I think you can probably hear me looks like you can hear me, so I'm gon na say that I think you can probably hear me and probably a little bit less of my epic music, that I've been that have been playing for you, which I hope you Enjoy I try to keep the music epic and the content cool. I just I just made that up. You can't tell so hey everybody how's it going how's life art says he can hear me so art can hear me. Then everybody can hear me Jeremy's here: Ocala Flordia, Calliphora hollering out from close too close to our service area, actually, actually in commercial, we do Burton accounting and residential.

We work just south of there in the villages so good to see you. Jeremy, art says nice, music by avoidance. I don't know what avoidance is. Is that did this musics by? I hope it's not anybody's music, that his license is on it, because I got it from a license free service, so hopefully, hopefully not but anyway, so we're gon na talk about some common money mistakes, and these are money mistakes that small businesses make big businesses make Technicians make in their head when they think about these things.

You know text generally aren't responsible with pricing things, but sometimes you are and sometimes in a smaller organization. You may find yourself responsible for thinking about some of these things and it's good to good to know how to make a reasonable profit. I mean that's that's kind of part of what we do. I think most of us here, you know like the work for its own sake to at least some degree, but it is important to make the profit that you set out to make and at least know what those numbers are and that's what we're gon na talk About this is actually essentially the same content, we're mostly the same content as the podcast that I just put out recently, but my good friend Joe Shearer said that he wanted to see the numbers on the screen in order to better understand them.

So my hope is, if I can help any small company or any struggling good quality company with a little bit of this, then it's worth it. I don't do a lot of this sort, businessí stuff, it's just not what we typically do, but I think in this particular case you know a lot of people. Are you know thinking about these things? A lot of people are struggling frankly, and it's good to good to think about these things and understand them, especially when they're not that complicated, because, let's be real honest, I probably like math about as much as you do, which is not. I don't like it.

I like it to solve real problems and in business you got to know how to do business math because otherwise, you're gon na get gon na get yourself in trouble, but I'm really not a big fan of math, as I'm sure many technicians aren't Josiah, says Lauer And clear bud, I'm guessing that he meant to say loud and clear, but it loud and clear is also fine. Somebody else says that my volume is very low. I get that sometimes where people say my volume is low. I don't think it is because I'm looking at the bars on the screen and if I overdo the volume then it can start to peak.

So my guess is that you probably just want to you just want to up your volume on your phone or whatever you're. Listening on, that's my guess, because if I overdo it then I get too loud in the final mix, but you know I could be could be that something's just going on where you're hearing me quiet anybody anyway, hvz grandpa's here everybody needs a good old, HVAC grandpa. Every now and again - and yes, it is early in NorCal or eastern time here so 5:17. That's just the time I arbitrarily chose.

I didn't prepare anybody that I was going to do this. I just did it and it will be available in the YouTube channel later. So those of you who are here are the ones who get to axe any questions. If you have questions to axe and you're up here in the, I can see your chats as we're as we're speaking so feel.

Free to to talk to me ask me: questions talk to each other, all that's fine! So here we are 5:17. We made it. We finally made it - and Here I am little me down in the bottom right corner with the white Kalos shirt on which is not you know, it kind of makes me look like a snowman, so I don't generally go with the white, but you know we're just Going casual casual Wednesday today, so let's talk about money, some huge mistakes to avoid, and these really are huge mistakes, and all of these mistakes are mistakes that have made every single one. Like most things that I talk about, whether it's in the field or money, business, HEC relationships, I've made a lot of mistakes, and so that's what I'm talking to you from is from my abundance of mistakes.

And hopefully you can find some action items to take away from that. Adrienne gave me some props on the on the headphones. I think, oh, I think he's saying headphones are best for listening. Yes, that is true when you're listening to something like this headphones or earbuds are gon na be better than listening on a phone.

It can be a little tricky a little challenging okay. Here we go so huge money mistakes to avoid all right. So first thing is - and this is just here in the title - owner - pay versus profit - a lot of people who are in small businesses when they think of profit, they're just thinking of owner benefit, and that is a when you start to get involved. In you know, companies they do investing in businesses and I've never actually been invested in or anything like that.

But I've read up on a lot of this stuff. They call that EBIT uh, which is owner, benefit and all that stuff and that's the problem, is that a lot of companies think of the money that the owner takes as profits and those really aren't one. In the same, you want to structure a business so that way the owner is paid a solid salary. You know whatever that is depending on the size, whatever is reasonable or whatever they.

You know. However, they work that out. The owner takes a salary and then there are profits in addition to that and the profits. In addition to that need to be the things that are reinvested in the business or maybe, if you do really well, maybe put it into employee profit sharing and then sometimes the owner will, at the end of the year, decide to take some of that.

But that's only after, in addition to the owners base pay what the owner makes as their salary should not be calculated into profit, that's just the owner being paid for doing their job, which I'm talking mostly to companies where the owners actually work in the business. Obviously, there's a type of business in which the owner doesn't work in the business and those people generally already know most of this stuff, because there's usually just business people and whatever. So I'm not talking to those people, I'm talking to people who do the you know, do the work to some degree, and so, if you're doing the work, don't think of what you're getting paid on your salary as part of as part of it. Next, so profit is, after all, expenses, including owner salary.

So all of your expenses that is profit and again we're going to talk a little bit about net profit versus gross profit. Here, we're talking about net profit, and what do you want that number to be? That's up to you, you can decide some people want to work on a smaller net profit. Some people need more or want more. I'm gon na leave that up to you, but I will say that having some profits makes business much easier because it's what allows you to do a lot of the things and also allows you to be have a little buffer.

So profits are a good thing, but you got to decide what they are. Next thing is profit and retained, earnings insulate the business retained. Earnings is when you take profits and you hold them in the bank as cash, just savings from business style. They allow for things like for growth and Olli.

Do they insulate against? You know bad business cycles and problems, but they also allow you to buy equipment vehicles, buildings technology, all that those of you who have heard me talk about business before know that I'm a really big proponent of not having debt, I'm even if you have to start Off with a little bit of debt, paying an off as quickly as possible and not spending money, you don't have that's just a basic principle. It's it's the way that we've always done business even when it's hard and that's always paid off well in the long run, it gives you that buffer, so that you can learn as you go, it's hard to be learning how to do business and having to pay Off debt, at the same time, all right so cost of goods sold. That is a line that I want you to learn. So if you don't know what cost of goods sold means, it's often shown as Coggs on reports, maybe in a P & L, cost of goods sold is labor plus materials plus other direct costs.

If you're, looking at a profit and loss statement, a P & L, that's what we would call above the line expenses and above the line just means direct expenses stuff that is directly jobbed. It goes on a job, it's directly related to the job. It's not something ambiguous outside of the job like advertising or insurance on your building or business licenses or stuff, like that, it's directly to the job, so an example would be you know a permit fee forage that would be part of cost of goods sold, because it's On the job, a lift rental for a job would be cost of goods sold, because it's on the job paying somebody's benefits, employee benefits those those would be often they don't show up as cost of goods sold. But you will want to factor that in when you do some of your other math, but those are a little bit more ambiguous, even though you pay a lot of employee benefits based on how many hours somebody works or how much they make so there's a lot Of different there's, a lot of variety there office supplies obviously wouldn't be cost of goods sold, but that's mostly gon na be labor materials.

Often labor is the biggest number depending on the segment of the industry. You do you take your labor, you take materials for the job, other job direct costs, you add them all together, that's cost of goods sold and you should be able to figure out what your cost of goods sold is on a project-by-project basis, as well as a Division by division basis - and that means that, for those of you that do things like service and install, maybe new construction and maybe some add-on and replacement, you know change out type work. It's a really good idea to split up those segments. If you do commercial, maybe split that up from residential and that's helpful, because you can start to analyze those numbers separately and you can drive your pricing separately for those different divisions, which is always something that people have conflict about.

Because they'll. When you talk to start talking about numbers about what you want, your gross margin to be or markup, and all that people don't understand, different types of businesses and different types of businesses are very, very different. A really big, a really big factor in how you do your pricing is how much time is spent on a jobsite, how much of it is billable versus unbel, and so that's something that we track. We look at our billable hours versus our unbuildable hours on billable hours would be time driving in between service calls.

It would be office time, training time time doing your paperwork time washing your van those are all unbuildable. Billable is going to mostly be time on the jobsite and sometimes in certain segments of the business. It will also involve travel time, so in commercials, some customers will pay you for travel separately, and so you have to you, have to figure those all out and figuring them out separately can be really helpful, but knowing what cost a good sold means is important for Something we're gon na talk about here in a second, so gross profit equals total revenue, so total revenue is just how much money do you bring in so gross profit? Is total revenue minus cost of goods sold? So you take how much money did you take in this stuff, labor materials, direct costs that equals your gross profit? So when we say gross profit, that's what we're talking about and then net profit equals gross profit minus overhead. So you've got these different layers.

You've got direct costs, then you've got overhead, an overhead are the sort of those fixed things now different types of companies consider some different things: overhead or not overhead. It really depends - and my suggestion to you would be if anything is directly associated with a job specifically with the execution of a job. Then don't make it overhead and make it above the line. What we would call it in that cost of goods sold a segment art says, is Tech's pay a cost of goods sold? Do you include all tech benefits in to cost of goods sold, and the answer is as far as these are things that you're gon na want to talk to your accountant or bookkeeper about because a lot of this, you have discretion in how you do it.

For us, we separate out direct billable labor from all unbuildable labor, and we put those separately. We still show a lot of it above the line and above the line, means within cost of goods sold. So a lot of this is still in cost of goods sold, but we separate it out in separate reporting so that we can analyze different divisions. Now, that's because my company is a very segmented company.

We have a lot of different divisions. We have grocery store refrigeration projects, we have grocery store, refrigeration service, we have residential projects, residential service, light, commercial projects, light commercial service electrical and they all behave a little differently. So we have to kind of track those things separately, but as far as the specific questions about what's what in detail should go into cost a good soul, talk to your bookkeeper accountant about that, but in general, just think of it as anything to wreck costs associated With the job that goes in cost of goods sold again, I'm not a I'm, not an accountant. So I do have to be a little bit careful about some of the things and actually I'll say that right off the bat, I'm not a lawyer, I'm not giving legal or accounting advice.

I don't have licenses to do either of those I'm teaching contractors how to price, how to think about pricing and how to read their books, not how to do accounting and bookkeeping work. Okay. So let's look at an example. We'll just do something really simple: I did a hundred thousand dollars because that's about the smallest, a company could ever do in revenue and still exist.

If you have a bigger company, then you just multiply it by how many hundreds of thousands, if you're a $ 500,000 your company, you just take what I'm about to show you and multiply it by five. These are pretty realistic numbers that I'm giving you for a mixed service and installation, business and air conditioning. So you do some service, you do some installation. This is gon na, be pretty realistic for a fairly lean company.

So this isn't a super sales heavy business. This is a pretty lean tight company um, the way that we've had to run kalos over the years. So if you bring in a hundred thousand dollars and your cost of goods sold, your direct costs are sixty percent. So that would be your labor, your materials, all that our sixty percent, that would be sixty thousand dollars or just flushed away right away.

So now you have is forty thousand left your gross profit? Is then forty thousand? So that's your gross profit. But, of course that's not what you get to keep next. Is your overhead, your over a head would let you know early on a lot of your your labor as an owner. If you're working in the field is gon na be in cost of goods sold, but then eventually, once you work in the office and you're doing more leadership stuff like I do now, my money is gon na be in overhead, rather than cost of goods sold, and So office staff, you know keeping the lights on all that stuff is gon na, be an overhead and the things you want to look at you want to watch most when it comes to overhead.

Are anything that's discretionary, like advertising up fitting vehicles, all that stuff? You want to definitely keep a look at that, and then labor is the biggest one. Labor is always the thing you want to look really really closely at because it can get out of control really quickly, and so this is an example of how this would normally work, and this would be a very small business and, at the end of the day, You make a nice 10 % net profit and so your labor, your your pay as an owner, needs to be in these numbers not in this number, because obviously that's not enough to live on right. That's a 10 % net profit and, of course, this $ 100,000 revenue that would be almost impossible. I would say I wouldn't even start a business unless you can bring in three hundred thousand dollar-a-year plus and revenue in most cases, but more just for sake of round numbers.

So if this was three hundred thousand, then your net profit would be thirty thousand, and for a business of that size that would be about right. That would that profit would maybe allow you to. You know, maybe set up a van, a small van something simple. You know might allow you to just make a couple investments in your business that then next year you would be in a better position.

So that's how this math works, though it is. Everybody understand this. I just want to give you a second to look at this. This is very basic math revenue, how much money you took in cost of goods, sold, labor materials and other direct costs.

That's gross profit, then overheads 30 %, then net profit is ten. I would say to always shoot for between ten and twenty percent net profits. In our business there's some people who claim you should always make twenty. I haven't done that, but I'm also a mixed type of business and and we haven't really focused primarily on profits.

You have to have them, but it's not the not my main driver, but I would always try to make in an organization try to make above ten percent net profit. If you can, unless you're a huge scale, and you can afford to do less than that - all right - fully Loeb or fully loaded labor calculated. So, let's, let's calculate fully loaded, labor and Joe's here, my good buddy Joe he's the one who asked me to do this. Now don't feel bad okay.

This is the first thing. Well, if I give you numbers and you don't like the numbers, I'm giving you don't feel bad, we have done we've had terrible years. I've had we've had years in business and kalos, where we've lost significant money and it's because of us not keeping track of our numbers or making some business mistakes or having customers. So even even doing things.

You know the right way. I guess in some ways having very little debt that sort of thing you can still make big errors and you can still dig out of it and that's what we're doing here we're talking through this, so don't feel bad about your numbers. Let's just it's for John. Alright, total labor plus payroll costs.

This is okay, so, but I'm gon na show you how to calculate fully loaded labor, fully loaded. Labor means what does each hour of billable labor in your company cost you, because what you pay your people hour as an hourly rate that is not their fully loaded labor, you have their benefits, you have vacations, you have holidays, there's just a lot of other stuff That you pay for that, aren't directly their hourly rate. I mean it's a perfect example. If you go and replace a capacitor - and you say well that capacitor takes me half an hour to put in well how long does it take you to drive to and from that job? How long does it take you to do the paperwork? How long does it take you to wait for the next call to be dispatched? Those all go on that job, at least at least the drive to does, and so, if you're not factoring in all of those costs, the hanging out at the office for 15 minutes are standing by for 30 minutes.

At the end of the day, those are all costs that have to be calculated for, but the best way to do mess way to do this. Take a total labor. So what it actually costs add in your payroll costs things that are directly associated with payroll and calculate up what that number is and then just divide it by the number of billable hours. So how much did it cost me over X period of time? It could be a quarter, it could be a month could be a year or whatever, as long as you're doing both of them.

In the same time period you take your total labor, plus payroll costs, find that number it'll be on your P & L. Then you divide that by your total billable hours generally, you can find that sometimes you're not keeping track of billable hours, and so that can be a little tricky. We keep track of billable hours because then that number is smaller and it gives us a much more realistic. Look at what we have to charge per billable hour, which is what matters so the fully loaded, labor pullet per hour in this calculation, which is based on a past kalos quarter.

So this is long ago, I'm not telling you which one I'm not telling you anything, but this these are real numbers, so fully loaded labor per hour came out to be 30 to 50. I mean so that's a realistic number that I can use. That involves those other costs. Now that doesn't mean that's still an average, so you may pay.

Some people may cost more than that. Some people may cost less, but it's just based on averages and that's a decent way to do it. So that's the fully loaded labor. All right so here's the pricing mistake that people make all right so first off and we're already assuming that you calculate a fully loaded labor.

You understand what these words mean, but even once you've done that here's, the mistake people make who feel like they know their numbers all right, so they take a cost of apart 25 bucks. Who knows what that part is we'll say it's a nice capacitor. I don't know, let's say: 25 bucks. Ok, that's the cost of the part and the labor is one hour and you're thinking man.

I can do this in half an hour, so I'm doing really good right. So now you come up with your total job expense. For this particular job, which equals your cost of goods sold right, so total job expense cost of goods sold 5750 right. We all know how to do this part.

Now we say: okay, I've done the math based on the previous numbers. I want to make a 10 % profit and I run 30 % overhead right, so I'm gon na mark it up by 40 %. That's the way that a lot of people do this math, and this is where things get really disastrous. Now remember remember: if we back up and we look at it, we said we had 30 percent overhead 10 % profit, that's pretty good.

Some companies are gon na run more than 30 %. You may run less than 30 %. If you do that's great, a lot of people say: well, you shouldn't run more than 20 or 10 %, and often they'll say that, because they're putting more in cost of goods sold, which is driving their overhead down, but using typical bookkeeping and accounting. Based on what I've looked at 30 % is a pretty decent overhead average for a fairly gleen company.

The company doesn't do a ton of advertising just a just a decent lean company, 30 %. So we say all right: 5750 overhead plus prop profit equals 40 %. So we're gon na mark it up 40 %, and so here's how they do the math they take 57 50 times 1.40, that's a 40 percent markup right and that equals 80 dollars and 50 cents. Now the easiest way to think about this - and this is the example that I always give the difference between our cup in margin - take a $ 10 thing, whatever it is, you're gon na sell it on Craigslist, and you say I want to mark this up by.

I don't know what do you want to mark it up by mark it up by 50 % right, so you mark it up by 50 %. That's $ 15, so you sell it for $ 15. It cost you 10. Did you make 50 % profit? So you do the math, it's pretty obvious that you didn't make 50 % profit because what's 50 % of $ 150 75 did you make $ 75? No, you made $ 50.

So what you find out very quickly is that margin, what your actual profit margin is and mark up those don't work that way, you don't mark something up by 11.40 and still make a the same percentage. So in this case, let's, let's look at that. I'm gon na get my head out of the way, so it's very simple is 5750. Is that going out of out of 8050? Is that going to give me a 40 % profit margin? Well, let's do the math.

So let's see the math backwards revenue, eighty dollars and fifty cents based on this way of pricing, it cost of goods sold. Fifty seven fifty remember we did a one point: four markup, so a forty percent markup eighty dollars and fifty cents minus fifty seven fifty equals a gross profit of iro twenty three dollars here. That's wrong! No! No! It just right geez. What am i doing? Yeah? Okay? I said I'm really bad at math like I said so, yeah, that's right! Twenty three dollars! If you do the math, take twenty three divide it by 80.

Fifty and some people will ask me: why do you do the math that way again, I'm bad at math? So I don't know why this is how you do it, though this is how you figure out what the profit percentage is. Take the take the profit that you made the gross profit divided that by eighty fifty that equals a gross profit of twenty nine percent, say what we said that we needed forty percent in order to cover our thirty percent overhead plus make ten percent profit. Well now we just made twenty nine percent gross profit. What does that mean? That means that, based on the numbers that we pre calculated of what we wanted to make, we lost money, we didn't make forty percent, we ended up losing one percent.

So, instead of making a ten percent profit net profit, we ended up having a one percent net loss and you see how easily that happened. Now this isn't even a real-life situation, because there's so much wrong with this, because this is a twenty five dollar part. So this would be a service call we're not factoring in all of that unbuild time. This is a disaster for so many reasons, but using that one point-four markup is a huge disaster versus doing a doing margin.

So here's how we're gon na do it based on margin rather than markup or take it cost apart twenty-five dollars. This is I'm showing you right now. This is how you do this math. This is how you make this easy.

It cost the part $ 25. You take the labor one hour: 30 to 50, total job expense. 50. 750.

Now again, it's probably more than this, because this is likely a service call based on this $ 25 part, so you're, probably under estimating your labor by the time you figure sitting in the truck when you show up and doing the paperwork afterwards and all that stuff Doing that all properly I've got a little babies outside my window. Right now he's talking to me. So if you hear that that's what's going on so total job expenses 5750 calculate a gross margin of 40 %, which is done differently than markup. Here's how we do it 5750, divided by 0.6.

Oh remember that was the cost of goods sold percentage. If you go the way, all the way back, that's what we calculated our cost of goods sold was based on the money that we wanted to make. So he kind of works from the big number and we're working backwards, which is the way I prefer to do it look at a big number figure out what you want to make come up with what your cost of goods sold percentages, what your overhead percentages and What your net profit percentage is, and then you come up with this number, so you're dividing by 0.6 zero, that's the cost of goods sold. That is a 40 % margin.

Now we've come up with a number of 95 83 and if you remember, that's a lot better than what we did last time so now, let's do the math the other way. Let's do this math backwards. 95. 83 cost of goods sold 57 50.

That means that gross profit of 38, 33 38 33 divided by 90 583 equals our gross profit of 40 %. Now we got our 40 % gross profit. If we have 30 % overhead, then we made a 10 % net profit, so somebody said this is why you do time. You don't do time the material you do mostly flat rate, and yes, regardless of how you do your pricing, you can still do it based on this way, if you're doing, if you still want to do a markup, that just means your markup has to be higher.

In order to hit the same cost of goods sold number, the problem is: is that a lot of customers? Don't understand this math? So when you hear when they hear a markup like, for example, in service in a lot of cases, you're gon na have to have a 200 %, maybe even more markup people will think. Oh, that's crazy, that's insane! And it's just because they don't understand and both overhead that's related to things like running a service business and how high that is, and they don't understand the difference between margin and markup. Just because something is a big markup doesn't mean it's a big margin as a perfect example, you take something that's a hundred dollars and you mark it up. Two hundred percent - that's two hundred dollars.

What profit did you make 50 percent right because 100 is 50 % of two hundred dollars? That math is pretty simple and that's the difference between margin and markup, and what I would suggest doing in business is when you talk about your pricing, show the math. This way show it using margin instead of markup, and you will be able to charge more money and it will be. You know in order for you to hit these targets because most people aren't gon na they're, not gon na blame you for trying to make a 10 % net profit, especially if you're running a pretty tight ship and if you're running between 20 and 30 percent overhead. That's a pretty tight ship now a lot of people don't understand why overhead is so high in our businesses and in some types of businesses you may be able to get it lower than that, and I applaud you if you can do that, but doing it.

This way doing the math based on gross margin, which is dividing by cost of goods sold percentage rather than multiplying by like a 1.4. So again, if you wanted to go with a 30 % rather than a 40 %, you would divide by 0.7 rather than divided by 0.6, so it would go back here. Let's go back here! So if you thought well, this 40 % gross margin is too high. I don't need that.

I only run 20 percent overhead - that's fine, rather than dividing by 0.6 divided by 0.7. That means that your cost of goods sold is a greater overall percentage of the calculation. So that's how that's how that works? Any questions about that! You can ask as we go the math is, the math is pretty straightforward. This is how you do it correctly.

Alright, so another thing to know is that overhead varies. I've already alluded to that. I've already talked about that, but overhead varies depending on labor efficiency. Is one of the biggest factors so, if you're sending a crew of five workers and they're gon na work from 8 to 5 every day and you're, not paying them for drive time, they're, just showing up on a job site and they're just working, then their labor Efficiency is going to be much higher on the billable side versus the unbuildable side, when you're, when you're stuck on a truck with a service tech, there's so much unbuildable labor and that unavailable labor isn't always obvious stuff.

It's running to a supply house and having a fifteen minute conversation with a friend. It's you know again, obviously, driving in between calls it's meetings. It's waiting for the dispatcher to send the next call. It's camping out because they're waiting for the schedule to clear before they call in standby that sort of stuff is the sort of stuff that leads to inefficiency in labor, so the more efficient your labor is the lower the overhead is going to be, which is why The mark-up or margin on large projects is going to be significantly less.

Also. Some people will be willing to make lower profit margins when the dollar numbers are greater. So if you do your math and you say, hey I'm happy making 30. You know I'm not 30.

I'm happy making 3 %. That's fine, but you got to make sure the tighter you make your profit margins, the more solid you are in your numbers, the more you absolutely know that your numbers are ironclad and you're. Not gon na have any issue with them and that's what I see. That's why you see in downturns a lot of times, companies that do a lot of projects end up struggling because they don't have service departments to back them up and service departments stay busy.

While these projects, because they're working on really tight margins and they're, basing it on so much big dollar work, they often struggle Joe says he's gon na have to re-watch this about 7 more times, I'm doing the best. I can Joe. I'm sorry. I know.

I know this stuff isn't, isn't fun cuz, it's math II, but alright markup is fine. So long as you adjust, I ultimately I don't care how you do your math at the end of the day. I just want you to make the net profit that you set out to make, and so, if you think that multiplying something times 1.4 is going to end up giving you a 40 % gross profit percentage. Well then, you're incorrect, that's just not how it's going to work.

So if you use a markup, if you want to hit point four, then you're just going to have to use a higher markup and there's lots of tables that will show you different markups that you can, that you can use for different gross margins. All right, math is best done in hindsight, based on real numbers, and this means that you're going to want to look at your profit and loss statements from the previous quarter from the previous year or wherever and you're gon na want to do that math backwards. Like I showed you for calculating your fully loaded labor and when you don't hit your targets, then just make some adjustments in those percentages in your pricing in order to adjust. Often you're gon na find that customers are more elastic on pricing than you think they are once you realize that it's an absolute necessity that you make the change a lot of companies when they're small - and I did this too, will always say.

Well, my customers aren't gon na pay anymore they're used to what I'm charging, and that is true. You will generally lose some of your early customers who are used to your cheap prices as you increase. But when you increase - because you know you have to because you've looked at your numbers and you realize that you're not hitting your targets - that's a much easier conversation and it's a very honest conversation rather than just making up numbers out of the thin air. So I'm! Okay with you, making projections estimates all that sort of thing and then coming up with pricing and then later looking back and saying I was wrong.

I didn't hit the mark and adjusting you will lose some customers doing that. That's the cost, but when you do that, you're gon na find that you feel much more honest about it because you're doing it out of necessity, not because you're just wanting to take advantage of somebody and that's it end of slideshow. So I'm gon na go ahead and bring up, chat and see if we have any questions. So if anybody has anything that you want to that, you want to talk about Alex, says I sent you a message on Instagram.

Is there a better way to get in touch with you? I don't I don't look at Instagram or Twitter messages very often at all. I don't look at most social media messages at this point I get so much spam. The best way is probably to email me, and I've mentioned that before or Brian at hvcre school comm. But even then, if you ask me a question that I have to write a really long answer, it's probably gon na go really low on my list.

If you ask me a question that I can answer quickly, that has a really clear point. Then I will answer that as quickly as I can it's just it's no offense, it's just a time and priorities thing. As many of you know, I have 10 kids in a business, and so I do get to these things as quickly as I can. This is a kind of an off-the-wall question, but I'll be happy to answer it best way to pass the EPA exam best way to pass.

The EPA exam is to study the free EPA guides. There's several out there. Mainstream engineering has some that you can still find line. You can get the packets through ESCO.

Those do cost something but read the books and then take the practice practice exams. Do them a bunch of times and then take the exam for the with a proctor. Who can help you do that? I would definitely suggest taking the online exams versus doing the ones in writing. Let's see, do you use this formula on installs as well, so what I adjust on installs is and again the the more granular your data, I'm doing very general numbers here, but you adjust your fully loaded labor.

So your fully loaded labor by division is going to tend to be different and install. Usually a fully loaded, labor per hour will be lower and install because your labor efficiency is better and often because some of those workers cost less per hour. And so you can adjust down based on that, the other thing you can adjust down on is you can just down on your markup, I'm not your markup on your gross margin number, because your overhead isn't as high on some of those types of projects, and so Really a lot of companies that are mixed companies, you can you tend to what what tends to happen. If you use this type of pricing without making adjustments for different divisions, these you tend to lose money on service and then make money on install.

And what I would love you to do is make a little money on service and do a LAN install. So if you use this type of pricing, you're gon na do pretty good, I would still suggest using a minimum of a 30 % acosta or not classic. It's sold using a minimum of a of a point. Seven cost a good sold percentage, which will give you a 30 % gross margin.

I would not suggest going below that, which means that you take your equipment expenses, you take what you know. Your labor expenses is based on your fully loaded, labor and those expenses. You add them together. You multiply those times points sorry divide those by 0.7 and that's going to give you that 30 % gross margin.

Some of you may know that you can do better than that, but I would only do that if you know that you really that you really are that tight of a ship, because often people will make those mistakes and then they the end of the day. They just don't end up with money in the bank and they don't know why. Another thing that I didn't mention is you really want to keep track of cash on hand too, so keeping track of cash and keeping track of your net value? So if you ever build customers, you want to keep really good track of what you have built out. What's your accounts, receivable are and what your accounts payable are, and what's your cash on hand are those that's something that I would look at every single week accounts payable accounts, receivable cash on hand.

What's actually in the bank, that's going to give you a really good sense of that and asked me if I use the danfoss tap to do any of this math he's making fun of me, because I was in a and 1/8 review just before this, where I Was looking up a PT chart and I use the danfoss app and I left it on absolute rather than gauge pressure, and so I was giving the wrong answer to a question. So I about left an 8 question and that we had the wrong answer and that is making fun of me and that's not nice edie, it's just not nice. Ok, I'm I'm bad at math and I'm also apparently bad at using apps. Apparently, just incredible says I make good money on service depends on what you mean.

A lot of technicians make good money on service a lot of companies, think they make good money on service who don't and a lot of companies do make good money on service. It's all a question of getting your labor efficiency strong and getting your pricing correct. If you get your pricing correct in your labor efficiency, strong you're, not wasting time you're not having callbacks callbacks are the biggest hit on labor efficiency. Callbacks are unbuildable and so you're not making money on callbacks, and it's also hit on your reputation which hurts your advertising.

So those are all big factors. If you keep your callbacks low, keep your labor efficiency really smooth and you get your pricing right. Then yeah. You absolutely can make money on service, but by and large a lot of companies do not make do not make money on service, they make their money on their installs.

That's that's what I've seen over and over again, and we were that way for years until we started looking at them separately and started looking at fully loaded, labor and started doing all of our calculations based on gross margin rather than markup so justin says he means, As a company owner and that's great know, your numbers: do your math make you make money on it awesome. It also depends on the style of business. You are whether you're residential commercial, you know heavy commercial light commercial. Those are all different things, but knowing your numbers is a big one.

I have a whole list of numbers that I would like you to know, but I would start with this: no, the demonstrating gross margin and markup. If you don't like this video there's like a zillion other ones out, there find another one that you like better. That explains it. For you, that's great know the difference.

I would suggest that you use gross margin rather than markup, but if you understand the relationship, then it's fine to use markup and then that's it. I think that's it yeah, so for technicians out there if you're working for a company helping understanding. Some of this is gon na help. You maybe empathize a little bit more with the amount of math.

It takes a lot of people, don't know the numbers, and so sometimes that's why people get into a pickle, but there you go. So that's that. Thank you. So much for watching and I'm not gon na - do very many of these.

This was by request specifically because I think it's an area that a lot of small businesses struggle - and I hope you all hope you all make a good, solid profit and do good business. Take care of your customers diagnose things properly, the right time, the first time don't so. I have to address this because it's in the notes, just incredible says I make my guys go back and fix their mistakes on their time. I don't pay them to fix their mistakes.

That's probably illegal where you are so you're gon na want to look into that. I'm not throwing shade on you, but that's probably not not a legal practice. That is a commonly done thing in our trade, but often not legal. You have to pay people for their time.

So unless you're doing some fancy math with like flat right there's some things you can do to make it legal, but be very, very careful with that. As you grow, you're more likely to get audited all right, thank you. So much have a wonderful day and we will see you all again soon on the HVAC school livestream see ya.