you lose
money.

SPEAKER_01 (28:02):
Yeah.
So what was the story there?
And maybe I have my data wrong.
So feel free to tell me if I'moff here.
I think you did you lose about70% of your customers as it was
part of delegating to the wrongperson?
Like, did that was that relatedto pricing and someone just kind
of unilaterally did prior, orhow what is the story there?
Is there a story there?

SPEAKER_02 (28:21):
Uh, not really.
It was really just a function ofmy inability to be able to know
how to raise prices.
Know what do you communicate tocustomers?
Do you give them a long time uhprior to the price increase?
It was ultimately my fault andjust my ignorance back in the
day.
And now seeing, you know, eventhis past month, I think about
40 or 50 locations that are gustto raise prices by a minimum of
20%.

(28:41):
And now, like the average personloses three to five percent of
their customers when they dothat.
Like if you lost three fivepercent of your customers, but
you doubled your profits, likewe should peek keep pushing this
button.
But back in the day, like nothaving a rhyme or reason or a
method to when to raise prices,because that is the goal, in my
opinion, of every home servicebusiness.
Create high enough quality of aservice to where when you raise

(29:01):
prices, customers do not leave.
And then just getting to thatpoint and um determining what
that point is.
Like, when will I raise prices?
Okay, well, you know, I need tohit capacity.
Okay, well, what is yourcapacity?
Well, how how much revenue couldI do?
How many customers could I servegiven the number of trucks I
have and the number of employeesI have?
Okay, that's my capacity.
When I hit it, I'm raisingprices.
And so getting really clear onthat is is really the prism by

(29:23):
which price increases should belooked through.

SPEAKER_01 (29:25):
Yeah, it sounds like you you're just saying, hey,
make it a lot more functionaland have have a game plan in
terms of how you're raisingpricing.
I know a lot of us as smallbusiness owners, I see this all
the time.
We're just there's not really arhyme or reason to it.
It's just because, or we we,it's not necessarily because
we're at capacity.
It's not necessarily becausewe're either in profit or growth
mode.
And I like that you kind of havea roadmap.

(29:46):
What do you typically see whenyou go to these turnarounds?
Are they usually underpriced?
I think the vast majority ofhome services are.

SPEAKER_02 (29:52):
Really?
As long as you're producing agood product to the customer.
The thing that really determineswhether or not you should raise
prices is your capacity andthen.
Near close ratio.
If you're only closing 10% ofyour jobs, you're gonna have a
real hard time raising pricesbecause now your customer
acquisition cost is so brutal.
Uh to you have to get 10 peoplein the door via your ads in
order to just get one payingcustomer.

(30:13):
That's a very hard model.
And it's usually very difficultto replace just return from your
recurring customers with thatmodel.
That being said, if you're 70,80, 90% uh close rate, you'd
probably be raising pricesbecause the customer, every
single time you give them anasset, votes on your pricing.
It's not your whether or notyou're a higher hourly rate than
your competition.
It's not if customers say you'reexpensive.

(30:35):
Your close rate is the thingthat actually determines whether
or not you're too high priced orwhat your pricing is.
If you're closing 80, 90% ofyour jobs, I don't care what you
say, you are not at highest inthe market, and customers do not
think you're too expensive.
So I would think like looking atthe j, you know, objectively at
the close rate allows me todetermine is someone overpriced
and is there room to be able tomove those prices higher?

SPEAKER_01 (30:56):
So what is that sweet spot?
Is it about 60%?
If you're closing 6%, you'reprobably priced right.
Is that a is that a fairstatement?

SPEAKER_02 (31:02):
Yeah, my my kind of ethos is like 30 to 50% is kind
of you're in profit mode.
Okay.
Uh 50 to 70%, I'm in growthmode.
I'm trying to optimize andtrying to reduce my customer
acquisition cost by increasingmy close rate and optimize that.
And if I'm over 70%, it's almosta no-brainer raise your prices
immediately by a significantchunk.
And if I'm under 30%, usuallyit's everyone jumps to I'm

(31:23):
overpriced, but usually there'sproblems in the sales funnel.
Uh, like, do you actually followup?
How fast do you get to thecustomer?
Can you do the pricing over thephone?
There's a lot of other thingsI'm looking at first.
But if all those things arepatched up, then maybe, maybe
you're overpriced.

SPEAKER_01 (31:37):
Got it.
Okay.
Last area I want to just kind oftalk with you about.
So you were at a very high priceconference.
I think it might even be like a$20,000 conference, and someone
approached you and you werechallenged at a live event, and
they approached you, and itsounded like they were a little
bit aggressive, maybe even.
Can you tell us the story behindthat?
Yeah.

SPEAKER_02 (31:54):
So I was on a panel at a conference, and basically
their perspective was like, youknow, hey, why are we talking
about hiring and getting moreemployees when we can't even
fill our own schedule?
And the reason was in partbecause like this individual was
a solo operator.
They had been that for probably10, 15 years, and they just
couldn't figure out like, whyare we talking about hiring and
growing a team if we can't evenkeep our team busy?
And so what I was kind of tryingto explain to him is like, look,

(32:16):
right now you don't have theconstraint of labor, but there's
really four reasons why abusiness will stop growing.
And it's what I call it thefour-oil framework.
It's either liquidity, so money.
If you don't have enough money,you can't grow the business.
The next thing is like if I takethat money and I turn it into
leads, the second L in thefour-O framework, well, then I
get more customers.
Well, that might be yourconstraint.
And for him, his constraint wasleads.
He didn't have enough leads.
And if you had enough leads, ifyou were completely overwhelmed

(32:39):
with leads, then the nextconstraint would be labor.
And that's what we were talkingabout in the time on the panels
like, how do you hire people?
What's the culture?
What's your interview process,all these aspects?
But he hadn't even got to thatconstraint.
And even down the road, if youever solved that problem and had
five, 10, 15 team members andlaborers, he would then have
another constraint of lateleadership.
Like you need a general manager,you need an office manager, you

(32:59):
need a sales manager.
And so this is just theconstraint and the cycle that
business goes through.
Uh, because even once you getgreat leadership, you now have a
liquidity problem because thoseleaders are overhead.
And so that's just the cycle ofbusiness.
And I think a lot of times weare always wanting to have the
next stage of like he had aconstraint of leads and he's
like, I can't, why in the worldis labor a constraint for other
people?

(33:19):
Your business is smaller and youhave not yet got enough leads to
make labor a constraint.
And so the reason I have the forL framework is because I I want
I want people to identify whatis my current constraint, why is
this business not growing?
And then focus all of your timeand attention on that.
And for that individual that waskind of frustrated, it was a
function of like, look, let'sfocus on getting more leads.
Because if you do, if you justhave so many leads pouring out

(33:40):
of your eyeballs, you would thenhave to hire more people.
And then what we're talkingabout would be relevant to you.
And so I think realizing thatnot all information is pertinent
to you as a business owner isimportant.
It's the size of business andthe constraint they're facing,
is really the thing thatdetermines what you should be
focused on.
And for him, he should not befocused on labor and hiring
employees.
He should be focused on gettingmore leads, so many leads that

(34:02):
he has to hire someone.
And so that was kind of theessence of that confrontation.

SPEAKER_01 (34:07):
And you know, one thing that I'll hear a lot,
especially like since youbrought up he's kind of a solo,
a lot of times they'll bring up,hey, I don't have enough
business to keep someone fulltime.
So I'm having trouble hiringsomeone.
What's your answer to that?

SPEAKER_02 (34:19):
Again, go get so many leads that it becomes
insane that you would not gofind someone.
Like, well, I can't find anyone.
Well, then raise your pricesbecause you have so many leads
coming in to where your clothesratio is a little lower, but now
you have enough margin on thosejobs to go hire someone for more
money, like five, ten dollarsmore an hour.
And so each of these constraintscan be solved.
But the reason that we I try tonarrow down just the four areas

(34:40):
is because otherwise you see ahundred different things you can
change in the business.
Oh, is it my website?
Is it my marketing?
Is it you know, how am I doingmy follow-up function?
Is my uniform showing I do Ichange the brand?
Do I need to have differentwraps on my truck?
It's like, no, like we just needmore leads.
How do I get more leads?
I need to get attention.
Okay, is that I have plenty ofmoney?
Great, run ads.
Okay, how do I do that?
Go get an agency if you need to.
Do I do I have a great website?
Like, do I wrap my truck?

(35:02):
Okay, I don't have money.
Okay, great.
Go knock on doors, go onFacebook groups, go on a next
door, talk to people about yourservice.
And so there's always a way tofix the constraints.
Most of the time, it's afunction of do we have the
actual intentional fortitude andthe desire enough to go do the
things that are hard and knockon people's doors, you know,
figure out how to make awebsite, figure out how to
design a logo.

(35:23):
These are the things that likemost people conceptually know,
but they rarely do.

SPEAKER_01 (35:26):
Yeah.
It's amazing.
I I probably interviewed inbetween my two podcasts, I don't
know, 300 seven and eight-figurebusiness owners.
And the ones that always performat the highest level.
I mean, I'm just all these namesare popping into my head as you
say that.
They're the ones that have, youknow, some guy, his name was
Jacob, literally learned how tocode his own website and built a
back end and never done a day ofcoding.

(35:48):
I mean, there's all theseendless stories of the people
that really are willing.
Dallin Husso does a pool servicecompany.
He's now a multi-million dollarcompany.
He he went out and literallywent with a net door to door,
just knocking to get his firstclients.
I mean, he hadn't even no ideato turn into a business.
So it's all these stories ofpeople that are willing to kind
of go above and beyond.
I don't even know if it's aboveand beyond, but do the hard

(36:08):
stuff, like you said, to justmove the ball forward in the
same vein of things that we'retalking about, just hiring
people and stuff.
What about seasonality in yourbusiness?
How do you deal with that?
Because I'm sure depending onwhat area of the country you're
in, there's probably winterseasonality that that shuts down
business.
How do you do that?
One, from a cash flowstandpoint, and two, from uh uh
not laying people off, or or howdo you mitigate that if

(36:30):
possible?

SPEAKER_02 (36:31):
Yes, like this is ultimately why I think that home
services are a terriblebusiness, is because most of us
have a huge seasonal problem.
And so we talk about lawn careand landscaping, usually four to
five months, revenue drops off acliff, leaves drop off a cliff.
And so I think that for mosthome service businesses and most
service businesses in general,the seasonal problem is the
issue because for four or fivemonths of the year, if you lose

(36:53):
money, you can be reallyprofitable in the other seven or
eight months, but now it netsout to very low margin.
And so the whole book about theoff season, it kind of goes
through five different ways tosolve it.
Um it's all free.
MikeGandy's dot com slashworkshop.
It's all free, all the training.
But there's five different waysto fix it.
One being, you know, shut down,and that is like lay everyone
off, uh, give them a return towork bonus.

(37:14):
The second one is do more andbetter.
So still advertise during theoffseason, knowing you have a
higher customer acquisitioncost, but then upsell those
customers consistently andstreamline that process so you
can increase the lifetime valueand make sense of spending more
on customer acquisition costs.
The third one is adjacentservices.
These are services that arealongside of your current
service that you don't need toguide a bunch of new trucks and

(37:34):
equipment.
You don't need to hire newpeople.
You can just train your existingteam and do those services
during the off-season whenyou're slow otherwise.
The fourth is doing a recurringor a maintenance package of what
you currently do during yourbusy season, but maintain or do
some sort of recurringsubscription during the
off-season to keep revenuecoming in.
And then the fifth way is addinga completely new brand.
Um, so we did this at Augustaeven last year, it's like

(37:56):
Augustalights.com.
It's all Christmas lights.
We create a whole new brandaround it in order to solve the
off-season problem for ourowners.
So those are the five differentways.
Uh, it's just a function ofgetting creative, doing some
math, and figuring out when isthe demand for this adjacent
service or this other brand orthis other thing I need to add
and bolt onto the business.
Because having where yourrevenue drops by more than 50%

(38:17):
in any month of the year.
So if your best month is 100grand, if you ever drop below 50
grand, we have you contract whatI call seasonitis, made up term.
Um, but it's like that diseaseis what kills so many home
service businesses.
And so solving that is the rootof many of our problems when it
comes to home service industry.
If you take one quarter out ofmost home service businesses,
they'd have a 25, 30% profitmargin business.

(38:38):
But that one quarter that'snegative 20, 30%, drags them
back down to single-digit profitmargins.
And so solving that should bethe focus for the vast majority
of us.

SPEAKER_01 (38:47):
Yeah, good stuff.
Hey, here's what I want to wrapup.
I'd love to know do you have amantra that you live by or any
type of saying or just mindset?

SPEAKER_02 (38:54):
Yeah, one I've had for a long time is just
sacrifice or regret.
You choose.
And ultimately, just like eithersacrifice a day or down the
road, you will regret not makingthose sacrifices because you
will not have the things thatyou attain and desire to have.
And so it's a decision you makeevery day.
Do I actually sacrifice and goknock on the doors when I don't
feel like it?
Or will I not knock on thedoors, feel comfortable today,
but down the road not have whatI my goals are?

(39:17):
And so the question is do youlove mediocrity and comfort more
than the goals that you aspireto have?
And making that decision, uh,that's a decision you're making
every day and every hour, uh,when you're voting every single
hour with what you're doing withyour time.

SPEAKER_01 (39:29):
Yeah, that applies to so many things too, like your
diet, even like are you willingto sacrifice on what you eat
today, or do you want to regrettomorrow for what you ate today?
Type of thing.
And it that's a big one.
Sacrifice is hard for us in ourculture because we're kind of a
instant, want it now instanttype thing, but that's really
what gets gained.
So that's a powerful one.
Hey, so your main website ismikeandes.com.

(39:51):
A so mike-n-d-es.com.
I'll of course put that in theshow notes.
There's several other ones.
There's P4P software.
Those are the number four uh Pfor the number four
software.com, uh copilotcrm.com.
But as I understand it, if we goto your homepage, that's
mikeandies.com, you can kind ofget to all those uh pages.
Obviously, your YouTube channelI should mention too, people

(40:13):
should watch.
I think it's really educational.
So hey Mike, I can't thank youenough.
You are a wealth of information.
How many books total do youhave?
I know I have the turnaround Pfor P.
I didn't even know you had anoff-season book.

SPEAKER_02 (40:24):
Yeah, those three.
So they're all free if you go toMikeGandy.com.
There's all video training thatbasically takes the concepts of
the book and you can just watchthe videos.
So uh otherwise, you if you'dlike audio, like yes, you can go
to Audible or Amazon.
But otherwise, just get it onthe on Mike Andy.
It's all free.

SPEAKER_01 (40:38):
Awesome, man.
Thanks so much.
I really appreciate you being onthe show and love, love hearing
all your wisdom and what youshared.
My pleasure.
Thanks so much, Tyler.
Thank you.
That was Mike Andy, someonewho's not only scaled 170 plus
locations, but he's also livedthrough the grind of being the
guy in the truck with no systemsand no margin for error.

(41:02):
What really stuck with me is howsimple the levers can be when
you're willing to look at thenumbers honestly.
Close rates tell you when toraise prices.
Budgeted hours show whether yourteam is actually efficient.
And profit doesn't come fromdoing more jobs necessarily.
It comes from pricing withintent and knowing whether
you're in a growth mode or aprofit mode.

(41:24):
As a fractional CFO, I see thesame thing in businesses I work
with almost daily.
Most owners don't need morechaos.
They need more clarity.
They need to know where the cashis going, when to raise prices,
and how to make decisions thatkeep them profitable year-round.
If you'd like to see how thisapplies to your business, please
feel free to book an intro callat cfointrocall.com or

(41:49):
cfomadeasy.com.
This is a no-pressurediscussion, just a conversation
about where you're at and whereyou want to go.
And most of all, thank you somuch for listening to Profit and
Grit.
Truly appreciate it.
And I will see you next week.

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The Pay-for-Performance Model That Attracts A-Players - Mike Andes

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Two Guys, Five Rings: Matt, Bowen & The Olympics

.css-15opob5{left:0;position:absolute;top:0.8rem;} All Episodes

.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}The Pay-for-Performance Model That Attracts A-Players - Mike Andes