To Grow The Bottom Line or Down Size

That is the question I have been pondering for the last year. As I said in my last post, I am at a point where I can downsize to me, one full time tech, and my "cheap" but good receptionist. And actually grow my bottom line and have a lot less stress.

Many may be asking the question how can the bottom line grow by downsizing? The two extra employees (and extended service areas) cost about $1,200 per month in fuel, about $800 per month on average in vehicle repairs and maintenance, about $200/mo in vehicle insurance, about $2000/mo in advertising, about $6,500 in payroll/payroll taxes, and about $200 in workers comp.    Do the math... That's an extra $11,000 per month of overhead. Doing everything strictly on cash flow, an unexpected down month (like this past February and March because of the weather) can be devastating and eat up all the savings.

Keep in mind I love cleaning carpets and am very passionate about my business and my customers. Based on my revenue capacity and the revenue capacity of the tech I would keep, and the level of repeat and referral business I have - I can work four days a week (if I choose) my bottom line goes from about 25% to about 55%. This translates into a significant amount of extra dollars in my pocket, less time repairing equipment, and a lot less stress worrying every month how much the phone is going to ring.

The flip side/decision would be to continue to grow. But that would require a financial partner and or loans, more equipment and vehicle maintenance and repairs, insurance, etc.    I have already made my decision and plan to share it with my employees in two weeks.

I am curios what your view is coming from the perspective of a one van operator, a two van operator, three plus van operator, and also from someone faced and made this decision already at some point.   

It sounds like you have already decided to downsize, which makes perfect sense by what you described.

The only question is....are there other options? Can you reduce your service area and keep the vans / employees gainfully employed? I would prefer to reduce my service area rather than the staff and fleet, but that may not be an option.

The biggest I ever ran was 2-vans over a 50 mile service area. I was forced to cut back to the one truck due to medical reasons, but I want to return to that number again soon. I feel like 2-vans is the sweet spot for me as 3 just sounds like too much work.

Man, sounds like an EZ choice to me, but I'm not one to listen to lol being (crazy) and a one truck guy.

All the things you described with the multi-truck opp., is what's kept me from doing it.

Seems to make sense to go smaller and put more $$$$ in ur pocket.  

I hate my computer, typed a whole bunch of paragraphs and my thumb pressed my super sensitive mouse pads and the "home" button down left got pressed and everything I typed is gone   

I downsized from 2 full timers and 1 part timers a couple of years ago to 1 part timer, me and my wife, did that for a year and a half, profits sky rocketed, but almost no time to do anything but work, paperwork, accounting, taxes, etc.
Recently a couple of months ago I hired my best friend and so far it's been great.
Here's my two cents   
Based on your situation currently, I think you should reset, downsize and keep one or two of your best guys and let them work together in one van so the efficiency will be increased, they can knock 5 - 6 jobs a day if they're within 20 - 25 miles radius and your receptionist schedule accordingly.
I salute you for paying your employees really well but if I may suggest, you should do hourly instead of salary, like around $ 15 - $ 20 / hr and when winter comes and no jobs for a couple of days, you don't have the obligations of $ 6500 per month per van, the hourly will cost you $ 600 - $ 800 / week, about $ 2400 - $ 3200 / month, 2 guys per van will make that number close to $ 5000 - $ 6500 / month and they can bring you about $ 15,000 per month ( $ 700 - $ 800 average per day throughout the year ), you can go solo and handle same day services, some jobs that your tech can't make it to on time due to add ons, etc.
Second thing I would look at is your advertisement cost, $ 2000 per month per van seems high to me, I spend $ 1000 per month and can keep 1.5 van busy ( about 35 jobs per week on average )
My gauge is if I can't make at least 40 % profit from each van with 2 guys in it, I would downsize, cause if you think about it, the 40 % profit should include savings towards the purchase of new van / equipment when the time to replace comes.
I would also give commission on add ons that they do on location, that will push them to offer.
Your fuel cost is slightly higher than mine, do you use premium gas ? before I switched to premium that was what I was spending per van but after switching, that amount dropped closer to $ 1000 per month. A $ 2400 savings for the year per van  
Good luck Joe :-)

I agree with Dp on most of that except the 5-6 jobs a day... I prefer 2 large jobs plus one medium at most. That will net 800-1k with low overhead, many days 1100-1200. 5-6 set ups and tear downs with drive time.... too much time is taken away from an 8hr day. That realistically is leaving 1hr per job. they do have to eat lunch too. 6 jobs in a day is just a stress bomb, plus to your customers your always going to look like your rushing their job which they hate.


I would also look at the 2k per month per van,   and 800 per month  for maintenance.    Also I know you love your employees but 6500/month per van is pretty high.    

6500+2000+800 for a van(if I read that right),   I dont think I could make that work reasonably.

what causes the maintenance to be 800?          

 

Gas prices are ridiculous these days,    for a business of your size I would seriously consider converting to propane if possible.    1.80/gal vs 4$+ per gallon is a ton of money in one year when running 4 vans.     Gas is a huge expense in our business.      


I would downsize and start to build up vans that are lower overhead.     Those numbers are too stressful to deal with.

Why not just raise your prices and net more with fewer jobs. Heck who knows sometimes when you raise prices to weed out customers you actually end up with more work. How many times have you been super busy and shoot out a high price and still get the work?

Maintenance on vans. With one exception all of my vans have between 200,000 and 300,000 miles and we are putting between 20k - 30k miles per year on each. I have to keep a spare because there is almost always one in the shop. The conversion to propane or CNG is too costly (up-front). Because of what I pay them now there is no way I could change the guys pay (preferably back to commission). If they stayed, I am sure it would cause major trust issues and if they left then I'm back to dealing with more new hire issues... As we are structured now, the business can survive and even continue to grow. Every month we pay the bills, put food on the table, and most months have some money left over. I am on a van typically 3-4 days a week now - sometimes 5 or 6, plus take care of the admin, accounting, equipment, etc. More than the extra $$, I think it's the stress that has gotten to me. When I originally left corporate america -the best decision I ever made even with the ups and downs since - it was because of stress burnout. Maybe my skirt has just gotten too short.

The bottom line is important Joe, but not more important that your health, family and happiness. We all know that stress is not good for your heath it causes all kinds of problems. The more time you spend in the business the less time you spend with the family and that's time you will never get back. 

Have you looked into leasing vans? That would cut back on fuel and maintenance expenses and you'll get a tax break too.

Will you have the capacity to service your existing customers in the service area that you're eliminating?

Acpower, I would love to make that number to a $ 1000 but when we average our numbers to include winter days, we need to be a little more realistic, that's why I put the $ 700 - $ 800 average per day, like I said, add ons are really important.
Based on the new info ( the vans have 200 - 300 k, that would even trigger me more to reset, sell the vans out and buy one or two that has substantially less miles and buy a newer equipment, I disagree with acpower on propane, with his situation ( labor costs ) it's not profitable going to propane.
That's just my opinion :-)

I don't know about y'all. But, when I read numbers being thrown out, I first look to the member info and see if they took time to fill out their geographical location. It's helps with some perspective.

Lots of different ways to do it Joe. Only you can answer. For me at first glance, it's seems you could reduce some over head (marketing) and while your at it, all that money your spending on van maint, buy a new used one or two.

Final thought, I would hate to lose good employees.

Didnt realize that I never filled out the location part. Thanks for the heads up.

Yes markets are different but general costs other than maybe a commercial location are near the same I would imagine. A commercial spot here with a garage or parking is very expensive.


Im sure downsizing and changing a few things will feel refreshing, but ya sucks to loose some hard working good employees

The simple answer is to do what the big boys have taken the time and money to figure out. Start raising your prices by 15% for the next 3 years if you end up keeping everyone. ... but if you already made up your mind to consolidate I would increase prices 30% immediately.
Most cleaners who start off low are afraid they will loose most their clientele if they raise the prices. I can assure you that if they really do love you they will pay up and not even bat an eye because they TRUST you are doing what you have to do. Most won't even notice if you raise your room rate by $3-9.95 per room.
Good luck!
I would also consider some sales training on cross selling and up selling that can net you 15-25% more overnight by scheduling 1 less job per van per day and moving them to commission.

Good advice out there....curious, but have you discussed any of this with your employees? They just might become selling machines if they knew they might be getting walking papers if things don't improve.  

I wouldn't put them in that situation for long, but it might be enough to give you some good months to take the stress off. It would also allow them time to look for alternate employment over the next few months so they don't end up unemployed.

milspec6 wrote:Good advice out there....curious, but have you discussed any of this with your employees?  They just might become selling machines if they knew they might be getting walking papers if things don't improve.  

I wouldn't put them in that situation for long, but it might be enough to give you some good months to take the stress off.  It would also allow them time to look for alternate employment over the next few months so they don't end up unemployed.

This is the best advice imo, and it'll reduce the unemployment rate, I wish all business owners that thought about downsizing think like you Rob, when I downsized, I gave him 2 months notice, I think 30 days is good enough to find another job for most people, but he has a wife and a kid, that's why I gave him as much notice as I can.

I agree with Ryan too, good employees is hard to find but right now you have to do what you have to do, prioritize things, number 1 is God, number 2 is family, number 3, 4, 5 is your business, employees and everything else.
In response to the numbers, those numbers I threw are based on what Joe's telling us, he said that his cost per van is about $ 11+ k and he said that most months he can still make profit, that's why I predicted those numbers out, I might be wrong but I think I'm pretty close to the actual number ( which you don't have to share with us Joe :-) )

I know that most of us here are all for bigger size jobs and doing less job per day with more $$ amount per job but we have to think realistic though, how many $ 400 - $ 500 or more of those jobs we get per week, I know I get a few per week but the majority of my jobs are still around $ 150 - $ 250 and it's not that hard to knock 5 - 6 of those jobs a day with 2 guys in the truck, I start 7:30 and in most days finish and get back home by 5 pm ( 30 minutes lunch ).

Think about how much extra time you're going to have in your hands if you downsize and get a couple newer vans and equipments, you probably will spend less than half the time you spend in equipment repairs and taking the vans to the shops for repairs.

I have had a similar dilemma. I have since cut back to 3 part time employees for the larger jobs, bought new vans and equipment, and made my equipment more efficient. I now have auto pump-out on both my trucks which means on those bigger commercial jobs I can hook up to water and run my pump out to sewer cleanout and run all day without stopping. I bought electric hose reels for both vans and not only is it faster but it reduces wear on employees (me).Last year I paid no taxes because of write off.
Repair costs are way down and reliability is up. Fuel cost is down by about 12%.
I would look at what geographical areas are profitable to determine working areas and if the job is too far out for the price quoted, add a travel surcharge. I have found that credit card charges can add up. You cannot add charges for credit card use, but you can increase you price and give discount for cash.
There is one of my competitors that has always paid employees by commission. He pays 25% split between 2 employees per truck, his cost is a set cost per job and controls the ups and downs of how busy you are.
Just a few observations that I hope ca help.