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Hey everyone, it's Mike Andes, the Home Service Millionaire Podcast.
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Today, we're talking about the six numbers you got to know as the CEO of your seven figure home service business.
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Now, this is not to say if you only know these six numbers, you'll be able to run your business from the other side of the world, sipping martini on a beach.
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Not going to happen because you will need to dig in deeper to the data of the business if one of these six numbers is going wrong.
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If one of these six numbers is bad, if it's in the red zone, if it's not doing good, I can then with more precision, ask for more data or dig into the business.
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The reason I like to do this is because when I hand off a location, a general manager or a manager or department in general, I want them to run with it.
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I want to trust them.
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I want them to do well, but I also need to make sure that they don't go off the rails without me knowing.
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And so I don't want them to feel like I'm meddling and micromanaging them by constantly asking for reports and digging into numbers, having meetings over every little piece of data in the business, me spending hours combing through data and then presenting them with reports that don't align and asking for more information.
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They will feel micromanaged.
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They will leave.
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They will feel like you don't trust them.
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And...
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What we can do to avoid that is have several KPIs that very quickly, or even automatically, we're able to produce.
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And if one of those go red, if they go bad, then I can, with more precision, ask the general manager, ask the manager of the department for more information.
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And I might only have to do that once or twice a year.
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But now when I come and ask for more information, they're much more willing.
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They don't feel like they're being micromanaged.
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They feel like I'm jumping in and investigating and doing my due diligence as the owner of the business instead of being down their throat every day or every week for reports.
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for which 90% of that data doesn't actually do any meaningful change in their day or the businesses.
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It's just data.
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And like there are some people that overanalyze their business to the extreme.
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They spend most of their time just looking at data.
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You could chunk this all up in a matter of five minutes, figure out these six numbers.
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And then if one of them go red, then with more precision, go after that specific department, that specific manager, instead of constantly being down their neck, it can be overwhelming for that person.
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Here are the six numbers.
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We've talked about before.
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There are three major departments in every home service business.
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We have sales, getting the work.
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We have operations, doing the work.
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We have admin, we get paid for the work.
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And so when it comes to sales, I'm thinking about two numbers that I need to know at all times.
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Customer acquisition cost and my close rate.
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In other words, how much do I have to spend to get a new customer on marketing?
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What percentage of leads am I converting into paying customers?
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If I know those two numbers, I can diagnose a lot about the business.
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I'm tracking them over the course of time and I'm saying, okay, is this not a trend?
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Are we constantly reducing our close rate?
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Have we slipped from 60% to 40% over the past year?
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Is it seasonal?
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Does it go up and down?
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I just need to track this on a monthly basis, okay?
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Close rate, number of estimates that are being accepted divided by the total number of estimates being sent out.
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And also what's my customer acquisition cost?
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How much do I have to spend on marketing to get one new customer?
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That's sales.
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And that allows me to know the engine of new customers.
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Is it healthy?
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Operations.
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If operations is not doing good, your business will be out of business very quickly.
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We are in the service business.
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So if we don't do a good service, we will be out of business.
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And so I need to know two things when it comes to operations and doing of the work.
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Very simply, is the work being done efficiently?
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And our customer's happy.
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So I need metrics for that.
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Your efficiency is your efficiency score, which is your budget hours divided by clocked hours.
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And if you're in Copot, this will pump it out for you.
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If you're using P4P, this will pump this out for you.
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But you've got to know how long should the job take divided by how long the job actually took.
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Budget hours divided by clocked hours.
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That's your efficiency score.
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In other words, when the work comes in from sales, does operations get it done effectively?
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If you think it's like a conveyor belt, got sales, it's coming in, lead new customer, fantastic.
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Now, can we actually make money on this customer?
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That's your efficiency score.
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Because if efficiency score is out of whack, you're likely not going to make money because the vast majority of our profit is made off the back of the arbitrage between the cost of labor and we're able to sell the labor to the customer.
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So if you're able to get for $25 an hour for labor for an employer technician and sell that to someone for 80, there's your arbitrage.
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Unless it takes you five hours of labor to complete one budget hour that you sell to the customer.
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That's why we got to know our efficiency score.
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That's efficiency.
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The next part though, is you can have all the efficiency in the world, everyone flying through jobs, but if the customers aren't happy, you're still gonna go out of business.
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I still got it for operations.
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The customer's gotta be happy and the work's gotta be done efficiently.
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That's why P for P, pay for performance is so effective using profit sharing and open book management in addition to it, because if you have those systems in place, it aligns the incentives of do this work efficiently,
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and make sure the customer's happy.
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Because if the customer's not happy and you go back for a yellow slip, you're not getting paid anymore.
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And your bonus can be on the line if you made damages at the property or made a customer leave.
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I went to business school for two years to get my MBA, my master's in business administration.
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I've compiled all that information into over a hundred videos that are useful for small business owners.
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You can find it mbaforentrepreneurs.com.
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It's completely free and it takes those two years of business school and smashes it down an online course completely free.
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Efficiency score and our customer satisfaction.
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Customer satisfaction can be measured in several ways.
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I prefer surveys and not online reviews to measure my CSAT, right?
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The fancy word is CSAT, it's customer satisfaction.
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I would rather do texts and emails to customers asking for surveys.
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Now, if they give me a five stars on my survey, fantastic.
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I will then forward them over and ask for a review or some sort of gating mechanism.
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And if it's a five stars, I want them to leave me a review, great.
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However, I am also wanting people to leave me bad feedback because again, I am out of operations.
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I'm on the other side of the world and I need to know about negative feedback.
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I need to hear it.
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And so I'm gonna make a very easy way for customers to be able to let us know how we can improve and become better.
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And maybe some of it's three stars or four stars, or maybe the five stars is actually really five stars, but they give a little bit of critical feedback of how you can improve.
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You gotta listen to these surveys.
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It's the thing that tells you as to whether or not customers are satisfied.
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All right, now we've got to get paid.
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We've got the sale with customer acquisition cost and close rate.
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We've done the work efficiently and the customer is satisfied.
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Operations.
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Now, admin.
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Admin greases the gears of the whole business.
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Everything from payroll to email to phone calls.
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They do everything to grease the gears, but ultimately, they make sure we get paid.
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They make sure we run credit cards, we run ACH, and we get paid for the invoices that we should be collecting on.
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A lot of times, the greasing of the gears, if not done correctly, if you don't answer the phone, if you have a slow response time, if you're not good on the phone or doing upsells, it'll eventually hit the bottom line.
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And so for admin, it's very much a trailing indicator, a lagging indicator.
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It can take a while to hit the admin side, but I'm mostly looking at cash on hand as my one metric for admin, as well as I am looking at my profit margin.
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So cash on hand, how much money is in the bank?
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And I personally want above one month of revenue in the bank.
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That would be my cash on hand that I want.
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Anything above that, good.
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Anything below that, not good.
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But in terms of my profit margin, also looking at my admin, because...
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I can have really good sales and really good operations, but if my admin does not collect on those invoices and they let a whole bunch of accounts receivable pile up, they don't put cards on file, they don't get deposits, they have a whole huge amount of outstanding balances, guess what's going to happen?
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These two numbers will be affected.
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I will reduce profit margin, especially if you're using cash accounting, and I will reduce the amount of cash on hand I have in the bank.
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So for each of these six, I want to have what is the number that, if crossed, becomes a red flag.
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For example, close ratio.
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Okay, anything below 40% red flag.
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Anything above $100 customer action cost, red flag.
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Okay, now let's go to efficiency score.
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Operations in the middle here.
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So under operations, we've got efficiency score.
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Okay, anything under 70% for the whole team as efficiency score, budget hours divided by clocked hours, red flag.
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Anything below 90% of customers leaving us a five-star survey,
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Red flag.
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Okay, there's your operations, making sure that we're efficient and customers are happy.
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Admin.
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I want at least a month worth of revenue in the bank.
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Anything below that, bad.
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That's a red flag.
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Anything below 20% profit margin, bad.
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So these are all red flags and all I've identified as if those numbers exceed a certain threshold, it becomes a problem.
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And once I see that problem, I can very, very easily hone in on which department I need to actually figure out the numbers for.
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Okay.
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Because if I see close ratio declining over the course of time, I'm gonna immediately go to my salesperson, I'm gonna be diagnosing their follow-up process.
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I'm gonna be diagnosing how fast they're getting to like speed to lead.
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But I don't need to know all those other metrics every single day.
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You're spending so much of your time
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breathing down people's neck, getting the data, instead of just having the dashboards created and a lot of it automatically coming to you, but more importantly, having the few metrics that if they go red, you can dig in very quickly and know exactly where to go.
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I am not going to freak out at my salesperson if there's no money in the bank, because when there's no money in the bank, I'm gonna go to my admin person and say, why is there accounts receivable?
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And I know where to dig next.
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Is there accounts receivable?
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Oh, no, there's not.
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We're just not collecting deposits.
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Oh, which means we have a whole bunch of projects in progress right now that we don't have any deposit for.
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So these are the type of things that I can diagnose and get my hands very dirty, very quick, in the specific department that it's actually needed instead of blowing up the business because we don't have enough money in the bank.
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Why is our profit margin so low?
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And the salespeople are looking like...
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we're doing great over here.
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Our close ratio is great.
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Our marketing's firing all cylinders.
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Operations is like, well, what's going on?
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Like we're doing the work really good.
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You got to be with precision, go to the correct person, mid-level manager, crew, department.
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And to do that, I need to chunk up the numbers.
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So those are the six numbers I would recommend to be a CEO of a seven figure business and be able to run it from a distance, absentee, and still know, have a pulse on the business as it goes from day to day.
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I'm Mike Andes, Home Service Millionaire Podcast.
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If you have a question, go to mikeandes.com slash question, submit a 60-second video there, and we'll answer it on the next podcast.
1
00:00:00.111 --> 00:00:03.113
Hey everyone, it's Mike Andes, the Home Service Millionaire Podcast.
2
00:00:03.653 --> 00:00:11.218
Today, we're talking about the six numbers you got to know as the CEO of your seven figure home service business.
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00:00:11.798 --> 00:00:18.662
Now, this is not to say if you only know these six numbers, you'll be able to run your business from the other side of the world, sipping martini on a beach.
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00:00:19.102 --> 00:00:26.687
Not going to happen because you will need to dig in deeper to the data of the business if one of these six numbers is going wrong.
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If one of these six numbers is bad, if it's in the red zone, if it's not doing good, I can then with more precision, ask for more data or dig into the business.
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The reason I like to do this is because when I hand off a location, a general manager or a manager or department in general, I want them to run with it.
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I want to trust them.
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I want them to do well, but I also need to make sure that they don't go off the rails without me knowing.
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And so I don't want them to feel like I'm meddling and micromanaging them by constantly asking for reports and digging into numbers, having meetings over every little piece of data in the business, me spending hours combing through data and then presenting them with reports that don't align and asking for more information.
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They will feel micromanaged.
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They will leave.
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They will feel like you don't trust them.
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And...
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What we can do to avoid that is have several KPIs that very quickly, or even automatically, we're able to produce.
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And if one of those go red, if they go bad, then I can, with more precision, ask the general manager, ask the manager of the department for more information.
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And I might only have to do that once or twice a year.
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But now when I come and ask for more information, they're much more willing.
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They don't feel like they're being micromanaged.
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They feel like I'm jumping in and investigating and doing my due diligence as the owner of the business instead of being down their throat every day or every week for reports.
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for which 90% of that data doesn't actually do any meaningful change in their day or the businesses.
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It's just data.
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And like there are some people that overanalyze their business to the extreme.
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They spend most of their time just looking at data.
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You could chunk this all up in a matter of five minutes, figure out these six numbers.
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And then if one of them go red, then with more precision, go after that specific department, that specific manager, instead of constantly being down their neck, it can be overwhelming for that person.
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Here are the six numbers.
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We've talked about before.
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There are three major departments in every home service business.
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We have sales, getting the work.
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We have operations, doing the work.
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We have admin, we get paid for the work.
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And so when it comes to sales, I'm thinking about two numbers that I need to know at all times.
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Customer acquisition cost and my close rate.
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In other words, how much do I have to spend to get a new customer on marketing?
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What percentage of leads am I converting into paying customers?
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If I know those two numbers, I can diagnose a lot about the business.
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I'm tracking them over the course of time and I'm saying, okay, is this not a trend?
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Are we constantly reducing our close rate?
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Have we slipped from 60% to 40% over the past year?
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Is it seasonal?
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Does it go up and down?
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I just need to track this on a monthly basis, okay?
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Close rate, number of estimates that are being accepted divided by the total number of estimates being sent out.
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And also what's my customer acquisition cost?
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How much do I have to spend on marketing to get one new customer?
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That's sales.
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And that allows me to know the engine of new customers.
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Is it healthy?
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Operations.
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If operations is not doing good, your business will be out of business very quickly.
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We are in the service business.
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So if we don't do a good service, we will be out of business.
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And so I need to know two things when it comes to operations and doing of the work.
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Very simply, is the work being done efficiently?
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And our customer's happy.
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So I need metrics for that.
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Your efficiency is your efficiency score, which is your budget hours divided by clocked hours.
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And if you're in Copot, this will pump it out for you.
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If you're using P4P, this will pump this out for you.
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But you've got to know how long should the job take divided by how long the job actually took.
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Budget hours divided by clocked hours.
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That's your efficiency score.
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In other words, when the work comes in from sales, does operations get it done effectively?
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If you think it's like a conveyor belt, got sales, it's coming in, lead new customer, fantastic.
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Now, can we actually make money on this customer?
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That's your efficiency score.
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Because if efficiency score is out of whack, you're likely not going to make money because the vast majority of our profit is made off the back of the arbitrage between the cost of labor and we're able to sell the labor to the customer.
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So if you're able to get for $25 an hour for labor for an employer technician and sell that to someone for 80, there's your arbitrage.
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Unless it takes you five hours of labor to complete one budget hour that you sell to the customer.
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That's why we got to know our efficiency score.
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That's efficiency.
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The next part though, is you can have all the efficiency in the world, everyone flying through jobs, but if the customers aren't happy, you're still gonna go out of business.
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I still got it for operations.
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The customer's gotta be happy and the work's gotta be done efficiently.
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That's why P for P, pay for performance is so effective using profit sharing and open book management in addition to it, because if you have those systems in place, it aligns the incentives of do this work efficiently,
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and make sure the customer's happy.
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Because if the customer's not happy and you go back for a yellow slip, you're not getting paid anymore.
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And your bonus can be on the line if you made damages at the property or made a customer leave.
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I went to business school for two years to get my MBA, my master's in business administration.
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I've compiled all that information into over a hundred videos that are useful for small business owners.
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You can find it mbaforentrepreneurs.com.
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It's completely free and it takes those two years of business school and smashes it down an online course completely free.
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Efficiency score and our customer satisfaction.
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Customer satisfaction can be measured in several ways.
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I prefer surveys and not online reviews to measure my CSAT, right?
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The fancy word is CSAT, it's customer satisfaction.
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I would rather do texts and emails to customers asking for surveys.
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Now, if they give me a five stars on my survey, fantastic.
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I will then forward them over and ask for a review or some sort of gating mechanism.
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And if it's a five stars, I want them to leave me a review, great.
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However, I am also wanting people to leave me bad feedback because again, I am out of operations.
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I'm on the other side of the world and I need to know about negative feedback.
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I need to hear it.
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And so I'm gonna make a very easy way for customers to be able to let us know how we can improve and become better.
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And maybe some of it's three stars or four stars, or maybe the five stars is actually really five stars, but they give a little bit of critical feedback of how you can improve.
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You gotta listen to these surveys.
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It's the thing that tells you as to whether or not customers are satisfied.
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All right, now we've got to get paid.
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We've got the sale with customer acquisition cost and close rate.
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We've done the work efficiently and the customer is satisfied.
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Operations.
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Now, admin.
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Admin greases the gears of the whole business.
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Everything from payroll to email to phone calls.
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They do everything to grease the gears, but ultimately, they make sure we get paid.
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They make sure we run credit cards, we run ACH, and we get paid for the invoices that we should be collecting on.
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A lot of times, the greasing of the gears, if not done correctly, if you don't answer the phone, if you have a slow response time, if you're not good on the phone or doing upsells, it'll eventually hit the bottom line.
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And so for admin, it's very much a trailing indicator, a lagging indicator.
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It can take a while to hit the admin side, but I'm mostly looking at cash on hand as my one metric for admin, as well as I am looking at my profit margin.
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So cash on hand, how much money is in the bank?
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And I personally want above one month of revenue in the bank.
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That would be my cash on hand that I want.
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Anything above that, good.
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Anything below that, not good.
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But in terms of my profit margin, also looking at my admin, because...
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I can have really good sales and really good operations, but if my admin does not collect on those invoices and they let a whole bunch of accounts receivable pile up, they don't put cards on file, they don't get deposits, they have a whole huge amount of outstanding balances, guess what's going to happen?
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These two numbers will be affected.
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I will reduce profit margin, especially if you're using cash accounting, and I will reduce the amount of cash on hand I have in the bank.
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So for each of these six, I want to have what is the number that, if crossed, becomes a red flag.
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For example, close ratio.
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Okay, anything below 40% red flag.
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Anything above $100 customer action cost, red flag.
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Okay, now let's go to efficiency score.
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Operations in the middle here.
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So under operations, we've got efficiency score.
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Okay, anything under 70% for the whole team as efficiency score, budget hours divided by clocked hours, red flag.
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Anything below 90% of customers leaving us a five-star survey,
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Red flag.
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Okay, there's your operations, making sure that we're efficient and customers are happy.
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Admin.
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I want at least a month worth of revenue in the bank.
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Anything below that, bad.
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That's a red flag.
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Anything below 20% profit margin, bad.
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So these are all red flags and all I've identified as if those numbers exceed a certain threshold, it becomes a problem.
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And once I see that problem, I can very, very easily hone in on which department I need to actually figure out the numbers for.
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Okay.
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Because if I see close ratio declining over the course of time, I'm gonna immediately go to my salesperson, I'm gonna be diagnosing their follow-up process.
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I'm gonna be diagnosing how fast they're getting to like speed to lead.
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But I don't need to know all those other metrics every single day.
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You're spending so much of your time
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breathing down people's neck, getting the data, instead of just having the dashboards created and a lot of it automatically coming to you, but more importantly, having the few metrics that if they go red, you can dig in very quickly and know exactly where to go.
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I am not going to freak out at my salesperson if there's no money in the bank, because when there's no money in the bank, I'm gonna go to my admin person and say, why is there accounts receivable?
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And I know where to dig next.
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Is there accounts receivable?
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Oh, no, there's not.
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We're just not collecting deposits.
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Oh, which means we have a whole bunch of projects in progress right now that we don't have any deposit for.
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So these are the type of things that I can diagnose and get my hands very dirty, very quick, in the specific department that it's actually needed instead of blowing up the business because we don't have enough money in the bank.
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Why is our profit margin so low?
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And the salespeople are looking like...
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we're doing great over here.
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Our close ratio is great.
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Our marketing's firing all cylinders.
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Operations is like, well, what's going on?
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Like we're doing the work really good.
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You got to be with precision, go to the correct person, mid-level manager, crew, department.
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And to do that, I need to chunk up the numbers.
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So those are the six numbers I would recommend to be a CEO of a seven figure business and be able to run it from a distance, absentee, and still know, have a pulse on the business as it goes from day to day.
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I'm Mike Andes, Home Service Millionaire Podcast.
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If you have a question, go to mikeandes.com slash question, submit a 60-second video there, and we'll answer it on the next podcast.
