Jonathan:
Hey. I want to talk to you about a way to grow your business, a methodology, a way of thinking. The video is bit more geared towards a bigger operation. However, if you’re smaller or you’re getting started, if you’ll think this way it’ll save you a lot of pain. It’s a mindset that most people don’t use in terms of growing, and so I want to just talk through some numbers and a process. This is how you grow your company. This is how you think about growth, so I’m going to show it to you. I don’t have any prepared notes, so I’m going to jump around a little bit, but I put some numbers down on a spreadsheet, and I’ll explain what everything means.
Let’s start here at the top. Let’s just say that for the year 2017, which is last year, you did … so imagine it’s December 2017 or November 2017. You’re planning for 2018. You’re figuring out how you’re going to get to where you want to go, and you’re saying to yourself, “I want to go from the 1.79 million that I did last year, and I want to get to 2.443 million next year.” Okay? So that would represent 30% of growth inside your business.
What do most of us do? Most of us sit back and we say, “Hey, I want to grow my business by 30% or 20% or 100%.” All right. We say this, and we’re like, “Okay. What am I going to need to do? I’m going to need to do some more marketing. I’m going to need to do some more hiring. I’m going to need to probably get an operations manager.” Whatever the case may be, that’s sort of the exercise that we run through in our mind. Then at the end of year when we hit 20% growth or 10% or 30% or whatever the number was … Let’s not go with 30 because that was the goal. Then we’re all disappointed. “Oh, I didn’t hit my numbers. I don’t know why.”
So my point here is that to get to where you want to go, you’ve got to break your numbers down so that you can break down the process. At our software company we’ve almost every single year grown by 100% or more. We’ve had two years where we’ve grown under 100%. The lowest we’ve ever grown in one year was 40%, and 40% is still a big number when the company is big. My point of telling you that is, as the numbers get bigger and bigger, the only way that we have any chance of continued really fast growth that outpaces the majority of companies is for us to think in the methodology that I’m giving you. This applies to the business you own now. It’ll apply to whatever business you own in the future. If you ever decide you want to invest in someone else’s company, you’re going to want to run through this exact exercise, so let’s look at it.
What I would first do … This is going to be a bit longer video, but I think it’s incredibly important if you’re really serious about continued growth and you want to show a track record of consistent growth. You don’t want this up and down junk in your business. You want consistent growth. You want the line on the left side of the bar chart to constantly be moving up towards the top right, and you want that to become as steep of a climb as possible. This is how you do it, okay? There’s so much, we could talk for hours on this. I’m just going to give you the basic methodology. It’s the mindset.
Let’s start with this, so we take all of our 2017 revenue. We break it down into the services that we sold, so I’ve put … this is all fictitious data. I put some services here on the left and then we looked at gross revenue for the month. This has nothing to do with profit. I’m not even going down that road right now. That’s a whole nother conversation. I’m just saying that, in my example, your company generated 500,000 in gross revenue, top line revenue for the year 2017 for mowing, or maybe you call that maintenance.
For fertilization and weed control, 300 grand. Bed and bush work, 150. You get the idea. Construction, design build, landscape, whatever you want to call it, you did 650,000. Okay. You add up all those services, you did 1.8 million. Almost 1.9. You’re saying, “We can go faster. We can do 30% growth next year.” I’ll tell you, as you get big, 30% growth, it’s hard. It gets harder. Lots of things break. Big numbers like this, you better have some cash in the bank and you better be willing to invest significantly in the company ahead of the growth. What I mean by that is if you’re going to grow this quick, especially as this number turns from 5 million and you’re now trying to grow at, say, 30% a year, you’ve got to be hiring people well in advance of needing them, getting them trained up. You’ve got to be bringing in people that have already done it. That’s a whole nother conversation.
But that’s the goal, 30% growth. That means, if you look at my number here, that we have to add 563,000 in top line revenue to the business next year, and that will get us to the 2.443. Now if we break this down, and that’s a little bit of what the exercise is here, if we want 30% revenue on mowing and we break it down, that means we have to add $150,000 in new revenue to the mowing, okay? If we want to grow fertilization and weed control, we’ve got to add 90,000 in revenue. I think you’re following me. I’m still kind of setting this up. All right?
Now I’m going to deviate for a moment and I’m going to challenge you. If this is your business, why are you in the flowers business? Why are you in the aeration business? Why are you in the sod business? These are distractions. They’re not really making you any money. They’re probably not contributing any profit to the business because they’re distractions. There’s too many moving parts, too many potential callbacks, too many whatever for this small amount of revenue on a $1.8 million business. Are you selling commercial deals and you have to provide flowers? Okay. Then that may be justifiable. Maybe.
You got to ask yourself, why do you have to have sod? I seriously doubt you have to have it. You could probably outsource it. Aeration, probably the same thing. You could probably just outsource it. You’re making no money. Get these off your plate. Simplify the business. That will help you move these other numbers, the bigger numbers of your business, forward faster, and you’ll see what I mean as we start to talk through this. I know, if I want to take my business up 30% across the board, then I’ve got to grow each of these areas, mowing, fertilization, weed control, pest control, by 30%. Here are the numbers of growth, okay?
Now let’s jump down for a moment. You currently have 420 clients, and the math is simplistic, in that I’m going to do some very elementary math here and say you had 420 clients at the end of 2017 divided by $1.8 million. That means that your average client is worth $4,475 a year to you. Why did I say it’s elementary math? Because if I didn’t have exactly 420 clients at the beginning of 2017 and at the end … so I’m overstating the client value by simply taking the year and number for clients and dividing by year and revenue. Clients came in throughout the year, but for the sake of my example … so you got to get the real number for this, but for the sake of my example, you’ll understand what I’m saying.
An average client is worth $4,475 per year to you. Again, I simply took year in dollar value. Again, it’s flawed. I want to be very clear about that. This calculation is flawed, but the concept is not. You just got to get the calculation right. What is an average client worth to you per year? Divided the total revenue by 420, we made $4,475 per year by client. I got two ways to grow my business. I got a lot of ways to grow my business, but let’s start with just two black and white examples.
One, I can add new clients, 126, so if I have no attrition, no churn, meaning I lose no clients for the year … going into the year 2018, so all 420 clients stay with me, I build them for the entire year of 2018. I have no attrition. I lose none of them. Then I’m going to make another 1.879, probably, in 2018. So all I have to do to hit my number, 563,000 in growth, according to 2.4 million in business, is sell 126 new clients because a client is worth 4,475, and that will equal $563,910. I know I’m talking fast. But that’s all I got to do if I want to grow my business by 30%. The problem is, it’s not quite that easy, but this is my black and white example.
Or let’s say I can’t sell any new clients, but we’re going to hold with my same scenario. I’m not going to lose a lick of revenue. I’m not going to lose a dollar. I have no attrition. I’m going to do 1.879 again in 2018 with 420 clients, but I have no ability to sell even a single new client for the year, so then my opportunity or my only means of growing the company is through expansion. Meaning, I’m expanding the dollar value of every client in my book of business. I’m going to grow the value of the client. I’m going to take a client that is currently bringing in $4,475 a year. That’s their annual value to my organization. I’m going to take that account value and I’m going to grow by $1,342. So how would you do these things? Well, I’d have my sales and marketing team out there upselling them all types of new work and I’d grow that, okay? So those are two ways to grow.
But the answer is that I’m going to have a hybrid scenario, and the hybrid scenario is I’m going to try to expand the value of my client, all right? And I’m also going to sell new clients and, since we didn’t talk about it, I’m going to deal with attrition. For example, if I lose … let’s just say I lose on average 20% of my clients, so that means that without any … if I don’t bring on a single new client or I don’t expand the value of a client, just by existing in the business for one additional year, then next year … I told you this would be a longer video, so I hope you’ll hang with me.
Next year I am going to lose $375,940 in annual revenue simply by existing one more year, because I’ll have 20% attrition in my business. Meaning that 20% of my clients and 20% of my revenue are going to walk out the back door because they sold their home, because they sold their business, because they went with a lower price provider, because whatever. So I’m going to lose 20% of my business, so not only do I have to grow my business with 126 clients, or expand my business, the value of each account by 30%, not only that, I’ve got to also make up $375,000 in revenue. Pretty significant. It’s a pretty steep hill to climb as the business gets bigger.
Imagine one day this is a $10 million business, 2 million a year of revenue is walking out my door. I want to grow my business by 30% a year. That means I want to add another 3 million in revenue. In this scenario, not only would I have to sell 2 million in work to replace the 2 million in attrition, I’d then have to sell 3 million in new work, so I’ve got to add 5 million. I’ve got to onboard $5 million worth of new work in one calendar year when I’m a $10 million business to get to $13 million, so you can see how these numbers work.
Now, that’s scary or you might be saying, “Well, I don’t even see how that’s possible.” Companies do it every day left and right. Now, only a small number do it, but the companies that are well-organized, that think like I’m describing right here, that put together a leadership team, that have plans and think through strategy are the ones that pull that off. And that’s why I’m sharing this video with you, because this is how you do it and this is how you keep doing it year in and year out. It’s hard, and that’s why the companies that pull this off get rich and it’s why the companies that pull this off tend to attract great team members, and those team members stay at those companies. So there’s work involved, but it’s totally a learnable skill. All right? So you kind of get the idea, so let’s now talk through breaking this down.
It’s not going to be black or white where I simply add 126 new clients per year or I expand revenue by 30% per client. It’s going to be a hybrid, all right? It’s going to be some number of new clients and some amount of expansion revenue, so if I’m thinking about that, new clients is pretty obvious. Okay? We can put initiatives in place to keep selling. We encourage the sales team through commissions, through compensation structures, through whatever, to keep selling more revenue. That’s pretty straightforward. That’s what most of us focus on.
The thing most of us don’t focus on is expansion, which is essentially upselling. It’s building in more and more … it’s basically finding more and more creative ways to sell more to the existing client by offering to them greater and greater value where it’s a no-brainer for them to buy more from you. All right? So if I’m going to expand my revenue, I’m going to look at the individual services, all right? So if I’m going to look at a service, I’m going to say, okay, of these services one thing I might consider is which is the easiest to sell?
Another thing I might consider is which of these services contribute to the most to the bottom line, to profit? If one contributes a lot more to profit than another, I’m more inclined to spend my efforts selling that, because it generates more profit. Therefore, it leaves more money in my bank account in the year that I can use to grow the business next year. Remember my analogy. I’m a $10 million company. I want to grow by 30%. I understand these are big numbers. That means I have to replace 2 million in attrition. Plus, I have to add another 3 million. I have to grow by 5 million. 5 million in growth costs money.
So I want to be selling services that generate a lot of profit so they leave a lot of money in my bank account, so that I have the money to go buy and onboard $5 million in new revenue to get to my fictitious example of a $13 million company from a $10 million the year before. All right? If you say, “Well, these numbers don’t even make sense. They’re too big,” just take a zero off that. Go from a $800,000 company into a $1.3 million company. You just got to think about it that way if that’s easier. It’s all the same math. I’m just using bigger numbers.
Okay, so now if I’m working through this process, I’m going to say, okay, I think most likely that the easiest service to grow, because I want to hit an overall 30% growth in my company, the easiest service to grow is probably going to be this mowing service. I think that I can grow that by 40%, but we really don’t want to grow the bed and bush business any more than we absolutely we have. It’s a lower margin business. It’s harder to hire employees. It’s just harder to execute on. I really don’t want to see more than 20% growth there. It will probably naturally happen, because I know, and this is another calculation you’d look at in your system, I know that for every three lawn mowing clients, and this could be a commercial or a residential example, just making a point, but I know for every three maintenance clients or lawn mowing clients I bring on, one is going to buy this service.
So you can extrapolate mathematically from then. Say, I probably don’t even need to promote this service, so there’s no action required to obtain our 20% growth, because if I just bring in 40% more clients … Let’s do that math a bit better. I know that for every two lawn mowing clients I bring in, one is going to hire me for bed and bush work, all right? So if I simply grow this by 40%, I’m going to hit my 20% number there. Historical numbers tell me I’m going to hit it, so I need no action, whereas I need action on this item. I’m going to explain what that means so that we have a game plan to get this 40% growth. I’m go through and I’m going to look at each of my services in that way. I’m going to say, strategically, where can I get more growth than another?
So we’re really fond of design build. It’s a good margin area of force. We want more of that. I’m going to take these services down to zero. We talked about that strategy. You can already see as I’m messing with the numbers, we’re going to achieve 622,000 in new revenue if we hit these goals, which is over what we were originally going for. It’s more than 30%. But now you’re going to play with the numbers, all right? Now that I have numbers, I can extrapolate from this. I’m not going to do all this math for the sake of keeping it short. From this I can say, okay, if I want 40% growth in mowing, then that will tell me that I need X number of new clients.
I’m not going to do all that for you now, but let’s just imagine that that means I’ve got to sell, to get that many additional, much additional revenue in mowing, I got to sell 40 new clients. Okay? So now I have an idea of how many I need to achieve that number, so then we can back into it further and we say, okay, what would it take to get 40 new clients? Well, if I know that I sell 50% of every lead that comes in my door, then I need to drive X number of new leads. So a very simplistic example, if I want to sell 40 new clients next year, I need to bring in 80 new leads for lawn mowing because on average, if I look back in my software system, I closed 50% of my mowing clients a year. I only need 80 leads to close 40 new mowing accounts, all right?
It’s probably going to take more than that to really grow a revenue by $200,000, but it depends on how much a client is worth to you in terms of mowing their lawn. Hopefully I’m being clear here and this makes sense. So I can back into each of these numbers. I could say, okay, I’m going to need this number of new clients for this service to achieve that amount of revenue growth. What are the action steps? How many do I convert? How many leads do I need if I need 80 leads? How many door hangers do I need to put out? How many direct mail pieces do I need to send? How many doors does my salesperson need to knock on? How many companies do they need to be calling? How many clients do I need to be …
Let’s go down to an upsell. I mean, this is where it can get so advanced. Let’s say that I want to grow the past revenue by 60,000. Well, I don’t have to bring in necessarily $60,000 worth of new revenue via new clients. I could get $30,000 a year in new pest revenue for new clients and I could get another $30,000 from existing clients. So I can break this down even further and say, okay, I got to sell 30 new clients and I’ve also got to upsell 30 existing clients. Well, if I know that … so this takes a little bit of work. If I know that, then I can start thinking through strategies.
How do we sell 30 new clients? How many door hangers does that require? How many marketing pieces? If I’m going to upsell, how much email marketing does that require? How many follow up letters does that require? How many follow up voice blasts does that require? How many follow up in-person phone calls or real live phone calls does that require to make this number? Once you break it down, I mean, if it’s like, “Okay, I’ve got to send out 10,000 door hangers and I’ve got to make 400 calls,” now you know exactly what to do, and you could start to break it down. I know I’m oversimplifying it, but that’s the concept.
So basically what you do is you go through each of these areas and you figure out what you need to do. Okay, if I want to get 30%, instead of making up that we’re going to grow by 30% this year, I’m going to put math to it. Once I’ve put math to it, I’m going to break it down another step and say, okay, how many new clients does that mean? Or many existing clients do we need to sell to achieve this? Knowing those two things, how much marketing do I need to do? How much sales effort do I need to make? Okay, that’s another. Then you want to go even farther from that. As you get even more advanced and you have data, then you say, “Okay. Well, if I bring in this many new clients and I know I’m going to need to add two more crews, two more techs … ” and you can back into it.
That’s how you plan out a year and that’s how you work a strategy, so let’s go a step further. All right, so now I’ve got all of this. How are we going to deal with this? All right? We’re going to figure out what of these items, these levers, needs to move fast. For example, to make my year, the thing that probably needs to move first is mowing. I need to sell more clients mowing because, I’m kind of using a residential example here, once I get them for mowing, then it’s so much easier to sell them fertilization, weed control, pest control, bed and bush, mulch, all these other services. So the most important thing is we got to get all our ducks in a row to start selling mowing as fast in 2018 as we can and build that client count so that we have more clients to sell work back into, to expand the revenue of the account. All right? If you kind of get down here to quarter one, then I’m going to give myself and my team three initiatives each quarter.
One of my initiatives might be new development, and I’ll explain what new and improved means, but for example, if I want to develop out some … If I want to add new clients, I might need a new initiative, something we haven’t really been pushing hard on in previous years, and that is getting out there and pounding the pavement and selling. It may be the fastest way we’ve decided to do that, I’m not saying you have to do it this way, is door knocking. Again, another residential example, but that’d be a new initiative, so that is one of our three major quarter one goals. We are going to do door knocking, so to do that, I’m going to need some action steps.
How am I going to do door knocking? Well, I’m going to have to make sure I’ve got the right people in my team to do it. I’m going to make sure they have the right language, that they’re wearing the right shirt, that they know the neighborhoods to go to, that they have the right leave-behind, all these other factors. I got to get all my ducks in a row. That is a quarter one initiative. I got to build all that out so that they can start knocking doors, and so that’s a new initiative, something we’ve never done in the company but that’s going to drive new sells.
Then I’m going to work on improve some initiatives we already have, so maybe you already some email marketing. Going, “Well, I’m going to automate my email marketing. I’m going to get some people in charge of this, and I’m going to put one person in charge and make them a champion of email marketing. I might even consult with someone to write better marketing copy, because by working on improving our current email marketing I’ll be able to expand revenue by selling my current 420 clients, plus all the new clients I’m going to be bringing in, the services that they’re not currently buying from me.” At the end of that it’s going to help me get to my goal of, in my case now, 622,000 a year, because I’m selling more work back than the clients already have, So that would be an example of improving something I already have going on.
Then what’s going to happen as soon as I start growing the client count? I start selling more work. What’s going to break? We’re going to have a new bottleneck in the company, and the new bottleneck in the company is going to be labor, so now I’m going to work on my current recruiting process so that we can bring in more team members to perform the work. All right? So not only am I thinking about what I have to do to drive this new revenue to hit this goal, I’m thinking about when I start driving this revenue, what’s going to break? I’m going to need more people. I’m going to need more management. I’m going to need more office people to answer the phones. I’m going to need this, that, and the other. I’m going to need trucks, equipment. What’s going to break?
So I’m giving myself … by a quarter, I’m taking my plan, my goal, and I’m breaking it down into the initiatives that I have to work on, all right? Then I’ve got that, and you can only do a few of these a quarter. You can try to put 20 on your first quarter. You’re not going to get them done. You think 80/20. What are the biggest levers in my business that will move the company forward? And I don’t know if these are really the three. Probably a fair chance they are. So these things will move the company forward. We’re going to do everything possible to get these done. If we get all three of these done in the quarter, great. And we have more room, great. We’ll do more stuff. But we’re going to do these first before anything else because we’ve decided in advance they are the most important levers to move us forward towards getting this goal.
So then I’m going to take this and I’m going to say, okay, I’ve got me in the company, I’ve got several other people that can work these projects. So what am I going to do in quarter one? What’s my initiative to move this goal forward? What’s the outcome I’m looking for? And so I’m going to say, for me, I am going to work on the marketing collateral. That’s going to be left behind. I’m going to work on the strategy, exactly what are we going to do. I’m going to work on the language when we’re at the door. What do we say? I’m think through all this and I’m going to document. I’m going to have it ready and then I’m going to assign someone else, person one on my team. I want them to figure out the best neighborhoods to go this in. I want them to figure out the best time of day. I want all these answers to all these questions. I’m assigning that out to them.
So basically I’m breaking down this objective for quarter one across anybody that can affect change on that, that can help me get that goal, and we’re going to work it. And every week I’m going to meet with them. Maybe twice a week I’m going to meet with them. The first thing we’re going to talk about in the meeting is, “What do we get done? Okay. The number one goal we all agreed is door knocking. Getting that initiative implemented, what did you get done on yours? Did you get everything done this week we need to, to keep this thing moving?” Then after we’ve had that conversation, we’ll move on to other things to talk about in the business.
But the idea is that you start at this high level. You figure out what you have to affect, what numbers, what areas, what services, how many clients do you need to add, how much do you need to expand revenue? You make a plan. You take that plan. You break it down. How many new clients do I need? How much do I need to sell more? Do I need to sell to existing clients? How much business am I going to lose each year that I got to replace? Got to consider that. Then I’m going to break that down into the major initiatives that will get me there. What’s the initiative to get 40% growth in mowing, 30% growth in fertilization and weed control, 30% growth in pest control? And there’s the hard numbers that we have to hit. All right? I’m going to break that down, and then once I’ve broken it down I’m going to assign it out to myself and other people to work so that all of us are working on the component parts of it to guarantee that that thing is done in quarter one, and that’s the gist.
To some degree it’s really that simple, but it’s not that simple. It’s really hard, and I’ve not lived by this many, many times throughout my career. I didn’t even know it for the longest time, but then if you want to keep achieving really fast growth, you have to be very intentional. It does not accidentally happen. Very, very few companies continue to grow fast after the first couple of years, and even in the first couple of years, most companies don’t grow fast, so if you want this level of growth, this is the only way to get it. If someday your career advances to a place where you have money in the bank and you’re like, “What’s my next thing?” and you’re investing in other companies or you’re investing in your next business, if you’re not playing this game, money is being underutilized. Your money is at risk. You’re not carrying out the ideal strategy.
If you’ve never seen this before or if you look at this and you’re like, your eyes are glazed over, you’re like, “Oh my gosh, this is a long video and it’s confusing and this is too much,” you don’t have to get it all today. You don’t have to do it all today, but this is a way of thinking. It’s a mindset that will drive you forward, and I guarantee you that everyone that’s building something really fast, that’s not just getting lucky for a few years in a row, is doing this. I hope you’ll think about it. Maybe watch this video another time. Thanks a lot.
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