You Should Put 100% of Your Profit Back Into Ads

0:00Jamie Medlin. Car washers or can washers or car washers? Can washers? Trash can. Okay. >> Cool. These are fun. I love these business. >> Hello. This is Jamie. >> Jamie, let's talk about uh washing cans. >> Hey man, how you doing? >> Good. So, you got what? 300,000 top line, like 120ish bottom line. Is that what I read? >> Yes.

0:22>> All right. Got it. So, cans. Got it. >> Fun little business. >> Love it. Great gross margins. Really? I actually find I actually really enjoy the business overall. Okay, so 300k top line, you got good margins already, which is actually not as common as you'd think at the size you're at because typically it's huge as great incremental margin, but typically up front. So you're probably running this very lean, I'm guessing. >> Yes. >> Awesome. It I mean, yeah, it's it's it is,

0:48>> dude, keep it up, man. Okay, so what uh how can I help? Well, um, you know, one of the things that's kind of my go-to strategy has been offering a 50% off the the initial service and we're leveraging Google ads and a lot of Facebook as well. So, >> Okay. So, you're just running a 50% discount on canashing and then I'm guessing you doubled your price to get your 50% discount.

1:16Yeah, but I'm I'm still finding that, you know, I I really feel like the volume of new customers is pretty low. And >> you know, in our industry, which, you know, I also have a large Facebook group that I help others with, and >> we have a CRM we built. Um, >> it's it's one of those things where I'm I'm I'm finding that hundred or so new customers a month >> is just really low.

1:42>> Okay, let's do some math. Let's do some math. Okay. So, what's what's the uh what's your average price point per can per month? >> So, >> this will be fun for everyone watching. So, I'm I'm going to do some math with you. It'll be fun. Okay. So, average average revenue per can or per Yeah. >> So, with our pricing model, we're our average I would say subscription is is important here as well. >> So, our quarterly subscription is the most common.

2:08>> Okay. >> It's about 70% of what people sign up for. >> Okay. And with that around here, >> on average, there's about three vends that they're selecting. So, our base price is $35.99 for the first can. >> Okay. >> Then, and then it's $5 for each additional. >> Okay. >> So, it's about 40 >> I would say the there are the onesies, twzies. So, I would give you about a 40.99 average is what our

2:36>> Okay. I'm going to use 40 as simple math sake. So, 40 bucks every quarter, right? Yes. >> Okay. 40 bucks a quarter. What's churn? >> Um, you know, I would say about four cancellations per month >> on what? >> Oh, yeah. Yeah. Yeah. Churn percentage. >> How many clients do you have on the how many of the four you for for how many clients do you the four contributes to how many on the base?

3:02>> So, we have we have uh over a,000 subscriptions. >> Okay. So, 12 12 cuz it's times four. It's times three, excuse me. So it's four per month, but you just gave me quarterly billing. So I need a quarterly churn. So that's 12 people per quarter who are churning. So 1.2% churn per quarter, correct? >> Yes. >> Okay, got it. So this will be fun for everyone. So $40 divided by 1.02. Where's my little calculator? I mean, it's time 100, but I'll just be precise here. Um 40 divided by 012. So, you have a $3,300 LTV. All right.

3:44>> Yeah. Great. >> Great. And how many And what's your sales velocity right now? How you're saying 100 deals a month? >> Yeah, I'd say last month we had about 130 new new signups. >> All right. So, it's roughly 70% quarterly and the rest are one-time visits that we we put on a we we do what we can to send promos and try to get them to repurchase. But it's Yeah, that's what we're

4:11>> So 70% are on subscription and the 30% are one-time cleans. >> Correct. >> Yeah. Yeah. I mean I you so I mean is your recurring should be stacking every month is it not? >> It is. >> Okay. Well then dude I think you're >> it's a slow growth but it's growing. >> Well yeah because if you look at the sales velocity it's like you should be I mean you you actually have a shitload of runway right now before you even get close to your hypothetical max.

4:44>> Yeah. And that's where we are. you know, from a routing and just growth perspective, we're really pushing quarterly because there's also the additional uh you know, our monthly rate, which we just increase actually to kind of leverage the we want the customer to essentially go to quarterly. I could stack more customers and I have more cancellations on my monthly subscriptions my quarterly. >> Of course. Yeah.

5:11>> Um >> you go to annual even less. >> Exactly. And actually our annual plan is the most canceled because they're like, "Oh, what? Why am I getting charged a year later?" This >> just forgot. Yeah, it's fine. That's fine. That's fine. I got you. >> So, uh, yeah, I mean, we're and the the part that I'm I'm kind of struggling with is, you know, with our Facebook ads this this last month because we also have the the weather, you know, and the and the this I would say the shoulder seasons through winter. Like, it's just slow. So, it's it's almost, you know, 80% of what we actually get on signups. It's just people aren't there's not really a ton of um I guess urgency for them to buy.

5:58>> Yeah. So, that 130 per month is only in high season, not in year round. >> Correct. >> Okay. So, if you really like sales velocity times LTV evenly distributed per month of the year will give you your hypothetical max. Have you done that math? I haven't. >> Okay. So, I'll tell you I'll tell you a little secret from an M&A side. One of my favorite things to do is try and buy into a company where they're selling. They're like, "We're doing a 100 deals a month and we're doing, you know, we got a $20 a month, you know, subscription, but our churn's 5%." And so, if I know that, then I know that that company is going to do a,000 times a,000, which is means they're going to get to a million a month, but they're currently at 200.

6:37And so then I can just say, "Cool, well, I'll value the company at what it's currently at, but I already know it has a 5x literally sitting inside of it if I change nothing." And so right now you're like, I don't know what your true sales velocity is because you said that was a high season. So we actually have to take the blended, so it is lower, which makes more sense for your impatience. Um, but you still probably have a significant amount of runway uh compared to what you're currently at because you're at 300,000 a year and you're like you're way out selling that right now. um it's just it's just slow because it's so it's so onesie twoosy to your point. So I think that um we need to create a more So right now you said ads is your primary way of getting customers.

7:14>> It is and in the summertime we're like this past month we're we're on target to do about 3,000 or more. >> Yeah. >> In ad spend which >> you know my and with that 50% off I'm I'm kind of my new customers are essentially covering my cost >> Yeah. um of acquisition, but we're still obviously, you know, um it's it's not really where

7:40>> Yeah. Like can I can I can I can I give you something? So, right now, you could probably spend more money and get more customers, correct? >> Yes. >> Okay. So, you're in a business that's capital intensive. It's just the nature of the business you're in. It takes more it takes a ton of time to get it spun up. You have to have trucks. There's all this other stuff, right? It is capital intensive which is why many people do take on funding or take big loans to start this out because the issue that you're dealing with right now which is now that being said you have bootstrapped it which is great right but basically that $120,000 like what does it cost you get get a customer right now?

8:14>> I'll bet you it's nothing >> about $25. >> Yeah right dude your LTV CAC is through the [ __ ] roof. So, like said differently, if I were to take that $25, like your $120,000 of profit could translate to $480,000 customers. Sorry. Sorry, I did that math wrong. Sorry, I did it quarters instead of $25. [laughter] My bad. So, divided by four. So, it' be 40,000 customers. 30,000 customers. Gez, sorry, my brain's going melted. So 30,000 customers is if you took a 100% of your personal income and put it into the business as advertising.

8:48You would make no profit, but you'd grow a lot faster. And this is fundamentally like this is the nature of why V like this is the way VC back companies are supposed to run. Now many of them have just like messed up economics to begin with. But you have extremely good economics. It's just at a delay for you to recoup it, but they essentially become an annuity because your turn is virtually nothing. >> So here here's a question. Would you if you had $120,000 to dump into ads right now, would you?

9:14>> Yeah. I mean, you know, I'm fortunate in this situation that I'm I'm kind of a an absentee owner in this business. >> Dude, this is thing. This is a this is a no question then. So, if you actually can provide for yourself, I take that 10,000 a month and I'd say 10,000 buys me 2500 new clients a month. >> Correct. >> That's $4. Jesus. I'm sorry. my like my brain is dead. Thank you. $400, sorry, 400 new customers a month.

9:41>> 400 new customers a month uh is what you'd be getting if you put the whole $10,000 in. And so by the end of the year, you'd have another 4,000 customers, 5,000 customers. Um and then again, this starts to stack because by the end of that year, now you have an extra $10 times 4,000, you have another $40,000 a month. Huge, >> right? >> Now, what are your gross what are your what are your gross margins, by the way?

10:07So, it's it's about I mean >> because you are pretty cheap. You are pretty cheap. >> Yeah, it's I I would say it's it's around >> Excuse me. I don't I actually would need to to double check this. >> Yeah, >> worth knowing. >> Yeah, >> worth knowing. >> Yeah, it it is. It's just Let's see. I mean, like I said, that was kind of an annualized uh rate, which was the around 300 or so thousand. Um, and then about 114,000 is our our our take-home.

10:42>> Okay. >> Yeah. >> Uh, >> well, go ahead. >> No, no. The three really mechanical things. Mechanical thing number one is just for you as the absentee owner here or just the investor, I would say. I actually prefer investor over absentee owner. It's much much better languaging around that. Um I would offer to count all numbers in the same time period because I think if you run all numbers as a quarterly time period number it'll be easier to talk about it and think about it. Uh especially since your packages are quarterly I would almost kind of

11:14>> your whole your whole life has to be quarterly otherwise it's confus like I sell this many a month. I've got churn is this much a month this much is build quart like everything should be quarterly if that's how you build. >> Yeah that would be mechanical idea number one. Idea number two is if you can afford and if you can actually deploy to this 10 grand a month idea into the business and you have the capacity to service it, this feels like a no-brainer to do overall. And the third thing uh this Alex may want to comment on this one is I'm ultra curious about a little bit of sales scripting on the 30% to actually get them to do recurring.

11:47Maybe there is either an offer at play, maybe a rollover offer at play, something at play here because you've already spent you've spent the $25 acquiring the one-time client. Could you and and your quarterly is 40. If I rolled it over, I still make money. >> Yeah. Yeah. >> So, >> so what's the offer that you're giving them? So, I'll give you let me give the nice thing is I've been in recurring revenue my whole life. So, the this this problem's already been solved. So, what do you think? I'm just going to walk you through it. So, what do you think if I if I go and I show up at a gym here in Vegas and I say, "Hey, I want a day pass." What do you think they're going to charge me?

12:20>> Probably nothing. >> So, actually, it's the opposite of that. So, a good gym should charge ton for a day pass for this reason. The same problem you're dealing with, provided you're local. If you're, you know, whatever. Anyways, doesn't matter. So, if let's say the the the membership is uh 25 bucks a month. Okay, we'll just keep it simple. So, it's $25 a month. their day pass will probably be 50. So they say, "Hey, if you want, you can sign up for a day pass or for 25 bucks a day, you become a member."

12:51>> Yeah, that makes sense. And our and on our one time, you know, it is uh significantly more than the quarterly. >> How much? >> And um it's it's about I'd say on average it's about 50% more expensive. >> It just feels like a scripting thing. I think I think you're going to eek out >> Yeah, >> you're going to eek out some cuz if you can get the 70 >> 30 to even I this may not not look like a lot to 80 20 you're with your cact LTV numbers and putting more money in on the front end this is going to grow exponentially.

13:24And you know I've toyed around with the idea of removing one times completely and only offering subscription at this point because we've kind of reached that inflection point where it's like you know in the beginning we just really did want to grab as many customers and >> heard >> kind of you know garbage can cleaning is just a newer thing. >> Yeah. >> So it was education. >> So you could charge you could charge a hundred bucks for one clean or $40 a quarter. I feel like you do that people are like oh my gosh. It's like Yeah. So, it's, you know, $13 a month or it's $100 today. It's like, so you're basically going to get, you know, two and a half quarters done for the rest of the, you know, the this next six months if you just sign up, I would just go AB close on this. And and I would also say on top of that, if you want to use a money model, right, you want to use the money model mechanism, on top of this being less, I'll also add in this other element that's a sealant that'll decrease the smell of your can or whatever, right? just some some thing some little some little thing that is only available if they take the membership. So not only is it less they also get more when you do that the AB the the the other onetime thing will will price anchor. So what you have right now uh when you go through the money models book is read the decoy offer which is an attraction offer. I think it's the third or fourth offer uh in in in the attraction mechanisms and it explains how you can price the difference between both of these things of like what discrepancy you want between the the recurring and the one time because sometimes the one times can still be valuable, right? Like if you know that you're going to get 10% of people that pay 20 times more, you can factor that into your cost of acquisition and like you actually can cash flow because you said, "Oh, well some of these we can maybe break even."

15:01And as you spend more on ads, which you will, the cost of acquisition will go up, right? So having some liquidation up front with maybe 10% of people paying four times more, not a bad thing. >> No, that sounds good. Okay. >> And something that we have implemented is after a one time our automation kicks out like asking if they want to upgrade the plan. >> No, you want to sell them right then, man. You want to sell them right then. So people have very large motivation for very small periods of time. So like uh latency beats intensity by a mile.

15:34>> Okay, >> cool. So >> hey, thank you so much. >> So I just want to sum mechanic number one is you're going to talk everything in terms of quarters. Number two, you should know and calculate your gross margins. Super important because your LTV I did lifetime revenue, not lifetime gross profit. And we would want to know lifetime gross profit. Number two. Number three, get everything in terms of quarters and then figure out what your hypothetical max will be for the business. Number four, then I would say take your $10,000 a month and I would dump a 100% of that into the business to grow. That's if your goal is to grow to be clear, but I'm I'm aggressive and so I would just want to grow it as fast I could. But I would just say, okay, well maybe if I put that much, I don't know if I can handle 400 deals, you know, deals a month. If you can't, then just scale your ad spend to your sales constraint and then that'll be the next constraint we solve. Cool.

16:19>> Cool. Rock and roll. >> Thank you so much, >> dude. Thanks for donating books, man. Seriously, appreciate it. >> Good job, man. >> Of course. >> All right, rock and roll. If you like this video and you're a business owner who wants to break through your current revenue ceiling, I distilled every lesson from scaling 10 businesses past 10 million and three businesses past 100 million into a completely free scaling road map that I've used to go from 0 to 1, 0 to 10, and 0 to 100 plus. And so, you can click here and you can check it out. Again, absolutely free. And since you're a business owner, appreciate you.

16:45And uh enjoy.