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My friend, who owns a mosquito control franchise and just sent me his actual financials. So in this video, I'm going to break it all down. The business model, the actual margins, the challenges, and how I'd scale this business so you can decide if this business is worth investing in. Let's go first. What does this business actually do? They sign up customers on a recurring basis to go to their house or to the business and spray the perimeter to kill mosquitoes. Mosquitoes carry lots of bad diseases. It's not how you want to enjoy your summer. This is an essential business that has been around forever. It will continue to be around forever, which is a really good sign. It's a highly recurring revenue business. 80% or more of their customers stick from year to year. So it's the kind of business where you spend a lot of money to gain a customer, but once you have them, you can keep them for a very long time. Let's get into the actual business model. So my friend owns two territories of a very popular mosquito control franchise. I can't disclose the name due to confidentiality, and I'm hoping to get a lot more of these P. Ls to share with you guys. I'm going to keep it confidential as I can, but it's a major brand that is out there. First. Let's dive into it. In the year he did, almost $1.1 million in revenue. Now, keep in mind, a lot of this is recurring revenue in terms of people sign up for like 200 bucks a month, whatever it is, and they go out and spray for the service. They have very low cost of goods. So in a business, you really have two big direct costs. You have your cost of materials and you have your cost of labor. Now, in this business, the materials are the solution that they're going to spray, right? This is essentially, you know, what the business looks like. Guys with like backpacks on, spraying perimeters. It's a very low cost there. The other big cost, the main big cost of this business is labor. So you have people that are going out in the trucks to go and do these routes. And. And for him, his loaded technician payroll cost, so loaded means includes payroll taxes, was almost 21%, giving him a total cost of goods of 25%, which is really strong. Like in my auto repair business, just our parts, just our materials, cost about 25%. My labor to install is roughly 15%. So, you know, we run about a 40% cost on goods. And he's at 25, so really strong gross margin, 75% gross margin on this business. And then you get into the fees. So that's the top line. That is the gross profit. So on 1.1 million, he had $857,000 of gross profit. So profit after his direct cost. And let's go through the big ones, right? In a franchise business, they charge royalties, they charge a brand fund. There's different things. Almost 11% out the gate on every dollar is going to the franchisor to get the systems for him. He bought this business a few years ago, never would have started it on his own. So, okay, price to pay, you know, obviously the help with support and training and all that stuff. So big expense. His second biggest expense, almost $90,000 spent on marketing, on advertising. It costs a ton of money to get those customers in their business. I think they're required at minimum to spend $30,000 per year. I think it's per territory. So he has two territories. That's 60,000 is his minimum. He ended up spending 90,000. And in these, it's like this equation that says, all right, if I could spend $500 to capture one customer, if that customer is worth $5,000 to me over their lifetime, like you would continue to do that all day long, right? You put in 500, you get out 5,000, you put in 500, you get up 5,000, you have this infinite return on money for these services specifically, that is really what the goal is. Having strong metrics to know what does it cost you to get a customer. And then because 80% of their customers are on a recurring revenue, they should have a pretty high lifetime value, which make these businesses valuable. He has a manager, right? So he does not manage the day to day. He is in the business, he is involved, but he is not in the weeds. Literally every day he has a manager pays him about 50,000 a year. So that is the guy who's really dispatching the technicians, being the first line of defense for any, you know, customer issues his franchise or does do some of the selling. They have like a call center. So when a customer calls and they want to book a service, cancel a service, all that funnels up to a call center. That is part of what the franchise fee pays. So that would sit saves him on labor. Otherwise he would have to have multiple people call centers, even out outsourced to be able to handle all that really nice benefit there. But he still needs somebody operations. So this is a big bucket for me, just like everything else to run the operations. And then I'm going to unhide a bunch of these and got to go a little quicker because from there it gets a little bit more generic. So we have admin costs for payroll and professional fees and running payroll, that is your taxes, vehicle expenses. It's a mobile business. So you got to maintain the trucks. You have leases, you have auto repair, you have fuel, you have all that stuff. Insurance, $35,000, workers comp, et cetera. Credit card fees. Everyone pays with a credit card. That can add up. Rent. He rents a small warehouse space that everyone goes out of. And then professional fees. That's like. That is the accountant and the lawyer. So at the end of the day 1.1 million, he spends about 500,000, which leaves him $350,000 of net operating income with a 30% net margin. So he's doing 1.1 million and making $350,000 a year. Pretty good. This is just two territories of this franchise. He's owned it for a few years. I think it was an existing one that he bought. And now he's owned it for a couple of years. And this is where it gets interesting is that this is a seasonal business. It is only on season for April to October. So what's that, six months of the year and then he's off season from November to March. And when you break down his P and L this way, it actually gets even more interesting because he actually makes $487,000 in those six months, but loses 121,000 during the off season. You say, well, why, you know, how do you lose money when you're not even doing anything? Well, let's go through it, right? He has a manager. So that manager is full time. And even though that manager isn't working, he pays him throughout the year because he needs him to come back the next season so they can kick off strong once again. He is not fully involved in this business. Some may call it semi absentee, whatever. Either way, he is not in the day to day. And so he relies on that one person to do it. And so he pays them throughout the year, his vehicle expenses. If you have a lease on a truck, you have insurance for truck payments like those continue whether you are really doing the business or not. You can't turn insurance on and off, so he has that. He has professional fees to do taxes and other things throughout the year. Rent goes all year round. And then advertising. They do some pre selling at the end. They do some a little bit at the other side. He pays technicians bonuses towards the end of the year. Maybe he pre buys next year. Supplies at a discount this year. Right. And so in a seasonal business there are a lot of like moving parts starts. And for him, cash flow is so important because you think about if he ends the year with $478,000 in the bank and he takes it all out, he's going to still have expenses. So if you run a seasonal business, you have to be really good at managing that cash flow and know what that burn is going to be and so that you can just prepare for it. If you own a seasonal business, not only from a cash flow standpoint, but you also have to think about it from like a mental standpoint of what are you going to do for six months. I'm the type of person like I'm a go, go, go. Like I literally have to be doing a ton of things at once, otherwise I get bored. Like I had satisfact staying busy. And for me, like I don't think I could own this business because I would go stir crazy in the off season and then I'd want to go and start another business in the off season. And now, now that would bleed into this business and I think it would be hard. A lot of guys get into Christmas lights, they get into snowplow, they get into like other things and then there's other people that just love this. They want a seasonal business, they want to have six months of the year off where they can go to Florida, they go visit friends up north, or they just relax and take it easy. And that's the cool thing about owning a business and specifically in franchising is like there's all these different models and there's not like one right thing. It's finding what is right for you and for where. My friend, this is the type of business that he wanted, he intentionally got into. He liked the nature, that it was recurring revenue, that it was essential, that it was high margin, that it was relatively easy to hire. I'd say that's the other challenge that anybody in a blue collar workforce like this is you hire everyone in the on season, you lay everybody off. Come October, maybe there's a couple people that you keep on payroll at some minimal amount in hopes that they're going to continue full time back with you because you're the lead technician, but you're essentially like have this big up higher and then you have this big downfall, this big up higher. And, and for some people, they love it because it's like, it's pretty simple. But then others say like, you know, you have this team that you Build and you really like these people and you get to know them and you feel bad, like laying them off to kick the whole thing up the next season. And so that is one of the big challenges with it all. Finally, let me show you how I grow this business. So when I'm looking at a P and L and trying to plan out growth, I would first start with setting a big goal to say, hey, what if we could get this business to $2 million in revenue? How much money would I make? Well, the first thing that we know is what are the costs that stay the same and then what are the costs that increase. Our materials are going to stay the same. We're still going to have to hire guys to go out there and spray. Like I can't just charge more for the service because it is kind of a commodity in a sense. Our gross profit margin is going to stay the same, 75%. Let's go through some of these other expenses. Our royalties are going to stay the same. Our advertising spend is going to stay the same as a percentage of revenue when I say that. So then what I do is I go here. I would just, I would mark this off and let me just like this and go like that. Okay, there we go. Our manager payroll. Now our manager payroll may not go up that much because if we say, hey, we have the same guy, but we're going to look to increase our market share out of these territories, then what we could say is like, maybe we're paying him a bonus, but maybe he's making 65,000 instead of making 50,000. We're going to pay him on increase, but it's not necessarily double because there's bandwidth there operationally. So these are the expenses to running the operations. I think they're going to go up. I don't think they're going to double. So for these, I would think Maybe we spend $60,000. We're spend more, but not necessarily double. Our admin costs to run. The admin of the business generally aren't going to double with sales, maybe goes up a little bit. Vehicle expenses, they are going to double. Right. If we said, hey, we have double the amount of routes we have to run, we're probably going to have to also double our vehicles for these. Once again, I'm just copying the percentage of revenue three and a half percent, then multiplying that by what the sales are. Then we've got insurance. Our insurance is definitely go up in this type of business. It is highly scalable. Your main cost here is going to Be liability for the trucks and your payroll workers comp liability. Both of those are going to go up when you double. Finally, credit card fees definitely going to go to up. That's 100% tied to sales rent though. If we can operate the business out of the same exact facility, our rent is going to stay exactly the same and our professional fees like it's not going to cost me any more money, literally zero more dollars to get my accountant to do a tax return where I make more money. My expenses are going to be around 770,000 which brings my net operating income 1.5 minus 770. We divide this by that number 36. And so if I can get the sales or my buddy can get his sales to $2 million in revenue, then at the end of the day budget wise he should make close to $730,000. With an increased margin from 30% to 36% we are able to squeeze out more margin because we can dilute some of those fixed costs. Right? We talk about professional fees, rental, a little bit of manager admin. Like there's certain costs in the business that are going to stay fixed no matter what. And so if we can increase revenue, we dilute those costs, all that savings drop safe to the bottom line. This would scale even more if we said hey, if we can get to $2.5 million in revenue, $2.6 million in revenue out of the same territories, a lot of these are going to grow. Now if we needed to buy more territories because we thought we've reached the point of saturation in our market like we've, we've sold all that we can out of this market. We can't sell anything more. How would we do it? Well what would the cost that would go higher? It would be in these categories, right? Maybe we need two managers or maybe we need three managers. Maybe operationally payroll like that's going to go up higher. Maybe admin admin still not going to go up. Usually it doesn't go up but all these scale up scale, scale, scale. Maybe rent. Maybe we do need another building. Not that much though. That's the way that I look at PNLs is I try to think about what am I doing now, where do I want to go, what costs would double and then we can start to plan out and then from here we can take this plan and then we can focus on execution. Anyway, I hope this was interesting. Let me know in the comments. What do you think about this business? Would you operate a mosquito control business? Do you like the recurring revenue nature. What about the seasonality? Could you deal with six months on, six months off? And if you're looking for a business to buy, my team helps people every day. Find great franchises and click the link below and my team can help you from there. Cheers.