Profit First Pricing with Rocky Lalvani
Rocky and Mike Goldstein discuss how to use the profit first business model to create the right pricing for kitchen remodeling and other home improvement services. Rocky Levine discusses pricing strategies to to transform the way contractors need to think about profit first rather than thinking about your expenses first by using several groundbreaking techniques and strategies that people are running with today and are making them more profitable than ever.
Topics discussed on the podcast about using profit first business model
You need to look at, what is it that you need to live? What is it that you need to be successful? And I think that’s one of the, the real aspects of the whole profit first, you know, uh just the, the whole avenue of it is, it’s not about just taking your expenses, tripling them and saying, okay, this is what I charge, but rather there there’s a whole lot more that goes into it now, there is in a big part of it is determining what you need for your lifestyle and then based on what your lifestyle is, how do you build a business that supports that? And a big part of that is one of the factors that I think a lot of people leave out of the equation is their time and they give it away for free and so you do have to watch that as well. It is good to have some of the factors though, like on average we’re looking at three times what our material costs is that works, but you have to make sure that that’s a real number. Like a lot of times people will say this is the average, but does it work for you?
More about this podcast
Hey there. It’s Mike Goldstein with crushing it with kitchen remodeling podcast and today we are so lucky to have with us. Rocky Levine e who is going to be able to talk to us about how you really need to think about profit first rather than thinking about your expenses first. He’s going to go over some of the most groundbreaking techniques and strategies in in business management really that people are running with today and are making them more profitable than ever. And we’re going to do all of that just after this, are you looking for some fresh ideas? Are you looking for some fresh ideas to jump start your kitchen remodeling business? Welcome to the crushing it with kitchen remodeling podcast your host Michael Goldstein, founder of Kitchen Remodeling S. C. O, the digital marketing agency, working exclusively with kitchen remodeling contractors and also the author of the ultimate internet marketing guy for kitchen remodeling contractors will provide insight on proven tips and strategies from top experts in this space so that you can take advantage of industry best practices. Your host Michael Goldstein joined Mike as he shares his knowledge each week with an insightful interview or educational segment about how to turn your online marketing efforts into more kitchen remodeling leads and sales opportunities than ever before. And we’re back and I’m gonna bring him with us Rocky right about now, Iraqi, how are you? Good. Thank you so much for having me on Mike, excited to be with you today. Thanks, we’re so happy to have you here. Um so Rocky and you know, we talked a little bit in the intro, you know what you are, what you do, you’re you’re kind of one of the masters of the Prophet first system that’s that’s been out for a few years now but really tell us a little bit of what the heck is that you actually do with this and how do you help home service contractors, people like that, let’s face it, Most home service contractors probably hate accounting. They probably hate their invoicing, they probably hate looking at the finances. They love the parts of the business that they love which is for a lot of them maybe doing the work or some other part of it. But the reality of the situation is if no one’s looking at your finances, your margins and how things are going you’re probably gonna struggle. Most businesses have tons of leaks in them where cash is just pouring out and so what I do is I focus on the business from the beginning to the end. So you’re all about S. C. 01 of the things where we start with is we look at how many leads are coming into the business. We look at conversion factors, then we look at average sale and average transaction and then how that all relates at the end of the day to profit and ultimately to cash flow and I look at the entire spectrum and help them to make wiser decisions that’s that’s really kind of a really good high level overview, um what, you know, one of the things that I, you know that I have really implemented in my own business and I try and advise a lot of my clients to, is really when you’re looking at how your pricing a project, don’t look at your expenses as kind of the guiding factor, at least not as the sole most primary guiding factor. You need to look at, what is it that you need to live? What is it that you need to be successful? And I think that’s one of the, the real aspects of the whole profit first, you know, uh just the, the whole avenue of it is, it’s not about just taking your expenses, tripling them and saying, okay, this is what I charge, but rather there there’s a whole lot more that goes into it now, there is in a big part of it is determining what you need for your lifestyle and then based on what your lifestyle is, how do you build a business that supports that? And a big part of that is one of the factors that I think a lot of people leave out of the equation is their time and they give it away for free and so you do have to watch that as well. It is good to have some of the factors though, like on average we’re looking at three times what our material costs is that works, but you have to make sure that that’s a real number. Like a lot of times people will say this is the average, but does it work for you? Does it make sense? Does it cover your overhead and just making sure that that’s the case and then you’ve got to live within that budget, right? You can’t say, hey, I’m going to do this and then spend four times over. You know, and it’s funny because when you look at the, you know, the cost to do something, you know, it’s one thing when you’ve got a crew of eight or, you know, eight or 10 guys and they’re all on salary versus your outsourced, you get a bunch of subcontractors are coming in and quite frankly, maybe paying those subcontractors considerably more than you would an employee because they’re one off type of folks. And then on the other end of it, just like you talked about your own time, I mean, how many people that you want to say, well, yeah, but you know, it’s gonna take me three hours to do this, but I don’t actually think into it like, well what am I worth per hour? You know, because it’s, it’s more, well, I’m doing it. So it doesn’t matter this way I can get the price down and I can get the client in. And one of the things that we talked about, a lot of that show is who is your ideal target, What does that avatar look like? And Generally that Avatar is not going to be the person who wants to pay the least amount of money, they’re gonna be the person who wants to have the highest quality because if you’re dealing with somebody who’s only gonna pay you, you know a couple $100 over your, you know what what it cost you to do it. First of all they’re gonna take more than the guy who’s going to pay you 10 times. But more importantly you’re not take into account, listen if you have to go out and get a job, you know what would you get for all that time? You know and I’m sure that’s something you talk about a lot with, you know with your folks. It is we try to come up with the business owner has certain skills. What are those skills, what do you love to do? What are the things that drain you? And then also looking at your time value, you should be spending your time doing what brings the highest and best value to the company. You know for a lot of business owners, let’s say you’re worth 100 or $200 an hour, Don’t do $20 our work, pay somebody to do your $20 an hour work so that you can do your 100 $200 an hour work because you’ve got those skills so why are you wasting time on things that somebody else can do? And today with there’s so much automation available, are you making things simpler and easier? So for some of my construction guys, what we’ll actually do is we’ll help them build custom spreadsheets. So they’ve become very easy for them to bid out their jobs and that they don’t forget things a lot of times we forget certain parts of the job or certain costs and that’s a big part of what we also do. We dig into their numbers to say, where are truly your pools of profit. So if you’re doing installations, we might find that certain types of installations provide you tremendously more profit than other types. And if that’s the case then shift your business to look for the type of work that gives you the highest margins and the best return on your time and efforts. Yeah, that’s a really good point. I can tell you, we work with a couple of kitchen remodelers and homer modelers who don’t, they hear terms like cabinet re facing and, and resurfacing and painting and things like that and they think, Oh no, no, no, no, that’s low end stuff. I don’t want to do that. I only want the $250,000 homer model. And you know when I ask them, well how much profit you make on one of these, you know, little we’re facing and they’ll they’ll make 50 60% profit And then on the big job they might make 20% profit. But what they see is the gross revenue at the end of the day, not the actual mouth that goes into the bank and it’s so common that you know, So we have a little saying, top line is vanity, bottom line is sanity and cash flow is reality. And you know, if you think about it, let’s just say you had that large shop, it’s $250,000. Let’s say you’re making 20% off of that, that’s 50 grand. But what happens when something goes wrong right, you make a 10% mistake And now you’re down to $25,000. You might that project is probably months of work or a considerable amount of time. Whereas your cabinet re facing, you might be in and out in 48 hours, less chance of mistakes. Always guaranteed that you’re going to make this kind of revenue and you get better utilization of labor. And I think today that’s the big problem is is getting good labor keeping good labor. Um So you have to look at the business in entirety and see where you can make the most money for the least effort. Now when you’re talking to your folks about kind of looking at the profitability of looking at the expense is looking at what you do versus what, you know, the other thing to one of the big pieces that we really kind of hone in on is automation is using the right crm system and then you know you send out, you know, you send out an estimate of how many times you know, or someone just download your planning guide or whatever it might be. How many touches, what does it take? It takes 5 to 7 touches for you to actually get an appointment? Do you actually do that yourself or do you have a system where you know, you might pay 300 bucks a month for software and then you’re done. You know, that’s that’s a big part of it too is I think it’s the control factor, a lot of people, they don’t want to give it up, they want to continue to do everything themselves and they don’t, they don’t see kind of light at the end of the tunnel there well and that comes back to your time. Again, what we usually do for people who have to go through systems like that. I love that they ask you answer um philosophy, which is basically create videos of the most common questions people have and then send those to them in an automated fashion also have them on your website. So when somebody comes to you with a question, they don’t have to call you up and ask you’ve got the most popular questions right there. It might be, you know, what’s the advantage of granite over something else. What are the advantages of this cabinet over that cabinet, the more you can educate the client, the more of an expert you become and the more time they spend on your site or reading your emails, what you’re doing is building, know like and trust. So for me example, I have a podcast, I teach people everything I do. They spend months listening just like people are spending months listening to you. It builds that that trust and then when they show up they’re ready to buy. So you may not have to go through six touches. The six touches happen behind the scenes and they call you up and go, we’re ready to order our kitchen. Yeah. And guys, those of you who are listening, that was really, really great advice about the video piece. But beyond that, I think about it from an S. C. O. Standpoint. If you know the second most popular search engine the world is Youtube. If you’re creating all this great content you put on Youtube, you can now embed that content, put it on your website, adding a little structured data and you can now try and optimize yourself. So you come up with those videos. So when people, the reason they’re popular questions is because people are asking them, so they’re probably searching google with those long tail terms and it gives you yet another way to generate more interest get in front of more people and then be able to be able to pick and choose who you really want to work with rather than who you have to work with. So true and and that’s the thing when you start to niche down and you start to really specialize, you get to work with the kind of people that you want to work with that are more fun to work with and don’t try to be crazy. Yeah, and that’s that’s why, you know, I always say when I talk to people, what is that perfect avatar because stock wasting time, you know, pitching to people who you don’t want to work with, stop trying to close people who you’ve got a 10% shot of closing, close people who’ve got an 80% shot of closing, you know, that’s, it just comes down to making yourself more efficient, making your business more efficient. Um and really what’s what’s more enjoyable and there’s, I think there’s nothing less enjoyable than going out and pitching projects and then getting turned down so, and so that’s all about having a good and profitable sales process in place. And I think that’s the other thing, you know, if this is gonna be a long process, you need to make sure that you’re keeping your pricing up to date in the sense that if you put a proposal out with the way things are going in today’s world supply chain issues, everything else, I think you need to stay on top of those changes and I think a lot of people got blindsided early on or they didn’t realize that they were losing money on some of their installs because pricing was changing so fast and so you got to create contracts that say, hey, if we see a price increase of X, then we need to pass that on to you or maybe as soon as you get the order, you’re ordering the cabinets or whatever it is you need to order so you can lock in pricing because taking that risk is difficult. And then also just your terms, how are you getting paid? Are you, are you doing that appropriately? Are you appropriately funneling the money to where it should go so that you have great cash flow? All of these different parts have to come together and it’s all thinking through your business instead of just kind of winging it. Yeah, I’m curious your positions. I’ve had a couple clients recently who has really delved into the cost plus pricing method. And I mean, I think that kind of speaks a little bit to the prophet First avenue is you figure out what is your, what is your profit, This is what I’m going to charge and then what we do is, you know, it’s gonna whatever your materials cost plus this is the fee. Do you find that you know that you get a lot of pushback from people? Well, yeah, but I can’t really sell that because then they know what I’m really making on them and things to that extent. So I think that depends um it depends on how much time you’re in there and how you’re doing it. People can anyway figure out what you’re making. The other thing is is when you do the cost plus you should probably put margin into the cost. So depending on where you’re getting your product from, you might be marking it up or getting a discount, so some of your money is hidden in there as well as the other part. Yeah, I I think it really depends on what your business model is and how you do it. If you’ve got those big margins though, then they’re probably not listening to us because they’re fat and doing well with, with their cash flow, right? And you know, it’s funny, I always find that money hides a lot of ills and you know, and that’s why I always say, you know, sales is it’s so important because if you’re doing well in sales, you actually probably are not doing well in your operations because you know, you’re overlooking so much. Um and it’s, you know, that’s one of the best things when we work with people as we, you know, we delve into kind of their market systems and we delve into how much are you paying for this and that and I’ll tell you, we had a client um a couple couple months back, we found that they were paying $1300 a day in google ad spend $1300 a day to get 8 to 10 leads by the way and we were they were closing about 20% which I mean it wasn’t bad but I’d like to say I would like to see higher point being is what we did is we started looking at all the terms that people are clicking on that you’re not actually they’re not converted. They you’re getting hundreds of dollars a day on high click value. Um but no conversion, no one’s filling out a lead, no one’s making a phone call. We started implementing some negative keywords and all of a sudden their ads that went down to $800 a day, 500 out of the 13, that’s that’s about 25% of maybe maybe not great about off the top of my head, but you know it’s it was a really significant amount and they didn’t, their lead flow did not go down one, they were continuing to get 8 to 10 leads a day, spending $800. So they’re ctr is going sky high, which means that now, not only is your ad spend allowing you to generate more leads for it, but google sees you as oh you’re putting out a better ad because your click through, it goes up. So conversely the position goes up so little things like that, you know when you’re looking at where you you know where you’re spending too much, where you know what you’re doing right from a financial standpoint can have ramifications across the board and across your entire business, 500 bucks a day is 15 grand a month. That’s big, big money to your pocket. It is. And I mean now mind you, you know, the, the average, you know, solo or, or you know someone who’s two or three people, they’re not, they’re not going to spend it. They don’t have, you know, you know, you don’t have 304 100 K a year to put an ad spend alone, let alone management fees and all of that. You know, and the problem is the companies that do have that are so big that it doesn’t really affect and they don’t, they don’t see it or they see, you know, if you go and say, Hey, listen, I can get you this for $500 a month in ad spend $800 and had spent, they think that you’re gonna, you’re gonna do something shady or you’re gonna, you’re not gonna really give me the quality that I want and just, you don’t have to spend the most amount possible to get the best result. I think one of the biggest things, especially in, in this industry, what we do is yard signs and labeling your trucks well because one of the biggest lead gens is being in a neighborhood like it builds trust. Just the fact because people can go talk to that neighbor, hey can I see your new kitchen doing all of that so that really helps and and it’s making sure that you leave the signs up, maybe you got a Q. R. Code on your truck so that as people walk by they can connect with you and even doing mailers post, you know, take pictures, go, go to old school postcards, right, check out the kitchen. We just did it cost you what under a buck to mail a postcard to the 2 300 homes right around it for 2 $300 if you pick up one home, that’s great. It is and that’s that’s actually interesting to say because we, we just started implementing that strategy with one of our clients and you know, they were these guys were getting like an extra two or three leads every month just from that very early on. So I don’t know what the close rate is going to be and all of that yet. Um, but it’s, it’s really important to, you know, to be and you said something earlier is you need to be the company that, you know, everybody knows likes and trusts and that’s, you know, that that google thinks the same way if you don’t have reviews, you know, they’re not gonna rank you if you, you know, if you don’t have authority, you know, talking about, you know everything then they don’t think that, you know, people are going to trust you. It’s, it all comes down to that know like and trust factor and nobody’s gonna, no one’s going to trust you and your message more than they’re gonna trust what your neighbors say about. So that, that’s, that’s a huge market for sure. Um, So let, let me ask you this Rocky, if someone to come to you and they want you to say, what is the first steps that I take to really dissect my finances and figure out where I’m going wrong where I’m wasting money. What is, what does the process look like? So I think the first step is understanding where your money is currently going and if you’re using a decent accounting system and it’s done properly, you can start to look at where is my cost, what’s my labor cost, What’s our cost of goods, what is the overhead in this business that it’s costing me to run my business on a monthly basis. And just getting an idea of what those numbers are comparing them to industry standards, comparing them. Like in mike’s book, there’s a chart for a business of this size. This is what we expect, you know, your profit margins to be. And then asking yourself, am I making those margins, are you getting paid appropriately? So some people may say, oh, I’m profitable, but did you pay yourself? Well, no, I love that by the way because so many people say, oh yeah, you know, we’re doing, we’re doing all this profit and what’s your salary salary. Well, let me tell you how much money the businesses bringing, if you’re reinvesting all the money in the business, you’re not really profitable, you’re growing a business for sure. But at the end of the day, you know, you can only sustain that for so long. You can, and that’s why what we talk about is good financial hygiene. So in your, in the type of people who are listening to this, a lot of what we like to do is the deposit money immediately get set aside and we use the deposit money to pay for all the materials and do that appropriately. We don’t commingle that with our overhead because it’s really not yet into overhead. It’s only when we get 2nd and 3rd payments do we look at putting it in to cover our overhead. So we create a lot of financial discipline for them so that they know that their money is flowing where it’s supposed to be otherwise. Sometimes we get a lot of deposits in and we spend it and then it comes time to buy something and it’s like, oh, where’s the money? Well, you spent it? Yeah, for sure. And you know, I also think people look at them, they don’t look at their holding cost either. So, you know, they’ll, they’ll say, oh, there’s a great deal going on in granite right now, There’s a great deal on, um, cedar or whatever it might be. And they stuck up and then they realized, I don’t have the money to hit payroll now because I bought all this granite and this is great for the next six months. We’re not gonna need to buy it, but you know, you’re not using the idea I think is that you want to use the money that people are paying for their project to buy the inventory for their project. We have a word, you know, when you take money from one person, use it for somebody else, it’s called Ponzi, right? And then a lot of people got a lot of trouble for that. So they do and we try to help keep the, those financials clean. And we also, what we like to do is everyone puts out the, the original, uh, proposal. Does anyone go back to see if what it actually costs you to do it versus what your proposal said, so is your proposal real? Because a lot of times they may not be real. And a lot of times that’s what we find what actually goes into the project isn’t what they thought was going into the project and it’s taking the time to do that kind of analysis, have the systems in place to make sure that it’s true because many times it’s not. Yeah. And I think that also goes to at least at least for our listeners. What type of work are you doing? Are you a full home remodeler? You know, and taking on a project that might take you 3 to 5 months to complete, you know, that you someone who’s coming in and just, you know, you build custom cabinets, you install and you’re in and out in three or five days. Um, you don’t even, Maybe around 48 hours. Um, it’s a whole lot easier I think, to track your projects and track your profitability and all of that on a small smaller project, but it doesn’t mean that you don’t need to continue to do that on the big projects as supply chains fluctuate as prices fluctuate as the labor market, which really has fluctuated recently. Um, you know, that’s, I can’t imagine that people who are bidding on a project, you know, six months ago and they’re starting it now and they’re going to be doing it for the next three months, that the labor cost that they’re going to see come december and january of next year is gonna be even close to what it was when they found out that project and those things change and that’s why you have to be very careful how you write your contracts. I think the other thing that comes up in the industry is a lot of times is the year gets towards the end, they’ll go have a conversation with their tax accountant and their tax accountant doesn’t want them to pay taxes. So they’re like, oh, go buy a new truck and they go by this new fancy truck that doesn’t do anything to drive profitability. They all feel good because I got a new truck and then come march in april they’re wondering why they have no cash flow. It’s because the truck crush their cash flow, you know, that reminds me of is attorneys who love billboards right? That you know you drive down route 95 or you know where Route six wherever you are in the country and you see these giant attorney billboards and every 90 ft or so you see the same attorney pop up again and again and again and it’s a great ego stroke and it is really good brand awareness campaigns like now facebook campaigns, you might see somebody pop up on facebook and that video comes up time and time again. No call to action by the way, just the video. Um and just because you’re doing that, it, you know, it might make you feel good, it might make it look good and yeah, you might spend down your profitability but is it is their return on investment and that’s R. O. I. Is is the end all and be off everything that we do and I presume it is for what you’re doing as well. And that’s what you have to look at is because a lot of times people spend money and you ask them, is it profitable, does it bring you a return? They’re like we don’t know we don’t know where our profits actually coming from. So we don’t know where to turn up and turn down our spending. And and it makes it difficult so you’ve got to take the time to dig through all of that and make sure that you’re doing it appropriately. It’s all about tracking you know on our end. I said we track everything and I was saying if you can’t track it you can’t improve it. Um And it’s so it’s so true people who they say well you know we have these facebook ads running and we’ve got these postcards going out and we’ve got these mailers and we’ve got lawn signs and we’ve got google ads and people find us for S. C. O. I say that that’s great how many leads came from each of those? Well we don’t really, no because they you know they might be our number and then looked us up on google or they might have seen a video and then they drove by and saw a sign that said you know you’ve got to have a way to really track that. And I mean Q. R. Codes have different phone numbers on every single piece that you know where they come from. Um It’s just there’s so many ways that you can track better than what you’re doing now and by doing that it makes it a whole lot easier to figure out where your money is going and what’s really driving profit and driving sales correct. And the same thing happens on the trucks. I can’t tell you how often the trucks are full of excess inventory, something not used. They don’t put it back where it came from excess tools. It’s not unusual that the trucks got $50,000 of profit hidden inside of it because you didn’t take care of those small small items. I’m sure our listeners yet they don’t ever go out and see a new tools that we’re gonna have. That that that that never happens, never ends up on the truck, which by the way, never gets used either. No. And and that’s true too. You have to have appropriate usage of your tools, you know, not get too excited, but also make sure that if you send something out to a job and it’s not used, that it gets put back appropriately and you man all of that, if your trucks are a mess, your finances are a mess. Absolutely. And the other thing is, you know, you have a hobby that pays you a few bucks or running a business and that’s that’s a big thing, you know, a lot of people that I love what I do and I heard the old saying, if you love what you do, you never work a day in your life, that’s crap. If you love what you do, just make sure you’re running it like a business. You know, you may not love what you do then, but at least, you know, you’re gonna have, you’re gonna make a good living doing it and then you can really do what you love to do and I’m sure nobody really loves to go and snake drains. Um, but Maybe this one girl, you never know. But yeah, it’s, it’s appropriate to track everything to know what’s going on within the business and then you can fine tune it and you become more profitable. I can’t tell you how many seven figure business owners I talked to and they’re just not taking any money home. And that’s not fair that that’s not fair for them at all and not only that, but they’re usually very proud of the fact that the business has massive revenue number at the end of the day and you know, if you’re driving around and you know, in a beat up, 10 year old Kia, but the business is making three million a year. Some, there’s an imbalance going on somewhere. Um, for sure. So Rocky, let me tell you have really dropped some golden nuggets on us today and I really appreciate, I know all my listeners really appreciate some of what you’ve had to tell us, but if they hear what they, what they like, what they’ve heard today and they want to get a hold of you. What’s the best way, How do they find you? Where are you? So the website is profit comes first and if they go to the website, they can get two free chapters of Mike’s book if they want Mike’s book and just check it out and see if it’s something worth buying or they can listen to my podcast. Profit answer man, wherever you listen to your podcast, you’ll find it. And basically what we do is we teach everything in the profit first system, we teach you how to think about profitability inside your business. That’s great. And if they want to hear you on a little more consistent basis, you have a podcast out there. Yeah, so the podcast is is profit answer man. And wherever they listen to their podcasts, they can find that and check it out and we do have all kinds of services available. We’re about to launch a new course, which is for those of you who want to do it yourself. We’ll show you how to do your finances in an easy way on your own. We teach you everything, we do for your clients or if you want it done for you, we can do it for you and presume we got a couple of downloadable is there that they know some templates that they can use absolutely everything is there as well. Fantastic. Well, again, it was so great having you on the show. I’d love to have you back here, you know, maybe in a couple of months. We can do this all over again. Um but it was just, it was a pleasure today. So thank you so much for having me. My pleasure. Alright, well, everybody, this was Mike Goldstein. This was Rocky Levine E crushing with kitchen remodeling podcast, tune in again next week. Just sit.
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