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Why $1M in Revenue Can Be Worth Almost Nothing · Home Service Millionaire with Mike Andes

• 0:00
  This year, my lawn care business will make over $75 million in annual revenue.
• 0:05
  And today, I'm going to be talking with you why certain types of revenue are far more valuable than other certain types of revenue in your home service business.
• 0:14
  Now, I've done everything from mowing grass, franchising, software, web design, and every single one of those have this one thing in common.
• 0:23
  Because ultimately, revenue is vanity, profit is sanity, but quality of revenue.
• 0:29
  is where real wealth is built.
• 0:31
  So often the times home service business owners get caught in this trap of knowing what our revenue is.
• 0:37
  Knowing how much revenue you earned is very simple.
• 0:40
  Almost every single person I talk to knows, oh, I made a million dollars last year, or I made $942,000 last year, or I made 4.6 million.
• 0:49
  We know that number pretty good.
• 0:51
  But I like to think much more about the enterprise value of the business.
• 0:56
  Now, the reason we don't talk about enterprise value is it's a lot more difficult to measure, and the vast majority of businesses have no reason to go get outside valuators to determine what the worth of their business is.
• 1:09
  Now, most recently, we went through our own valuation.
• 1:11
  It's called a 409A Evaluation to be able to figure out what the valuation of all my businesses are.
• 1:17
  That came back last year at $30.2 million and this year at $43 million.
• 1:22
  Now, the reason is, is because we focus on quality of revenue.
• 1:26
  And I want to get this across to you because you might never get a valuation on your business, but nonetheless, it is affecting how you run the business, whether or not you're able to sell the business, and whether or not that business will be around in 10, 15, or 20 years.
• 1:41
  And so I like to think of revenue on a continuum.
• 1:45
  And over here, we have one-time jobs.
• 1:50
  These are jobs that are done one time and then you never come back again.
• 1:54
  Now, the next stage on the continuum, as we increase the quality, so high quality over here,
• 2:01
  Low quality revenue over here.
• 2:03
  Now, I don't wanna beg on people that do one-time jobs.
• 2:06
  I've got that reputation, that's not necessarily my goal here.
• 2:09
  I know you can make a lot of money doing one-time jobs, and you can make a lot of revenue doing one-time jobs.
• 2:15
  But the quality of the revenue is all I want to focus on today.
• 2:19
  Because the quality of the revenue gets me a higher enterprise value.
• 2:23
  And a lot of times people that do one-time jobs, they'll reconcile the fact that they don't add other types of revenue or higher quality revenue into their business because they say, I'm not gonna sell my business.
• 2:34
  If you're not selling your business, I still believe it is in your best interest to try to move up this continuum and add higher quality revenue to your business.
• 2:42
  even if you don't sell.
• 2:44
  Why?
• 2:44
  Because if you get injured, if you want to go on a vacation, if you want the business to run without you, if you want to hand it off to a general manager or your kids, it's going to be a whole lot easier to do that if you have a higher quality revenue.
• 2:57
  And the reason that a business gets a higher enterprise value is because it's easier to hand off.
• 3:03
  There's less key man risk.
• 3:04
  It's easier to scale.
• 3:06
  It has this higher level of quality of revenue in the business.
• 3:10
  Now the next stage is reoccurring, reoccurring revenue.
• 3:18
  So this is revenue that happens more than once, but very occasionally.
• 3:23
  For example, I don't need to have moss treatment on my roof every single year or every single month, but I might need it every two, three, or four years.
• 3:35
  Well, I might not set up a service to come every year or every three years even.
• 3:41
  That would be a recurring, well, the third one right now, recurring when I'm on some
• 3:49
  and do the job again.
• 3:50
  But reoccurring, it happens more than once, but it's infrequent and not on a schedule.
• 3:58
  Think like the moss on the top of a roof.
• 4:00
  I'm a big fan of trying to turn recurring, reoccurring revenue into recurring revenue by simply giving a discount to the customer to create a schedule.
• 4:10
  For example, if I'm doing Christmas lights, that's an annual thing.
• 4:15
  I wanna make sure it is recurring by making sure I lock that customer in for their second, their third, their fourth, their fifth year of Christmas lights.
• 4:23
  Otherwise, it stays reoccurring revenue.
• 4:25
  This is dangerous because if they just do it once this year and then decide next year they don't really want to, that's a problem.
• 4:30
  I'd rather give them a discount to turn that reoccurring revenue into recurring revenue.
• 4:35
  Why?
• 4:36
  Why would I take a 20% margin haircut?
• 4:39
  Because I increase the value and I increase the quality of the revenue that I'm getting.
• 4:44
  And so these are the three different types of revenue.
• 4:46
  One-time jobs, reoccurring revenue, and recurring revenue.
• 4:50
  This one is the fastest to grow.
• 4:52
  I can grow with one-time jobs very quickly.
• 4:55
  It is very common in construction, design, build, in that sphere to have very fast growth.
• 5:02
  Growing a five, $10 million business in a few years is very possible.
• 5:06
  It's also a lot easier to use 1099s and subcontracted labor because I don't need them to show up at a certain place every single day to do my recurring revenue or my routes.
• 5:16
  I can just subcontract them for one specific job or one specific contract
• 5:20
  or a three or four month huge project, they jump on that, I don't need as many W2 employees.
• 5:25
  So I don't have to build the infrastructure like I would if I had recurring revenue.
• 5:30
  Recurring revenue, on the other hand, requires typically more overhead to get started.
• 5:34
  It takes a lot longer to build because I need the infrastructure for someone to answer the phones and then a bunch of employees that are W2s because I'm telling them they have to show up, they have to drive my truck, they have to wear my uniform, they have to go to the routes,
• 5:46
  on a certain schedule, I have to have them as W-2 employees.
• 5:49
  That costs me a lot more.
• 5:50
  I have to build that infrastructure.
• 5:52
  I'm not going to build a $5 or $10 million business that I would in construction in a few years.
• 5:57
  I'm not going to be able to do that as easily with a recurring revenue model.
• 6:01
  I might only do $1 million or $2 million in the same amount of time that this one-time job business is able to be able to earn $5 or $10 million in annual revenue.
• 6:09
  Because the one-time jobs...
• 6:11
  It's usually subcontracted labor.
• 6:13
  It's also usually rented equipment.
• 6:14
  Or the recurring revenue where I'm using my equipment, my employees every single day, I've got to build out a lot more overhead and a lot more infrastructure.
• 6:21
  This is what is so tempting to go get these big one-time jobs.
• 6:25
  And I don't necessarily mean that it has to be large in terms of dollar item, like a huge project, a $500,000 job or a million-dollar job.
• 6:34
  but it is the quality of the revenue.
• 6:36
  It's not just the amount of revenue.
• 6:38
  It is, does this job happen more than once?
• 6:41
  If yes, it's reoccurring.
• 6:43
  If it's reoccurring and I'm able to put them on a schedule weekly, biweekly, monthly, quarterly, or annual, can I get them to move into recurring revenue?
• 6:52
  And so if you're stuck on one of these sides of the equation right now, I just encourage you to make an offer that incentivized customers to move up the continuum.
• 7:01
  If you're doing a one-time job, ask yourself, can I get them on a maintenance package if I'm installing a paver patio?
• 7:08
  Can I get them on a recurring service where every six months I come back to the property, I re-sand things, I make sure that the borders are correct, I might reseal it, might pressure wash it, might clean it.
• 7:19
  These are the type of things that I can do to turn my one-time job revenue into recurring revenue.
• 7:24
  And that $100,000 paver patio that you installed is probably only going to be a couple thousand dollars a year in recurring revenue.
• 7:33
  That's why it takes so much longer to build a recurring revenue business.
• 7:36
  It's also why it is worth so much more when it comes to enterprise value.
• 7:41
  At the end of the day, over on this side of the equation, with one-time jobs, you have 100% annual churn.
• 7:48
  Meaning every time I get a customer next year, they're not coming back.
• 7:53
  In other words, I have churn or loss of customers at 100%.
• 7:58
  Now in the perfect world, if you wanted to build the perfect business, you'd have a 0% churn of your customers that are recurring.
• 8:06
  Meaning that 100% of them come next year and the year after that and the year after that.
• 8:11
  Now, obviously most of us are not going to get 100% retention.
• 8:15
  or on the flip side, 0% churn.
• 8:19
  You're going to have customers that move.
• 8:21
  You're going to have customers that pass away.
• 8:22
  You're going to have undoubtedly some customers that might leave because unsatisfactory service.
• 8:28
  But our goal is to drive our churn as low as possible on a recurring revenue model.
• 8:33
  That is going to drive our enterprise value as high as possible.
• 8:37
  Now, the hope is to get them these one-time jobs to become reoccurring if possible, where you sell, hey, Mr. Jones, we did this paver patio.
• 8:45
  Yeah.
• 8:46
  Can I sell you another paver patio?
• 8:48
  Can I sell you another project?
• 8:50
  And this is the easiest step for people to take is to go from one-time jobs to reoccurring revenue by simply doing one thing and then to staying in touch with the people that you served with a one-time job.
• 9:00
  and just sell them another thing.
• 9:02
  And if you on average can sell them another project every year or two, you just switch from one-time jobs into reoccurring revenue.
• 9:10
  And the value of your business, the quality of your revenue is better because that revenue is coming from the same customers.
• 9:16
  Meaning if someone else was to take over your business, they wouldn't have to go do a bunch of advertising to get new customers.
• 9:22
  They just keep selling to the existing customers that you have in your database.
• 9:25
  The number one thing I would think about if you're stuck in one-time job land
• 9:29
  is how can I sell more of those jobs to my existing customers?
• 9:34
  How can I get where the average customer, I'd start tracking this, jobs per customer or jobs per contact in my database?
• 9:41
  Because if I can get out of a thousand people in my database, 500 of them to come back and get another project with me, that means that one project per two years on average, I can get customers to come back and generate reoccurring revenue.
• 9:55
  In other words, I don't have to go buy more customers for that one time job.
• 10:00
  Hey, real quick, thanks for watching the video.
• 10:01
  I'm actually at the headquarter building.
• 10:03
  We just finished pouring the concrete for the foundation, but I wanna jump in here, cause some of you might be saying, well, how do I do exactly what you just said?
• 10:10
  Inside of HomeWorks, you can set up an automation that when a job is scheduled, it immediately sends a text to the customer and offers them another service.
• 10:18
  So you could also do this for phone calls.
• 10:19
  We use that command center for Augusta Lawn Care, and that's what we're building here is the command center.
• 10:24
  And that is where we will actually just get an email to the command center when we set up a service for, say, a property cleanup or a mold installation.
• 10:31
  And we will just call the customer, confirm the job, let them know what time we're coming in terms of the schedule, but we'll also offer them another service.
• 10:39
  You can do it with text messages, you can do it with emails, and you can automate the entire thing.
• 10:42
  Go check out Homeworks, set up automations, and completely customize your workflow to make sure you're getting these customers to move from one-time jobs to reoccurring jobs and into recurring revenue.
• 10:54
  Because ultimately, when a recession hits, these are the people that get whacked.
• 10:58
  Because one-time jobs dry up when a recession hits, and all of a sudden, there's no work on the schedule.
• 11:04
  And I have seen this time and time again, whether it be 2020 during COVID, whether it be 2008 during the financial crisis, during these periods of time when there's a recession, even the few weeks during 2020 when, for some people, they couldn't work because they were not deemed essential.
• 11:19
  six and 12 month backlogs of one-time jobs evaporated overnight.
• 11:23
  Now at Augusta Lawn Care, more than 99% of our customers that were on recurring service stayed with us.
• 11:30
  While at the same time, we struggled for those few weeks before the government stepped in and printed, billed jillions of money, dollars of money.
• 11:37
  Before that happened, we lost a lot of one-time jobs.
• 11:40
  Even people that had put down deposits, like, hey, just hold that.
• 11:43
  We got to see what's going to come down the pipe here.
• 11:45
  And so I'd encourage you to move this direction, not only for the fact that you have higher quality revenue, not only for the fact that you have higher enterprise value, but is making the business safer for your employees, for your team, and for your family.
• 11:57
  Now, every business I'm currently in is focused on recurring revenue.
• 12:00
  Personally, I do not want to get involved in any business, any business, where there's not recurring revenue.
• 12:07
  There is no world in which I want to go out and sell my time or my energy towards one-time jobs.
• 12:12
  There is just no value whatsoever.
• 12:15
  And because we're building the whole code and we actually have valuations on an annual basis, we submit it and there's a whole bunch of valuation mechanisms.
• 12:23
  I only focus on recurring revenue.
• 12:25
  If there's no recurring revenue, I'm not interested.
• 12:28
  So if you look at mowing, that's why I'm so focused on it.
• 12:30
  I know I can get customers on a recurring basis.
• 12:33
  I can retain 75 to 80% of them a year.
• 12:36
  That would put you about 20 to 25% churn.
• 12:38
  That recurring revenue mowing is great, but then I can also sell them treatments, which is also recurring.
• 12:43
  I can sell them winter services, which is also recurring.
• 12:45
  I can sell them Christmas lights, which is also recurring.
• 12:47
  I'm only interested in recurring revenue.
• 12:49
  Now, the one caveat is I will sometimes sell one-time projects to be able to make up for the customer acquisition cost
• 12:58
  that is associated with getting a new recurring customer.
• 13:02
  So I will go after the mowing customer because long-term, that's the revenue I want to have.
• 13:06
  But when I go out and spend $60, $70, $80 to acquire the customer, I will sell them a $500 cleanup.
• 13:12
  I will sell them...
• 13:15
  a $300 gutter cleaning.
• 13:17
  And by getting that one-time job that I might not ever get again, or maybe it's reoccurring, I can then pay for the customer acquisition cost of getting one new recurring customer.
• 13:27
  But in terms of buying customers, in terms of paying and spending money on ads, I am only focused...
• 13:33
  on spending money on ads to get recurring customers.
• 13:37
  My emotion then is that once I get a little slower and I need some jobs to fill in the schedule or getting a little bit slow for a week or two, I will then pitch these recurring customers for one-time jobs, but I'm not gonna spend money on advertising.
• 13:50
  So that's mowing.
• 13:51
  That's why I get into mowing.
• 13:52
  That's why I believe so much in home services, specifically ones that have recurring revenue.
• 13:56
  I personally, not involved in things like garage doors or electrical and plumbing.
• 14:03
  Although there is certainly a recurring revenue model that can be built around them, most of those businesses are built around one-time jobs.
• 14:09
  And that's fine.
• 14:09
  And there's certainly fantastic businesses that do amazing job in those industries.
• 14:15
  But personally, I like recurring revenue.
• 14:17
  And so that's why I focus on mowing.
• 14:19
  It's one of the few home services where I can show up at a customer's property 30 or 40 times a year.
• 14:23
  Cleaners, maybe, will show up 20 times a year.
• 14:28
  Outside of that, most other home services are like once or twice a year.
• 14:32
  Whether it be gutters, whether it be pressure washing, painting, electrical, HVAC, you might have those people show up once or twice a year.
• 14:39
  When I can show up to someone's property 30 or 40 times a year for mowing, I can sell them weeding, bush trimming, mulch installation, and a whole bunch of other services.
• 14:47
  That's why I love this industry.
• 14:49
  Same thing is true when it comes to the franchise.
• 14:51
  I'm only going to have a monthly recurring model.
• 14:54
  And you play a flat monthly feed Augusta, it's a franchise.
• 14:58
  What is it?
• 14:58
  It's recurring revenue.
• 15:00
  I'm not interested in the upfront initial fee.
• 15:02
  The upfront initial fee that we have to charge for the franchise, basically gets wiped out with commissions, training, legal, and everything involved with getting them launched.
• 15:10
  I don't care about the initial fee.
• 15:12
  I care about the recurring revenue.
• 15:14
  If you look at software, at homeworks,
• 15:16
  It's the same thing.
• 15:17
  It's monthly or annual revenue.
• 15:19
  It's recurring.
• 15:20
  I'm not going to sell a license for $10,000 and say, you get it forever.
• 15:23
  It's recurring.
• 15:25
  Same thing is true with web design.
• 15:26
  So if you look at home service web design or lawn care web design, we are selling a subscription.
• 15:31
  There are absolutely, there's a world in which I could just say, okay, well, on average, I could just keep customers and I'll charge them $5,000.
• 15:38
  We'll take six to eight weeks and build the whole site from scratch.
• 15:41
  Let's go.
• 15:42
  Certainly could do that, but I'm not interested in one-time jobs.
• 15:45
  I'm interested in recurring revenue.
• 15:47
  And so that's why we offer search and optimization.
• 15:49
  That's why we offer optimization of your Google business profile.
• 15:52
  That is why we are also making sure that we have ongoing updates to your site is that we can have recurring revenue and we reduce the barrier to a $5,000 ticket, all in the name of having recurring revenue.
• 16:04
  So when we look at the franchising world, for example,
• 16:07
  Jersey Mike subs.
• 16:09
  Each location has about $1.2 million in revenue per year.
• 16:12
  There's about 3000 locations in 2024.
• 16:16
  They were bought out by private equity for $8 billion.
• 16:19
  And they're planning potentially to go and do an IPO and go public for $12 billion.
• 16:23
  Yeah.
• 16:24
  Why?
• 16:25
  It's recurring revenue.
• 16:27
  It's not the sub sandwiches that they're buying because the sub sandwiches at the franchisees level is reoccurring revenue.
• 16:34
  It's not on a weekly basis.
• 16:36
  I'm going to Jersey Mike's.
• 16:38
  It's once in a while, potentially, maybe some more often, some less often.
• 16:42
  But that's a recurring reoccurring model.
• 16:44
  But the actual franchisor is recurring.
• 16:47
  And this is why I want everyone.
• 16:49
  I'm using myself as an example of the franchisor thing.
• 16:51
  I want everyone to focus on recurring revenue because that's where the real value is.
• 16:55
  When it comes to software, for example, the valuations of software right now, in the past few months, as we've seen like OpenClaw and AI, the software valuations are dramatically decreasing
• 17:07
  Why?
• 17:07
  Because how sticky or enduring that quality of revenue is, is starting to become in doubt.
• 17:13
  If a company is selling a million dollars a year for one license for a enterprise level software, all of a sudden that might not be sticky revenue if AI can build that and they can have a few engineers for three or $400,000 a year build the same thing.
• 17:29
  More importantly, the reason why
• 17:32
  a lot of their valuations come down 30, 40, 50% is because if I have an agent that has an access to my software, I don't need 20 seats or 20 employees have access to the software.
• 17:44
  I just need one agent
• 17:46
  that that agent has access to all my employees.
• 17:48
  And so this per seat model for software is becoming in jeopardy and the revenue quality is starting to become in question.
• 17:56
  So what happens?
• 17:57
  The valuation of those businesses is dramatically decreased because we wonder whether or not that revenue is going to show up tomorrow.
• 18:05
  In every business, whether it be software, whether it be franchising, whether it be mowing lawns, whether it be any home service,
• 18:13
  The valuation is simply an output of how high of quality the revenue is.
• 18:20
  And the more recurring that revenue is, and the higher reliance that I have, and the higher dependability that I have, that that revenue is gonna keep showing up every single week, every single month, every single year, drives that enterprise value higher.
• 18:32
  It makes the business easier to run, it makes the business worth more, it makes it where it can run without you as the owner there every single day.
• 18:39
  And that's why I love home services is because there's no AI anytime soon going to come and wipe us all out there.
• 18:46
  The lawn will still need mowed next week and the week after that.
• 18:49
  And the week after that, the bush will still need trim.
• 18:51
  The mulch will still need to be installed.
• 18:53
  And if I can build this offer into my business where it's not just reoccurring, it's recurring revenue, the valuation of my business goes up, the quality of the revenue goes up and making this home service business successful and profitable becomes easier.