If when you started your business, you grew it, and you were doing about 100,000 in revenue, and you were making money, and you start to run the numbers, and you said, “Man, if I just triple this business and I get this thing up to $300,000, I’m going to be making a small fortune.” Then what happens, as you grow the business, your paycheck starts to actually decline. The reason that happens is that in the first $100,000 worth of revenue, you are working the business. You’re out there as a billable employee generating revenue. See, you’re getting paid for contributing to generating billable hours.
But then as the business grows, you’ve got several things that hit you all at one time. Now you want to add a second crew and you’re investing in some people, you gotta buy trucks and equipment, so now you’re having to take money that you didn’t have to invest in the early days because it was just you and a truck and some equipment. Now you’ve gotta buy a second truck and equipment. I mean, this is intuitive. You get that. That sucks away some of the money you would’ve paid yourself to make that investment.
Then on top of that, as the business starts to grow, it shifts away from you billing hours because you just don’t have as much time. You’re billing some amount of hours to the client more than likely, you’re probably still working in the field, but maybe you’re now billing half the time you used to bill. So what’s happening is now you’re having to skim off the margin of the individual that you’re billing out to the client. So you hire somebody at $15.00 an hour and you sell them, rent them to the client for $35.00 an hour. In that $20.00 spread, between the 15 and the 35 you pay them, you’ve got to pay their burden, or their benefits, their taxes, you got to pay for the truck, the gas, the equipment, the materials, you got to pay for all that stuff in that $35.00. You’re hoping that somewhere in that $35.00 maybe there’s $5.00 left over for you.
So you can sort of back into the math. How many hours would you have to sell of other people’s time, of your team members time, at let’s say $5.00 an hour, and I made that number up, to equate to you making $10,000 a year or 20, or 30, or $40,000 a year. That’s the spread. And that spread is difficult to get, when you’re also growing the business quickly and adding trucks and equipment, because some of that spread, the money left over between what you basically pay that person and what you sell them to the client for, that spread gets eaten up in investments inside the company to get you to the next level.
So if your company has been doubling, and tripling, and you’ve been saying, why am I not making more money, where is the money going? It’s going back into investments inside the company, it’s going back into the team. Things to look at, if you’re not making enough money, maybe you’re not billing your team members out at a high enough rate, so there’s money left over to pay you. Maybe you’re, got to be careful with how I say this, maybe you’re buying too many trucks and equipment for cash too quickly, and you’re eating up all of your money, where you have no leftover money to pay yourselves, because you didn’t use any debt, which I tend to be totally cool with, but it’s reality. If you spend all your cash to pay for all your stuff, then you don’t have much money left over to pay you. Are you inefficient? Is there lots of inefficiencies in your routes, your morning routine, things of that sort?
So if you’ve tripled the business and there’s less money than there was when it was small, and you’ve been saying, “Man, I’d like to just be small again.” It’s a different problem. Also, if you’ve ever heard there are these growth plateaus, and you sort of get stuck in no man’s land. And if you don’t grow past the plateau fast enough it just sort of sucks for a long time in the business? That’s because a number of things, you haven’t scaled the business up big enough to get enough individuals inside the company all billing time, where you’re making the spread on what you pay them and what you sell them, or rent them to the client for. And in that spread is where all the money is to grow the business and pay you more. That’s what you look at.
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