Latest from Columns

Photo 16903019 © Skypixel | Dreamstime.com
ArtistGNDphotography/Getty
Photo 51372886 © Thinglass | Dreamstime.com

A Service Story

May 16, 2024
Photo 210659396 © Freemanhan2011 Dreamstime.com
Illustration 9227645 © Ashestosky | Dreamstime.com
Photo 161233010 © Jamesteohart | Dreamstime.com
Photo 43963025 | Business © Choneschones | Dreamstime.com
dreamstime_l_110201628
Money Trees Dreamstime L 110201628 2 64ef512bbe9d0

Plan for Prosperity, Not Scarcity

Aug. 30, 2023
Visualizing your desired lifestyle can lead to prosperity.

Too many contractors set marginal goals for marginal growth and that is about all they accomplish. Constrained by the meager profits of their businesses, they squeeze their lifestyle down to conform with the little that remains after overhead and taxes. They could have so much more, but first they must take a page from Michael Gerber’s classic, “The E-Myth” and begin with the end goal in mind.

Most contractor planning is short term, typically a year at most. The contractor starts by projecting revenue for the next year. Once the revenue is set, expenses are budgeted. This approach leads to incrementalism. The motivational power to go for a little bit more than last year is limited.

A better approach is to take a longer-term view, if not the end, then the ideal. Here the contractor envisions the lifestyle he would like his family to enjoy. The husband and wife team sit down together and ask what they want out of life without worrying about affordability. What size house would they like? Do they want a second home? Boats? An airplane? Vacations? Club memberships? Private school for the kids? Summer camps? Private coaches? The goal is to let their
imaginations run wild and envision their ideal lifestyle. 

Once they capture the lifestyle, they price it up. They estimate the cost of their dream house, including property taxes, maintenance, HOA fees, and so on. They do this for everything on their lifestyle wish list. When finished, they add up the total and divide it by 5% (or multiple by 20). Five percent represents a reasonable percent of sales devoted to owner compensation (the balance of profitability funds future growth and rewards the team). The resulting figure is the total sales the business should achieve to comfortably fund the couple’s desired lifestyle.

This approach assumes a reasonable return on sales. A residential new construction company straining to generate after-tax returns of 5% will clearly never be able to fund 5% unless the owners give up investing in future growth and profit sharing with the team. Nevertheless, a low margin RNC company could fund a nice lifestyle for the owners if sufficient scale is achieved. 

Generally, the business revenue needed to be able to fund an ideal lifestyle is far more than the company currently generates. The contractor will not achieve it overnight, but it is achievable. A contractor may be generating between $1.5 and $2.0 million in revenue today, but wants a $400 thousand lifestyle, which means boosting sales to $8.0 million. Organically, without acquisitions, it will be tough to get there in five years, but not impossible. Other contractors have managed similar growth trajectories.

The business revenue needed to be able to fund an ideal lifestyle is far more than the company currently generates. The contractor will not achieve it overnight, but it is achievable. 

The challenge is rapid growth requires commitment, hard work, personal growth, and a comfort level with risk. An incremental growth goal is unlikely to provide the motivational power to pay the price necessary for rapid growth, but a lifestyle goal can. Achieving a number for the number’s sake may motivate for milestone’s like the first million, but does little until the next milestone. Conversely, visualizing the lifestyle is powerful.

Visualizing a desired lifestyle vividly, with imagery invokes your subconscious mind and invites it to aid in the quest. The power of the subconscious is one of the least dynamics of success. When a contractor focuses on the desired lifestyle and lays out the path necessary to achieve it, the subconscious works overtime to bring it about in a myriad of ways that can only be realized in hindsight. 

Squeezing your lifestyle into the profits a business throws off is constraining and leads to a scarcity mindset. Opening up your thoughts by visualizing your desired lifestyle creates a prosperity mindset. Prosperity begets prosperity and scarcity begets scarcity. Choose well.

Are you attending the Service World Expo October 3-6? It is the biggest and best conference and show focused on the residential service and replacement side of the business. Register today at www.ServiceWorldExpo.com. 

About the Author

Matt Michel | Chief Executive Officer

Matt Michel was a co-founder and CEO of the Service Roundtable (ServiceRoundtable.com). The Service Roundtable is an organization founded to help contractors improve their sales, marketing, operations, and profitability. The Service Nation Alliance is a part of this overall organization. Matt was inducted into the Contracting Business HVAC Hall of Fame in 2015. He is now an author and rancher.