How I'd Fix Margins Before Chasing More Revenue — Transcript

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1. 0:00Oh, hi. Alex, slow please.
2. 0:02>> What's up, man? Hormozi hot line? We've
3. 0:05got 5 minutes. Top line, bottom line,
4. 0:09what's what's holding you back?
5. 0:11>> The top line is $5 million. Bottom line
6. 0:15is $500,000. Um
7. 0:17that is split between two businesses
8. 0:19though, which is also my main thing
9. 0:21holding back.
10. 0:23>> Okay.
11. 0:23>> Yeah, I know. I know.
12. 0:25So, I have a marketing agency for
13. 0:27concrete contractors.
14. 0:28>> one set of problems when you could have
15. 0:29two?
16. 0:30>> [laughter]
17. 0:30>> I know.
18. 0:31I know.
19. 0:32So, essentially I started Caesar's
20. 0:35Concrete not with me. It was my
21. 0:37father-in-law. Obviously, that's why
22. 0:39Caesar's Concrete cuz his name Caesar.
23. 0:41So, I'm 50% of that business and we've
24. 0:42scaled it up to $4 million over the past
25. 0:458 years.
26. 0:46And over the past 2 years, I was kind of
27. 0:48running like a bit of a side hustle,
28. 0:50a marketing agency for concrete
29. 0:51contractors. We've recently scaled it up
30. 0:53to a little over $80,000 a month. And
31. 0:56that income has now surpassed my
32. 0:57concrete business income. And the main
33. 1:00challenge that I have is I really want
34. 1:02to get into the marketing agency
35. 1:03full-time and not have two businesses.
36. 1:05But the problem is
37. 1:06>> Yeah.
38. 1:07>> the concrete company is not profitable
39. 1:08enough to hire a like top-level
40. 1:11basically operator. And I have to keep
41. 1:13my
42. 1:14>> I got you.
43. 1:16I got you. I got you. So, let me uh
44. 1:18okay. Let me love you. So, uh we got 10%
45. 1:20margins. Literally all we have to do is
46. 1:22fix the cash flow and our margin of the
47. 1:23business. And then once we do that, we
48. 1:25can then get you out of it and then
49. 1:26ideally sell it if that's what you I
50. 1:27mean if that's dream. Is it dream?
51. 1:28>> Okay, not really. Yeah.
52. 1:29>> Yeah. Which would you would you rather
53. 1:30sell it or just keep it in cash flow it?
54. 1:33>> Keep it in cash flow it. Mainly for my
55. 1:34family cuz my father-in-law wants to
56. 1:36take over my position. Yeah.
57. 1:37>> Okay, great. Okay. So, then walk me
58. 1:40through cuz I'm going to guess that you
59. 1:41have a pricing issue. That's going to be
60. 1:43my guess here cuz that typically happens
61. 1:44in in that style business, especially
62. 1:46when it's handed down
63. 1:48multiple generations uh because you
64. 1:50know, interestingly enough,
65. 1:52um the dollar has changed a lot, you
66. 1:54know, in the last, you know, 10 years.
67. 1:55And it's How old's is the business?
68. 1:58>> Uh the business is 14 years old, and I
69. 2:00came in 8 years ago.
70. 2:01>> Yeah. So, I would I would guess how many
71. 2:03times has price raised and by what
72. 2:05percentage from year 1 to year 14?
73. 2:08>> Oh man, like since then we've like
74. 2:10tripled prices.
75. 2:11>> Oh, good. Okay, good.
76. 2:12>> Our gross profit's actually like 50%,
77. 2:14which is way above industry average, but
78. 2:16>> I feel like we're bleeding money out of
79. 2:17the back end because I haven't been
80. 2:20>> Let me pause you real quick. I want you
81. 2:21to erase one term from your vocabulary
82. 2:23forever,
83. 2:24which is industry average.
84. 2:26>> Okay.
85. 2:27>> No, everyone's broke, dude. Why would
86. 2:29you like you know, American averages is
87. 2:31is in debt, fat, and divorced twice.
88. 2:34Like
89. 2:35who gives a what the industry
90. 2:36average is? Like there are people who
91. 2:37are printing in every industry. So, I
92. 2:39just like the reason I I hate it is
93. 2:41because it basically lowers our
94. 2:42acceptable bar of what we believe to be
95. 2:44good enough.
96. 2:47>> Right. Okay.
97. 2:48>> and it frames all of our decisions
98. 2:49around well, it's better than this.
99. 2:50Well, of course we're like beating
100. 2:51everyone is the standard. Obviously, we
101. 2:54beat everyone. But it's it's it's us
102. 2:56against us. So, I I just like I care
103. 2:57zero about what the average is. Anyways,
104. 2:59sorry, just a belief breaker for you.
105. 3:00Anyways, so um you're running 50% gross
106. 3:03margins, and and then you have, you
107. 3:05know, 40% is is what's
108. 3:08And the gross margins are
109. 3:09>> like that's pretty inefficient, and I
110. 3:11feel like the main reason it's
111. 3:12inefficient is because I'm not focusing
112. 3:13on it full time because I have my
113. 3:14marketing agency.
114. 3:15>> Of course.
115. 3:16>> So, I feel like I'm caught between like
116. 3:17a rock and a hard place here.
117. 3:18>> A concrete
118. 3:19>> to give up on the family business.
119. 3:20>> Yeah, it's rock and con- and concrete.
120. 3:22>> Yeah, yeah.
121. 3:24>> No, I hear you. I hear you, dude. I
122. 3:25mean, you're in a tough spot because the
123. 3:27concrete business is what is in what we
124. 3:29we refer to affectionately as a swamp.
125. 3:31So, the reason that it's in the swamp
126. 3:33you you I mean, you're experiencing the
127. 3:35math example, but I'm explaining I'm
128. 3:36going to give you a little bit more time
129. 3:37because your thing's going to be
130. 3:38relevant to a lot of people. So,
131. 3:41when you have a business between 1 and 3
132. 3:43million, you're at, you know, four,
133. 3:44whatever, but like right in that
134. 3:45ballpark, okay? If you have a 10% or 20%
135. 3:49margin business, then you've got you
136. 3:50know, 400, 800,000 a year in profit. And
137. 3:53so, in order to get to the next level,
138. 3:55one of two things There's more work that
139. 3:57must be done. And so, option one is that
140. 3:59you work that next job. You do two
141. 4:01full-time jobs, your current job and the
142. 4:02next job. Or, you take a massive bet and
143. 4:05you bring someone in, but that next
144. 4:07person you take a massive bet on because
145. 4:08they absorb half or more of the profit
146. 4:10of the business.
147. 4:12And that's why it's the rock in the hard
148. 4:13place when you're at that spot. That's
149. 4:14why it's called the swamp. It's very
150. 4:16difficult like it's difficult because
151. 4:17you just have to like take a massive
152. 4:19risk or you just have to basically just
153. 4:21risk your personal life
154. 4:23and sacrifice it in order to get ahead.
155. 4:25But right now you have this other
156. 4:26mistress that you're seeing on the side
157. 4:28and you just can't work double time to
158. 4:30get over the hump.
159. 4:31>> want her to be my wife.
160. 4:32>> No, and I hear you. I hear you. I hear
161. 4:33you.
162. 4:34But this other girl is your baby mama,
163. 4:35right? She's got your kid. She's in your
164. 4:36life forever. So,
165. 4:38that was a perfect analogy. Side note.
166. 4:40>> I think you were setting him up for
167. 4:41that.
168. 4:41>> Yeah, yeah, that was a great great
169. 4:42setup.
170. 4:43Okay. So, what do we do with baby mama?
171. 4:45So, we still need a way to we need to
172. 4:48improve cash flow and part of it's going
173. 4:50to come from pricing and the other part
174. 4:51of it probably comes from operational
175. 4:52efficiencies. Probably a combination of
176. 4:53these things. So, talk me through your
177. 4:56pricing process right now for how you
178. 4:58bid your bid your deals. And also, just
179. 5:01tell me who are you doing concrete for?
180. 5:04>> Mainly home owners.
181. 5:05>> Okay, great. Oh, dude, residential
182. 5:06you're going to have way more power. Way
183. 5:07more power. That's great.
184. 5:09>> So, mainly home owners and as far as how
185. 5:11we price our projects, it's all like on
186. 5:13a custom project basis on like man hours
187. 5:15times our man hourly rate plus materials
188. 5:17times market.
189. 5:18>> Yeah.
190. 5:19So,
191. 5:20>> It's really complex, which is maybe why
192. 5:22we've had like a hard time like getting
193. 5:23other people to sell it as well.
194. 5:25>> Yes. So, we we need to switch from cost
195. 5:27plus pricing
196. 5:28to value based pricing.
197. 5:31>> So, the customer doesn't see that. We
198. 5:32present the total price. That's just how
199. 5:34we come up with the price.
200. 5:35>> Well, of course right. Yeah,
201. 5:36>> Even more important,
202. 5:37>> Yeah, yeah, like they don't even see it.
203. 5:38And so, like the goal like the
204. 5:40>> [laughter]
205. 5:41>> You just like
206. 5:43you want the price to be as high as
207. 5:44humanly possible without getting the
208. 5:46sales person to crack a smile, okay?
209. 5:48That's That's our goal here. Uh
210. 5:51>> [laughter]
211. 5:51>> We're laughing already.
212. 5:53>> No, but like I I say I say that's, you
213. 5:55know, somewhat in jest. But, the the
214. 5:57main the main point here is that the
215. 5:59sweet spot on pricing is not where we
216. 6:01close the most deals, but where we to
217. 6:03make the most money, which is after the
218. 6:05peak of close rates. Which means that we
219. 6:07should expect to lose more deals and
220. 6:09make more money. Because if you were to
221. 6:11raise your prices again like you
222. 6:12understand the math here. If you were to
223. 6:13raise your price by 10%
224. 6:15>> consistently, you double the profit of
225. 6:16the business.
226. 6:18>> Great.
227. 6:19>> Right. So, you have a massive
228. 6:20opportunity here. And so like and you're
229. 6:23making up like the customer doesn't even
230. 6:24know what the hours are.
231. 6:26So, who cares?
232. 6:28>> Yeah.
233. 6:29>> Right?
234. 6:30>> Yeah.
235. 6:31Yeah, it
236. 6:32I mean, is it really a pricing thing?
237. 6:33So, you really think it's a pricing
238. 6:34thing and not the operational
239. 6:35efficiency?
240. 6:36>> Oh, I'm sure I'm
241. 6:37>> You think I should focus on fixing that
242. 6:39before focusing on growing the business?
243. 6:41>> It will be easier. Well, I mean, yes.
244. 6:43Because right now baby mama needs her
245. 6:46alimony and she needs her child support,
246. 6:48right? And so you've got it you've got
247. 6:50to take care of her because you've made
248. 6:51the decision that you're going to stay
249. 6:52in this kid's life forever, right? You
250. 6:54want to be a good dad, that's fine. I
251. 6:55respect that. Cuz you're trying to be a
252. 6:57good son realistically in this
253. 6:58situation, right? And so
254. 7:00>> Mhm.
255. 7:00>> [clears throat]
256. 7:00>> operational efficiency, for sure a great
257. 7:02way to improve a business. In general,
258. 7:04great great idea.
259. 7:05Which one's easier? For sure sales
260. 7:08process and pricing.
261. 7:09Cuz you can do that immediately.
262. 7:11>> Yeah.
263. 7:11>> You get literally it's it takes a week
264. 7:12of training for the sales guys, maybe.
265. 7:14And then you just say a different number
266. 7:16at the end of the conversation.
267. 7:18>> But
268. 7:19>> Okay.
269. 7:19>> Yeah, because we come up with our price
270. 7:21like so custom, we don't present it in
271. 7:24person to the customer and I feel like
272. 7:25that's like a huge problem and why our
273. 7:26close rates could be so low. Would you
274. 7:28agree?
275. 7:29>> Wait, what are your close rates?
276. 7:30>> 10%.
277. 7:31>> Oh my goodness. We have a sales motion
278. 7:33issue. We have a sales motion issue.
279. 7:35Yeah, so the reason that you're you're
280. 7:36you're hesitant to do prices because the
281. 7:37sales process sucks. That's the issue.
282. 7:39>> already like our close rate is already
283. 7:41so bad, so it's of hard to imagine it
284. 7:43getting worse.
285. 7:44>> Heard. Heard. Thank you for calling.
286. 7:45>> Yeah. So So we have to fix So in order
287. 7:48of operations here,
288. 7:49fix sales motion, number one.
289. 7:51Number two,
290. 7:53change pricing pricing the way we are
291. 7:55doing our pricing.
292. 7:56Number three, once we do those two
293. 7:58things, like the nice thing that you
294. 7:59have right now is you have a gigantic
295. 8:01opportunity, which is exciting, because
296. 8:02if you're closing 10%, you could
297. 8:03probably get a triple there. You could
298. 8:05probably get to 30%.
299. 8:07Maybe even 40, right? If you're doing a
300. 8:09good job.
301. 8:10And and you could add 10% to your price
302. 8:14consistently, easily.
303. 8:16And by doing that, you would have an 8x
304. 8:18sitting in your business in terms of
305. 8:19profit. Eight.
306. 8:22Eight.
307. 8:23>> Yeah.
308. 8:24Yeah, that makes her sound more
309. 8:25attractive, too.
310. 8:26>> Yes, it is more attractive. Also
311. 8:28Also
312. 8:29I will say this,
313. 8:31let me ask you let me ask you a
314. 8:31hypothetical question.
315. 8:33If If you were to fix this business,
316. 8:35right? And you were able to go You take
317. 8:37your sales motion and it took the close
318. 8:38rates from 10% to 35%. Okay? That's
319. 8:41right. That That's what it should be at
320. 8:42right now. Okay, I want to be clear. So
321. 8:44if you're at 35%, your revenue right now
322. 8:46would go from four
323. 8:48to like 14.
324. 8:49Okay? That's thing one.
325. 8:51Now, if we also were able to implement a
326. 8:55I'll just say 10%, which is still it's
327. 8:57absurd. I think you can go more than
328. 8:58that.
329. 8:59But you have a 10% price raise. Okay?
330. 9:01Now we're going from We have a 3 and 1/2
331. 9:04x on 500k. So it's really a 3 and 1/2 x
332. 9:06on a million. So we're doing 3 and 1/2
333. 9:08million in EBITDA now.
334. 9:12Does this business become more
335. 9:13interesting?
336. 9:16>> Well, I mean, yeah, the obvious answer
337. 9:18is yes, but I'm still not in love
338. 9:20>> I know.
339. 9:20>> And mainly I mean, to be fair, we can't
340. 9:22just sell that much overnight. We do
341. 9:23have a a bunch of capital expenditures,
342. 9:25etc. But
343. 9:26>> Okay, well, we'll deal with that
344. 9:27constraint as it comes.
345. 9:28Yeah. We'll deal with that constraint as
346. 9:29it comes. Because there's also in your
347. 9:31industry, there's tons of financing
348. 9:32partners that will help with that stuff.
349. 9:33>> Yeah.
350. 9:33>> But But if you were to do that, and if
351. 9:36you were to get crazy, cuz that's what
352. 9:37we're going to do, cuz why not, right?
353. 9:38And you were to do a 20% price raise,
354. 9:40not a 10% price raise.
355. 9:42That would give you a triple in
356. 9:43profitability, okay? So, then all of a
357. 9:45sudden that 1.5 * 3.5 becomes
358. 9:50whatever, more than 5 million. I think
359. 9:51it's like six or something like that,
360. 9:52okay? So, it's like 5.7 or something
361. 9:55like that million. If you got to 5.7,
362. 9:57this company can sell for $30 million.
363. 10:00>> Or or you have enough dry powder to hire
364. 10:03an operator.
365. 10:04>> Of course. Yeah, of course. You can do
366. 10:05that.
367. 10:06Okay. So, let's So, let's just like cuz
368. 10:08I don't have time to fix all these
369. 10:09issues. We're just going to We're just
370. 10:10trying to focus on one of them. So,
371. 10:12right now, walk me through the sales
372. 10:13process. I know this is good for the
373. 10:14people who are listening, which is why
374. 10:15I'm taking a little longer on this.
375. 10:16Okay.
376. 10:17>> Okay, yeah. So, essentially we get a
377. 10:19lead, they book an appointment with our
378. 10:21sales rep, and it's over the phone. We
379. 10:23do like an initial discovery call, where
380. 10:25we also give rough pricing. Based on how
381. 10:27that goes, like if the customer's like,
382. 10:29"Hey, cool. I like you guys. I like what
383. 10:30you're about, and the price sounds
384. 10:31good." Then we go out, we like see the
385. 10:33job in person, we do actual
386. 10:34measurements, and then they go all the
387. 10:36way back to the office, you know, put
388. 10:37everything like put all the numbers
389. 10:38together, and then email off the quote.
390. 10:40>> Bro.
391. 10:41>> WHAT IS IT?
392. 10:41>> BRO.
393. 10:43BRO. What are we doing? All right. All
394. 10:46right. All right.
395. 10:46>> This is not a pricing consultation. This
396. 10:48is a sales process.
397. 10:49>> Yeah, okay. So, here Here's what we're
398. 10:51going to do. All right. So, we're We're
399. 10:52just never going to email quotes ever
400. 10:53again. Let's just like Let's just write
401. 10:54like
402. 10:55I solemnly swear that I will never email
403. 10:58a quote to a customer again.
404. 10:59>> Okay, I have my hand on my chest.
405. 11:00>> Okay, thank you. So, here's what's going
406. 11:01to happen. So, what you're going to do
407. 11:03is on that set call, which is what it
408. 11:05is, you're going to qualify the
409. 11:06customer, and you're going to give a
410. 11:07range that's super sky high. All right.
411. 11:09So, you're going to be like, "It could
412. 11:10be between 5,000 and 50,000. It honestly
413. 11:13is going to depend a lot on, you know,
414. 11:14on what you got going on. When I get out
415. 11:16there, I'll have a much better idea,
416. 11:17because honestly, if I were to give you
417. 11:19a quote right now, it'd be like me
418. 11:20telling you what's wrong with your car
419. 11:21and you haven't brought it in the shop
420. 11:22yet." That makes sense? Of course it
421. 11:24does. And you know what? If somebody
422. 11:25gives you a hardcore quote right now
423. 11:26over the phone, I'd run the other way.
424. 11:27Because Right? And that's So, then you
425. 11:29position against it, it gives you more
426. 11:30authority, and then they're like, "Oh, I
427. 11:31love these guys. They're great." Okay.
428. 11:33That's the set, right?
429. 11:36>> The second part of the second part of
430. 11:37that is actually the most important,
431. 11:38because they're talking to multiple
432. 11:39people, and you just you thwart that
433. 11:41completely.
434. 11:41>> Yeah. You hammer them. So, then
435. 11:44then you say, "And to be clear, um the
436. 11:46way that the way that we do this is that
437. 11:48when we come in person, because we we uh
438. 11:50we we pride ourselves in our speed,
439. 11:53we're going to come out with the
440. 11:55intention of collecting the depo- like
441. 11:56basically giving the quote and collec-
442. 11:58and and collecting the deposit so we can
443. 11:59get this going."
444. 12:03>> Right.
445. 12:04Okay.
446. 12:04>> So, we set the intention that we close
447. 12:06at the visit. And dude, your in-person
448. 12:08like if you do nothing else, your
449. 12:09in-person close rate is going to be
450. 12:10three times higher than your your email
451. 12:12close rate. Not even like not even a
452. 12:13question.
453. 12:13>> Yeah, I mean if we did that, that would
454. 12:14solve all of that business's problems,
455. 12:16which then it would allow me to hire an
456. 12:17operator.
457. 12:18>> That's right.
458. 12:18>> If we fixed our close rate.
459. 12:21>> Good job, man. Pew pew. Okay, great. So,
460. 12:23let's do that, and then when you do
461. 12:24these uh when you do these quotes, just
462. 12:25say, "Hey, whatever that normal math
463. 12:26that you're currently doing is, just
464. 12:28triple just add 20% to it." Just do
465. 12:30that. Just do the exact normal math
466. 12:31you're doing right now, and then just
467. 12:32add 20%.
468. 12:34>> Okay.
469. 12:35>> Okay?
470. 12:35>> Sounds good.
471. 12:36>> if you want to get if you want to get
472. 12:37nasty with it, you can tell the uh the
473. 12:39sales guy he'll get extra 2% of uh an
474. 12:42extra 2%.
475. 12:45>> Okay, will do.
476. 12:46>> All right. Love this for us. Thanks,
477. 12:47dude. Congratulations on the business,
478. 12:49and thank you for donating books on
479. 12:50behalf of uh all the entrepreneurs that
480. 12:51you did donate for.
481. 12:53>> All right, thanks, guys.
482. 12:53>> Appreciate you.
483. 12:54>> Good job, man.
484. 12:55>> Was that fun? Was that cool for you
485. 12:56guys?
486. 12:57>> So good.
487. 12:58>> Yes?
488. 12:58>> So good.
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