We Made $1.2 Million, But Took Home Nothing

Summary

Summary of "The EntreLeadership Podcast: We Made $1.2 Million, But Took Home Nothing"

Episode Details:

• Title: We Made $1.2 Million, But Took Home Nothing
• Host: Ramsey Network (Dave Ramsey)
• Release Date: August 4, 2025
• Description: Dave Ramsey provides real-time business and leadership coaching, addressing challenges faced by business leaders.

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Introduction

In this episode of "The EntreLeadership Podcast," Dave Ramsey engages with small business owners seeking advice on overcoming financial and operational hurdles. The episode features three callers: Renee from Evansville, Indiana; Sarah from Florida; and Jake from Cody, Wyoming. Each brings unique business challenges, allowing Ramsey to offer tailored strategies rooted in his extensive experience.

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Caller 1: Renee’s Antique Car Parts Business Struggles

Timestamp Highlights:

• 00:52: Renee introduces her business.
• 00:54 – 07:20: Discussion about her antique car parts business.

Overview

Renee and her husband run a 35-year-old antique car parts business with six employees, generating $1.2 million in revenue last year. Despite their long-standing operation and substantial inventory, they face financial exhaustion due to a low net profit margin of approximately 2%. Renee seeks advice on whether selling the business is a viable option.

Key Points & Discussion

1. Business Valuation Methods (00:54 – 04:53):

   • Dave Ramsey outlines three methods to value a business:
     • Multiple of Net Profit: Typically 4-5 times net profit, which isn't favorable for Renee’s low-margin business.
     • Book Value: Calculating the worth based on selling all assets and inventory.
     • Multiple of Gross Revenue: Generally unsuitable for nuanced businesses like Renee’s.
   • Ramsey suggests that valuing based on book value is the most appropriate for Renee’s situation.

2. Inventory Management (02:25 – 05:14):

   • Renee reveals that 60% of her revenue comes from large parts buyouts, purchased in lots and sold on a cash basis, which impacts profitability.
   • Ramsey’s Advice: Reduce inventory from $1 million to around $200,000 to enhance profitability. He recommends liquidating excess inventory through bulk sales or seeking a legacy buyer interested in the inventory.

3. Real Estate Considerations (09:52 – 10:20):

   • Renee owns all real estate associated with her business, valued modestly due to their location.
   • Ramsey’s Insight: Separating real estate from the business sale could help maximize returns, potentially generating an additional $100,000 to $200,000 from the sale of property after clearing out inventory.

Notable Quotes

• Renee (00:54): "Can we expect to sell our business if our bottom line is usually close to only 2%?"
• Dave Ramsey (04:36): "If someone walked up and said, 'I'll give you a million dollars for all this,' you would take it."
• Dave Ramsey (09:33): "The method for you to get the most out of this business in the next 24 months is price everything to sell in 24 months."

Conclusion

Ramsey emphasizes the importance of inventory liquidation and strategic asset management. By de-emphasizing inventory acquisition and focusing on selling existing stock, Renee and her husband can improve their bottom line and consider profitable exit strategies or asset liquidation.

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Caller 2: Sarah’s Environmental Consulting Services

Timestamp Highlights:

• 13:53: Introduction to Sarah.
• 13:55 – 26:31: Discussion on structuring commissions.

Overview

Sarah operates an environmental consulting company in Florida with $1.4 million in revenue and 15 employees. Her business relies on recurring monthly income from services like stormwater inspections during construction projects. She seeks advice on structuring fair and motivating commission plans for an employee transitioning to a sales role without eroding profit margins.

Key Points & Discussion

1. Understanding the Service Model (14:22 – 15:07):

   • Sarah’s services are project-based, with stormwater inspections varying in duration based on construction project length.

2. Commission Structure Challenges (15:07 – 17:02):

   • Sarah is uncertain about setting commission percentages between 5% to 20%, considering the variability in project sizes and durations.

3. Ramsey’s Advice on Commission vs. Salary (17:07 – 26:31):

   • Payment Based on Revenue Received (17:08): Commissions should be paid only when revenue is actually received to avoid financial strain if clients default.
   • Balancing Commission Rates (22:17 – 23:14): Given the payroll-heavy structure, higher commission rates may not be sustainable. A hybrid model combining a base salary with a smaller commission (e.g., 5%) is recommended.
   • Evaluating Employee Capacity (19:47 – 22:35): Assess the realistic revenue each salesperson can generate. Currently, individual contributions range between $100,000 to $200,000, suggesting a feasible commission rate around 5% without disrupting profit margins.
   • Ensuring Motivational Pay (21:12 – 26:31): Structuring commissions to provide meaningful incentives while maintaining business profitability is crucial. Reducing hourly wages to accommodate sustainable commission rates may be necessary.

Notable Quotes

• Sarah (13:55): "We have about $1.4 million in revenue and 15 employees."
• Dave Ramsey (23:14): "Your team is your largest investment, which means you need to get a rate of return on it, a return on investment."
• Dave Ramsey (21:12): "If someone can buy a million dollars and I pay him 10%, he makes $100,000."

Conclusion

Ramsey advises Sarah to adopt a commission structure that aligns employee incentives with business profitability. Implementing a salary-plus-commission hybrid ensures employees are fairly compensated without undermining the company’s financial health. This balanced approach fosters sustainability and motivation among sales staff.

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Caller 3: Jake’s Fence Installation and Sales Company

Timestamp Highlights:

• 35:49: Introduction to Jake.
• 35:53 – 42:55: Discussion on increasing gross revenues.

Overview

Jake, co-owner and president of a fence installation and sales company in Cody, Wyoming, seeks advice on boosting gross revenues from $750,000 to over $1 million. Following an amicable decision to buy out his brother, Jake is motivated to scale the business to expedite the buyout and enhance profitability.

Key Points & Discussion

1. Current Business Status (35:53 – 38:26):

   • Business has been operational for 13 years, generating $750,000 last year, with revenue stagnation observed over the past five to six years.
   • Revenue sources include 25-30% from custom home builders and 70-75% from direct residential and commercial clients, primarily through word of mouth, radio advertising, and some print and social media efforts.

2. Challenges and Growth Strategy (38:26 – 42:55):

   • Complacency and Fear of Scaling (36:57 – 39:34): Jake identifies that complacency and fear of overextending have kept revenue stagnant despite high demand.
   • Ramsey’s Advice:
     • Consistent Marketing: Avoid turning marketing efforts on and off to maintain momentum. Incorporate more social media and potentially hire a dedicated marketer.
     • Hiring Additional Crews (39:34 – 40:59): To meet increasing demand, Jake should hire additional crews. Starting with three to four crews can help scale operations to approach $2 million in revenue.
     • Leadership Transition: Shift from hands-on roles to strategic leadership, focusing on training and business management to support growth.

Notable Quotes

• Jake (36:57): "We've been kind of complacent, over the last couple years we will book out six, eight weeks and oh goodness, we've got too much coming in, too much to do."
• Dave Ramsey (40:12): "You're just above treadmill stage and starting to hang out around Pathfinder."
• Dave Ramsey (42:43): "Congratulations. I like your attitude. I like how you're approaching this. I think you're gonna do well."

Conclusion

Ramsey encourages Jake to overcome complacency by hiring additional crews, maintaining consistent marketing efforts, and transitioning into a leadership role focused on business operations and growth strategies. This proactive approach is designed to break the revenue plateau and support the company’s expansion goals without compromising service quality or employee morale.

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Episode Insights and Conclusions

Throughout this episode, Dave Ramsey addresses complex and varied challenges faced by small business owners, offering tailored advice grounded in financial prudence and strategic planning. Key themes include:

• Financial Management: Emphasizing the importance of understanding business valuation, controlling inventory costs, and ensuring profitability to sustain and grow a business.

• Employee Compensation: Balancing fair compensation structures, such as commissions and salaries, to motivate employees while maintaining healthy profit margins.

• Business Scaling: Encouraging proactive growth strategies, including strategic hiring and continuous marketing efforts, to break through revenue stagnation.

• Leadership Transition: Highlighting the necessity for business leaders to evolve from hands-on roles to strategic oversight as companies grow.

Overall, the episode underscores the necessity for business owners to balance passion with financial acumen, ensuring that their businesses not only thrive operationally but also deliver personal financial rewards.

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Notable Quotes from the Episode

• Renee (00:54): “Can we expect to sell our business if our bottom line is usually close to only 2%?”

• Dave Ramsey (04:36): “If someone walked up and said, ‘I'll give you a million dollars for all this,’ you would take it.”

• Dave Ramsey (09:33): “The method for you to get the most out of this business in the next 24 months is price everything to sell in 24 months.”

• Sarah (13:55): “We have about $1.4 million in revenue and 15 employees.”

• Dave Ramsey (23:14): “Your team is your largest investment, which means you need to get a rate of return on it, a return on investment.”

• Jake (36:57): “We've been kind of complacent, over the last couple years we will book out six, eight weeks and oh goodness, we've got too much coming in, too much to do.”

• Dave Ramsey (40:12): “You're just above treadmill stage and starting to hang out around Pathfinder.”

• Dave Ramsey (42:43): “Congratulations. I like your attitude. I like how you're approaching this. I think you're gonna do well.”

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This comprehensive summary captures the essence of the podcast episode, detailing the personalized consultations between Dave Ramsey and the callers. It highlights the critical financial and operational strategies discussed, supported by notable quotes with timestamps for reference. The structured format ensures clarity and depth, making it useful for those who haven't listened to the episode.

Transcript

[Dave Ramsey]

From the headquarters of Ramsey Solutions, this is the entree leadership podcast where I take calls from leaders like you about what it takes to win at any stage of business and leadership. I'm Dave Ramsey, your host. With over 30 years of experience leading in the trenches right alongside you. I did this crap today. If you have a question you want to ask on the show, well, fill out the [e-mail] ask or give us a call and we'll call you back, get you on as a caller. The number is 8449-4410-7084-4944. 1070. Renee is with us in Evansville, Indiana. Hi, Renee.

[Renee]

Hi, Dave.

[Dave Ramsey]

What's up?

[Renee]

My husband and I own an antique car parts business with six employees that did 1.2 last year. We've been in business 35 years, and we've amassed a huge inventory. And we're 62 and 65. Love what we do, but we're exhausted from the treadmill. My question is, can we expect to sell our business if our bottom line is usually close to only 2%?

[Dave Ramsey]

Well, there's three ways to place a valuation on a business. Typically, small businesses are sold at a multiple of four or five times net profit. That doesn't sound like that's a good plan for you. The second way is what we call book value. Book value is if you turn the key and close the door and sold off all the stuff. What would all the stuff bring? How big is this inventory? What's it worth?

[Renee]

Well, we had it valued probably 10 years ago. Not someone who was familiar necessarily with the industry at 1.5, but we have six buildings and 12 ConEx containers just jam packed full.

[Dave Ramsey]

Do you have a good accounting of it? Do you know what's there, or is it just a scrap yard?

[Renee]

No, 60% of our revenue is from these large parts buyouts that we have. And what's that meant?

[Dave Ramsey]

Place?

[Renee]

Well, we buy them in lots. Like a widow calls us and said, my husband's collected this for 50 years. Come and get it. And so we. We bring that in, we stuff it in our buildings. And about 60% of our revenue comes from that.

[Dave Ramsey]

From reselling those items.

[Renee]

Yes, yes. And we do it on a cash basis. So one, once we spend a dollar on inventory, it hits the bottom line.

[Dave Ramsey]

Yeah, I got you.

[Gene]

Okay.

[Renee]

And all of our extra cash. This is why we don't make any money. All of our extra cash goes back into more inventory. Right. And making obsolete parts fabricated. So we've got a whole list of things Waiting for cash. We have no debt.

[Gene]

Okay.

[Dave Ramsey]

And the third way to value a business is a multiple of gross, which probably does not apply here. That applies in a very standardized business where you're selling a sub. Sub shop, sub sandwich shop, and people in the sub sandwich business pay 3 times gross or 5 times gross or whatever, that kind of thing. Usually. But your business is so nuanced and unique that that would, that method would not apply. It sounds like that if you guys went bananas and had a going out of business fire sale and cleaned out the inventory over the next two years, you would make more money doing that than you would selling the business.

[Renee]

Interesting. Should we preface that sale with some feelers on some leg, maybe some legacy partner that might want to just take it all?

[Dave Ramsey]

Yeah, I'm fine either way. I don't care. But they need to pay you not for the net profit because there's not any. They need to pay you for the inventory. If someone would give you a million dollars for the inventory, you'd take it, right?

[Renee]

Absolutely.

[Dave Ramsey]

And call it a day because you're not gonna get that as a multiple of 2% on 1.2 gross. Not close. Right. So I mean, if someone gave you, you know, just walked up and said, I'll give you a million dollars for all this, you would take it.

[Renee]

You should, without a doubt.

[Dave Ramsey]

Yeah. So I'm going to start there and, or talk to the big buyers in the business and say, hey, come bid on. And I don't know how you do this in your world, but some method of liquidating the inventory.

[Renee]

Right.

[Dave Ramsey]

That's all I'm saying. So it could be all the way from one big buyer. Or you build crates and you sell off, you know, grab bag crates at antique car shows and you know, I don't know, you can buy this for 100 bucks and you know, it's, it's big old pile of stuff. I don't even know how this works, but I'm making stuff up here. But stupid stuff, really.

[Jake]

But.

[Dave Ramsey]

It'S so interesting. So. But I mean if you could, or if you've got this stuff categorized enough that you could sell, you know, 42 of the same kind of part door handles or wheels or whatever, then you would have people that are doing rent of car rehabs and stuff. Okay, I want a crate of wheels, I'll take a crate of wheels. Or I'll take a crate of door handles or bike. You know, more how people would buy this stuff. Maybe it's by brand or by year, you know, all Chevrolet stuff from the 1930s, all Chevrolet overlay stuff from the 1940s or I don't know what. Like that might work. What would work?

[Renee]

I think the one person who wants to leave. Because if we go down, there's not. There's not a lot of alternative sources. We ship all over the world, and we're very, very specified to one kind of car that you can't get parts for at Rock Otter.

[Dave Ramsey]

Yeah, they're all antique cars is what you mean. They're.

[Renee]

They are. But this, it's.

[Dave Ramsey]

It's pretty special to a certain vehicle. You've got a million dollars in parts for one type of vehicle.

[Renee]

I know it's hard to believe.

[Dave Ramsey]

And is that. Is that what you're telling me, though? I'm asking.

[Renee]

Yes, we do. We do. And we're one of the only places to get it.

[Dave Ramsey]

I don't think you should tell me, but I'm going to ask what the vehicle is. Maybe you shouldn't tell me, though.

[Renee]

I don't. I don't really want to tell you.

[Dave Ramsey]

Okay, you shouldn't. I don't disagree. Because it's so. It makes you vulnerable. I'm so interesting, though.

[Gene]

Okay.

[Dave Ramsey]

Now my brain is run amok trying to figure out what it is. So this has to be an antique luxury vehicle, doesn't it?

[Renee]

Yes.

[Gene]

Ah, okay. Okay, Good, good.

[Dave Ramsey]

Yeah. Then you know who your buyers are. They're all over the place, but they are a very unique bunch. So it's not a bunch of different brands, or it might be a series of years. There might be two or three different decades involved, but there's nothing more than. But it's all one brand. And then. So do we put the 15, 28, or 60 most requested parts for a 1950 through 1955 renovation of this vehicle, integrate and sell you the starter kit for renovation?

[Renee]

I think that that's what we do on a daily basis. We sell to garages, we sell to hobbyists.

[Dave Ramsey]

But you sell some individual parts, don't you?

[Gene]

Not.

[Dave Ramsey]

Not kits.

[Renee]

We do make kits, yes.

[Gene]

Okay.

[Dave Ramsey]

Wow.

[Renee]

Quite a bit of. Part of my job is getting kits together.

[Gene]

Okay.

[Renee]

I do all the purchasing, too.

[Gene]

All right.

[Dave Ramsey]

What I'm going to do is I'm going to be less in love with inventory purchasing, and I'm going to get really in love with selling inventory. And matter of fact, I'm not buying any more.

[Renee]

Okay, that was a question. Should we stop buying to make our bottom line look good?

[Dave Ramsey]

No, you stop buying because you don't need any more inventory. You've got a Million dollars. That's not profitable. You don't need to increase this inventory as a business model. You need to learn to sell what you've got and clean it out and. Or scrap it out and get down to close to zero. And then if you want to stay in business, you can start to buy again. But you need to reduce your million down to 200,000. You're sitting on a lot of crap.

[Renee]

Oh, we are?

[Dave Ramsey]

Yeah.

[Renee]

And real estate taxes.

[Dave Ramsey]

Yeah. Oh, you own the real estate?

[Renee]

All of it?

[Sarah]

Yeah.

[Dave Ramsey]

What's the real estate worth if we cleaned all the car junk out of it?

[Renee]

Oh, gosh, not a lot.

[Gene]

Okay.

[Renee]

Not in a good neighborhood.

[Gene]

Okay.

[Dave Ramsey]

So it's just shops and storage units in whatever. Small warehouses in bad neighborhood.

[Gene]

Okay. All right.

[Dave Ramsey]

But you could get 100 grand, 200 grand for it, probably.

[Renee]

Oh, yeah.

[Gene]

Okay.

[Dave Ramsey]

Yeah. Let's get it cleaned out and sell it. And so what you. I'm gonna. The one thing. Yes. I'm gonna look for the legacy. Yes. I'm gonna quit buying. Yes. The method for you to get the most out of this business in the next 24 months is price everything to sell in 24 months. Yes. Or 36 months or whatever the number you want to come up with is. But at that point, we're done. And the rest of it's going to the scrap yard for metal pricing. And. Or a legacy buyer comes in and buys it for almost that price and piles it up in his backyard. And then you sell off the real estate, and you walk out of this with a total of 700 to 1.2 million between the real estate and then selling off the stuff over 36 months. And you quit buying. And so, yes, your profits are going to go up, but not for the purpose of reselling the thing. If someone comes along and says, hey, I do want to buy this, that's okay, too. We'll do that. But I don't think our purpose here is that. I think you getting this inventory liquidated is going to give you your most dollars is what I think I'm understanding. That's what it feels like to me. And however, we have to liquidate it to the end, use consumer to one legacy buyer to three legacy buyers, minus the real estate. And then you go clean the real estate out, and then you go sell the real estate. Separate. Separate the real estate from the business, by the way, for sure. So those are a couple of suggestions to mix in there. But book value is your highest and best appraisal. Based on what you're telling me, I think and you can dig into it certainly further. But it was a good discussion. And everyone out there is dying to know what this car is, including me, a car guy.

[Jake]

But.

[Dave Ramsey]

Oh well, we'll just deal with that. Have her tell us off air so we can. At least. So at least we will know the rest of your screwed. But we're going to know. Okay, that's. We'll keep your secret, Rene. It won't be broadcast. These days, business as usual is anything but. Tariffs make trade policy a moving target. Supply chains are squeezed and your cash flow is tighter than ever. If your business can't adapt in real time, you're in a world of hurt. That's why you need NetSuite by Oracle. Trusted by more than 42,000 businesses, including Ramsey Solutions. You need to see what's happening, what's stuck and what's costing you and how to fix it. NetSuite is the number one cloud based business management suite because it helps your business make the right decisions fast. It brings accounting, financial management, inventory and HR into one place so you're not left shuffling a dozen different spreadsheets. That gives you the visibility you need to make quick decisions based on actionable data. And NetSuite AI automates everyday tasks so your team can focus on strategy. It's one system for full control and no guesswork to tame the chaos. And right now, if your business is doing a million or more in annual revenue, download NetSuite's free ebook, Navigating Global Trade. 3 insights for [e-mail] Ramsey that's NetSuite.com Ramsey. Gene is in Nashville. Hi Gene. Welcome to the Entree Leadership Podcast.

[Sarah]

Well, thank you for having me on, Dave. I appreciate it.

[Jake]

My.

[Sarah]

I have a company that provides environmental consulting services for new development and construction. We have about $1.4 million in revenue and 15 employees. The majority of our business is recurring monthly income from regular services. Just services. And I would like to get your input on how can I structure a commission when an employee acquires new business for us.

[Dave Ramsey]

What is the ongoing services? I buy commercial property and buy and I purchase environmental reports. But it's not an ongoing service. It's a one time part of my due diligence.

[Sarah]

We do the stormwater inspections during construction. As a matter of fact, we're working on one of your projects right now.

[Gene]

Okay.

[Dave Ramsey]

You're doing the stormwater inspection up through the end of the bond.

[Sarah]

Not necessarily the bond, but through the end of the project.

[Gene]

Okay. All right, all right.

[Dave Ramsey]

Because our projects are old enough, they should Be about done on new construction. Oh, well, I bought a new piece and maybe you're looking at it.

[Gene]

Okay.

[Dave Ramsey]

Yeah. All right, so. But it's stormwater, so it's not recurring perpetually. It's recurring just through the distance of the construction, the calendar of the construction.

[Jake]

Right, Correct.

[Sarah]

But it can vary in length of time. We've had like, we've got a client that turns around dollar generals in four to six months and we've got some subdivisions where we've been working for over 10 years because they go into new phases.

[Dave Ramsey]

Yeah, the development developer.

[Gene]

Okay, Correct.

[Dave Ramsey]

But the. But the actual physical storm drain you're inspecting moves along as the. As the development moves along.

[Sarah]

Yes, we're actually inspecting the construction.

[Dave Ramsey]

Yeah. Okay. That's what I'm saying. Yeah. New construction.

[Gene]

Okay.

[Dave Ramsey]

Wow. All right. And your question is how to pay commissions on landing that client?

[Sarah]

Yes. We have an employee that is switching to more of a sales role, and I would like to find a fair commission for her. I'm getting a real tight range of 5 to 20%, which doesn't help. So I'm not sure how to. How to structure that because it could be the project could be a very short duration and you know, a very low type monthly billing scenario, small project, or it could be something again that could last 10 years and be a big project.

[Dave Ramsey]

Wow.

[Gene]

Okay.

[Dave Ramsey]

The relationship lasts 10 years, but really the actual project doesn't. Because like if you'd had like a residential development and it was six phases, phase one doesn't last 10 years.

[Gene]

But the.

[Dave Ramsey]

All six might.

[Sarah]

Correct. Usually we'll roll over from one phase.

[Dave Ramsey]

To the next, but that's a client relationship versus the actual product.

[Gene]

Okay.

[Dave Ramsey]

All right. Wow. And this is just paid as done. I mean, there's not like a big lump on the front end. It's just as the work is done over that. Let's say it's a six month project. You just bill them once a month for six months, Right?

[Sarah]

Correct.

[Dave Ramsey]

It's steady. It's the same. It's a level cash flow. Yes.

[Gene]

Okay.

[Dave Ramsey]

Number one, I'm gonna pay them as I get paid.

[Renee]

Okay.

[Dave Ramsey]

Not before. And that way if something blows up in the middle, you don't have to try to recoup out of an employee. That's a really rough place to be in. And so I'm just gonna. And so their first few months, I might have to support them with some salary until they get enough of these things layered up to make a living.

[Sarah]

Well, right now our employees, and including this employee who's doing more sales actually provides the service. I mean, if you think of it sort of like, you know, a pest control company that might acquire new clients because someone saw their truck.

[Dave Ramsey]

Yeah. But what I'm saying is, is if you just start fresh, they have zero clients. Then they get one client. They're not going to be able to eat off a one. They're not gonna pay their own bills.

[Gene]

Okay.

[Dave Ramsey]

And so until they get layered up from one client up to whatever, 10 or however many they can, their capacity is, you might have to support them in the first 90 days of getting clients or the first six months of getting clients. But then after that, then they should just keep enough new clients coming in to offset the old ones dropping off. Agreed?

[Sarah]

Yes.

[Gene]

Okay.

[Dave Ramsey]

So looking at that, then it's just a straight commission thing per dollar. And it is a straight percentage. We don't have to do anything weird. I would pay them as you get paid, not as you're promised to be paid, not as there's a contract. If their client doesn't pay, they don't get paid. Like, if the developer goes broke, they don't get paid. Okay. So only when the money hits my books do I pay. And that's been a cash basis company. We don't borrow money. I'm not going to be in debt to my employees. And that's what ends up happening if you owe them, regardless whether the contractor goes broke or not. So their job is to not only get clients, but get clients who pay.

[Sarah]

Right.

[Dave Ramsey]

And so, yeah, then. And you've never done this on commission before and you're doing 1.4 million of it.

[Sarah]

Correct.

[Gene]

Hmm.

[Dave Ramsey]

How long you been doing this?

[Sarah]

22 years.

[Gene]

Okay.

[Dave Ramsey]

So you ought to be able to map out this new person's capacity and what they can bring in. What dollar gross volume can they bring in in a year? What when they get full?

[Sarah]

I'm not sure I understand that.

[Dave Ramsey]

Okay, if this person does all the work, that is humanly possible logistically. Cause there's a limit to what they can do because they're not only selling it, they're servicing it. Correct?

[Sarah]

Correct.

[Dave Ramsey]

So there's a limit. How many dollars can this person, can a single person generate towards your gross revenue? Can they bring in 400k? Can they bring in 300k? Can they bring in 500k?

[Renee]

Okay.

[Dave Ramsey]

What do you think?

[Sarah]

I'm not sure.

[Dave Ramsey]

Well, you've been doing it 22 years. I mean, you got 15 people. How many of them are in the field doing the 1.4? We've got 15 they're all 15 are doing the generate. Doing. Generating the deal, correct?

[Sarah]

Yes.

[Dave Ramsey]

But they're just all on salary.

[Sarah]

Yes.

[Renee]

Yes.

[Dave Ramsey]

So they're bringing in. They're bringing in 100,000 apiece.

[Sarah]

Correct.

[Gene]

Okay.

[Dave Ramsey]

Well, 20% is 20,000 bucks. They're going to be broke. I'm confused.

[Sarah]

Right?

[Dave Ramsey]

You don't have anybody doing staff work in the office or anything?

[Sarah]

Oh, we do. The 15 includes people in the office as well.

[Gene]

Okay.

[Dave Ramsey]

What I'm asking is how many of the 15 are currently selling and doing what you're asking this other person to do? Anybody.

[Sarah]

We have 11 potential people who could.

[Dave Ramsey]

Be selling, who's in the field now generating the 1.4.

[Sarah]

11 people.

[Gene]

Okay.

[Dave Ramsey]

So that's 150,000 a piece.

[Jake]

Yep.

[Dave Ramsey]

At 20%, they're still starving to death. What do you.

[Sarah]

They're paid hourly as well.

[Dave Ramsey]

As well as the commission?

[Renee]

Yes.

[Dave Ramsey]

Oh, okay, I missed that part.

[Gene]

Okay.

[Dave Ramsey]

Huh. All right then, so we. Well, the thing I'm trying to do is I'm trying to give them a commission. And now including their hourly, that doesn't cause you to lose all your margin, but also gives them enough that gives them a reason for doing it. If they can't buy a biscuit with the commission, it's irrelevant to do all this.

[Sarah]

Right.

[Dave Ramsey]

Okay, but if they can. But we also don't want them breaking you. And so what does that. Okay, of the 11 that bring in the 1.4, what would the average income currently be? For one of those.

[Sarah]

What would the average income be? What do you mean?

[Jake]

Annual income, what they're making or what.

[Dave Ramsey]

You pay 11 people to bring in? 1.4. One of those people, what do you pay them annually?

[Sarah]

Between 50,000 and $70,000.

[Gene]

Okay. All right.

[Dave Ramsey]

And so your biggest cost is the payroll associated with the actual revenue production? By far, yes. You don't have anything close to a second on that.

[Gene]

Okay.

[Sarah]

No.

[Dave Ramsey]

So you don't have a lot of room to add commission to that. Are you going to reduce the hourly in order to put commission on top of it?

[Sarah]

I hadn't considered it, but I could.

[Dave Ramsey]

Okay, if you don't, then it's only 5% because you can't afford anymore.

[Sarah]

Right.

[Dave Ramsey]

I mean, so on 150 grand, they're going to make an extra $7,000 a year in commission on top of their hourly, and that's going to be about it.

[Sarah]

Okay.

[Dave Ramsey]

If they make 75 and then they get a little. This is basically a bonus system. More than a commission sales rep, or if you wanted to say, okay, I pay somebody 75 now. They bring in about 150. That's a 50% commission rate. And take them off of hourly.

[Sarah]

Right.

[Dave Ramsey]

Or do some hybrid in between. You could do that. You could cut the. You know, I'm gonna pay you $50,000 a year and 25,000 in commission. And so 25 on is, you know, that's more like 15% then. But you'd have to reduce what you're paying them now in order to pay them north of 5, or you're gonna cut your margins to ribbons. Yeah, if I'm doing the math right in my head. I'm sitting here just doing it while we're talking, but I think that's right. So what I'm always doing is I love to give them an incentive. I want them to be able to eat first. Then I want them to see their way to making really good money while I'm making good money. And so if I've got a guy that brings in a million dollars and I pay him 10%, he makes $100,000. I want him to make. If I'm paying him 10%, he gets $100,000. He brings in a million. We've got 900,000 here to deal with after we pay him. How many times do I want him to do that? All day long I want him to go make a million dollars because I'm making 10 million. You see how that works? So you want it to where, if they can really ramp up and make serious, crazy good money, that you're making crazy good money while they're doing it. But what you're describing to me, I don't know that they've got the capacity, since they're doing the service and the sales themselves, they're actually providing the inspections and the reports and the environmental whatever on this as well as selling it. I don't know that they've got the capacity to bring in much more than a couple of hundred grand. Based on what you're telling me. You don't have anybody else out of the 11 bringing in 2, 3, $400,000 in revenue? That's based on the numbers you're giving me, right? Yeah. So you can't promise somebody the moon on that for some reason. Are they able to do more and they're just not hours in the day?

[Sarah]

No, I think that's pretty standard. We're billing market rates, I would say probably a little above market for what we do.

[Dave Ramsey]

Yeah, but I'm saying, of your 11 people, could they. Could they double their production logistically physically, hours in the day. Do they have enough hours in the day to do it?

[Sarah]

No, I don't think so.

[Dave Ramsey]

I don't think so. I don't think they got 50% capacity unused, I doubt. So these guys have an upside of you paying them on somewhere around 100 to $200,000 worth of revenue production. And so if you pay them 20% on that, they're starving to death. If that's all they get.

[Jake]

Right.

[Dave Ramsey]

So that's what I'm saying. So it has to be salary. It has to be some kind of salary plus something. And if the more you weight it on commission, the more you're looking at having to reduce their current fixed pay, which probably would be a morale buster.

[Renee]

Yes.

[Sarah]

Right.

[Dave Ramsey]

Yeah. Unless it was on the way to making double income, which they can't do because they don't have the capacity to do it. So my scenario, if I pay a guy 100 grand to bring in a. A million, and if he goes and does that 10 times, it doesn't apply to them because they don't have the bandwidth to do that. So I don't want to put them. I don't want to box them in a position where they lose, but I also don't want to set up something where I get choked to death and your margins get cut to ribbons. So it sounds like if you leave the pay about where it is, you're probably at a 5%. If I've done all this math right while we've circled the plane here and tried to land it, that's exhausting. I'm not sure I did it right, but I think I did. I love messing with this stuff. I like a good math riddle. You guys just listened in while me and my CFO do these kinds of math riddles. Or our comp. Our comp team, our compensation team is looking at something. We go, we. We try to land these planes all the time, trying to figure out some way to motivate people with their pay and then not screw it up. In a typical small business, you spend more money on payroll than any other expense. Your team is your largest investment, which means you need to get a rate of return on it, a return on investment. That's where entree leadership Elite can help. Elite is the online platform that aligns your team so you can scale your business. You use integrated tools to get your whole team on the same page. And our proven trainings will help you become the kind of leader people want to follow. Plus, Elite's community of business owners will have your back even when things get tough. My leaders use Elite every week to unify over 1,000 team members at Ramsey Solutions. And now you can use Elite to align your team as well. To grow your business with elite, go to entreeleadership.com elite or just click the link in the description if you're listening on YouTube or podcast. Our question of the day is from Sarah in Florida. How do I demote an employee?

[Gene]

Uh oh.

[Dave Ramsey]

I hired a designer a couple of years who was a good fit at the time. When a senior designer quit, I quickly promoted her to fill the gap, though she wasn't fully ready. Since then we've raised our standards and while she may have been solid fit before, it's now clear she's over her head. Despite months of feedback and one on one training, her progress has been minimal. She struggles with communication and project management. It's become a burden for me and the team. She has a great eye, but the operational mistakes are adding up. I'm starting to feel embarrassed that I haven't been able to turn this around. I need advice on how to proceed. Depending on who she is, you're going to get one of two reactions based on her maturity and how she's wired. We've experienced this with creatives, with writers, content people, with programmers that we move them up beyond their level of competence. It's called the Peter Principle. You promote someone to the level of incompetence, you keep moving them up until they can't do the job. When we ask them to return back to where they actually are doing the job rather than trying to lead all the people doing the job, we end up with one of two reactions. Their feelings are hurt and they quit, which probably happens more than half the time or you've talked about it, talked about it, talked about it, and they actually feel relieved to be able to go back and actually do the work. So this is a designer that has a great eye. She probably enjoys doing the work. She might miss actually doing the work and might hate the pressure and not living up to your expectations. She might really love. This might be good news for her that she gets to go back to being a designer. But you cannot control her reaction. She controls her reaction. The only thing you can control is presenting this in a way that allows her to keep her dignity. And where you take the fall, you take the blame. And so I would start this conversation with an apology. I moved you up into this position too quickly and I haven't been able to get you to. I haven't been able to train you to be able to do the operational stuff. And it's frustrating you. It's frustrating. The team is frustrating me. And I'm really sorry I messed up on that because you're an excellent designer and you have a great eye and if I could have done better and taught you these things and this move would have been successful, it would have thrilled my heart. But it didn't work out. And I think, you know that. We've talked about this, we've had months of feedback on this. You know, the operational mistakes are there and it's my fault because I moved you into this and I wasn't able to train you to get you to be able to do it. And I'm sorry for that. But I want you to know I really love you and I think you are a great designer and I need, you know what, your best thing for you and your best thing for this organization is for you to be a designer again. And so I'm going to move you back to that role. And I hope you understand that it's my fault and I'm sorry. And I hope maybe that's a relief to you. I hope it is. And then she gets to decide, is she going to be a four year old and have a temper fit and have her feelings hurt and run out the door with her hair on fire about the toxic workplace, or is she going to say, yeah, all this feedback I've been getting, I go home, I tell my husband I'm stressed and I hate this, I hate all this operational crap. I wish I was a designer again. Thank you for letting me be a designer again. And she goes back to doing that. We get that sometimes. But if you go in and just go, you suck. You're now demoted. I mean, don't expect anybody to do anything but quit, take the blame for it. You said in the email, I hired a designer a couple of good years ago who was a good fit. When a senior designer quit, I quickly promoted her to fill the gap, though she wasn't fully ready, that's not her fault, that's your fault. So you apologize and you weren't fully ready. I thought I could get you there. I was wrong. I overestimated my ability to train someone. And the operational mistakes are taking the fun out of this for you, for the customer and for the team and for me. And so, you know, I've come to the conclusion that I need to move you to being a designer, which you are an excellent designer. And you know, and you know what, if you have the bandwidth and the money, you know, give her a $2,000 handshake at the time and just go. And I'm gonna give you a $2,000 bonus for moving back one time shake. Okay, I'm gonna add $2,000 to your check this month because it's my fault. And something like that. And that just, that gives dignity to what her capabilities are. And we put her back in the role. And again, you have no idea what she's been telling her roommate or her husband or whatever when she goes home at night. She may, this may be come of a great relief. I have seen that more than once. And I was all braced for somebody to be hurt or pissed off because they're ambitious and they didn't get to hold the job that the move up and now they gotta be embarrassed and move down and. But I would not call it a demotion. I would just call it a reversal. I'm just going to move you back to where you were. It's not a demotion. It's not a pay cut. It's not, you know, it might be a pay cut. I don't know. You may have to decide that. But this is not a money thing. It's a she can't get the job done thing more than anything. So that's, that's the way I would approach that. So but I give you a 50, 50 shot at it. And that's based on the experience I've had here. We've done it and people accepted it and that had to do with the maturity and the quality of the character of the person. And then other times people get their little butt hurt feelings and they run off and Dave Ramsey's a toxic workplace or something, which is bullcrap or not. But you know, when somebody gets their feelings hurt, that's what they say. I hope it goes the other way for. Thanks for joining us, America. Hey, please consider clicking the follow button or the subscribe button. It helps us a bunch. Let people know we're here. Leave a nice 5 star review. Share the show if there's a share button or click Cut the link out and put it in an email. Send it to your friends. Say, listen to this show. If we're helpful, we would appreciate you telling people we're helpful and that's our only marketing. So we hope it happens. Let people know we're here doing this. I thoroughly enjoy it and I enjoy hanging out with. I love small businesses. I love small business people. You're my people. So I'm glad to be with you doing this show. It's a lot of fun. Jake is with us in Cody, Wyoming. Hi, Jake, how are you?

[Jake]

Good. How about yourself?

[Dave Ramsey]

Better than I deserve. How can I help?

[Jake]

Hey, so my question is essentially any tips or ideas you might have for me to increase our gross revenues and get above the 1 million mark. I'm a co owner with my brother. I'm essentially the president of a fence installation and sales company. All aspects of residential, commercial, all types of fence. And we recently decided to part ways amicably. I'm buying them out and it's kind of lit a fire under me to try to increase our gross sales as well as increase our profit margins to get the buyout finished sooner.

[Dave Ramsey]

How long you been in business?

[Jake]

We're going on 13 years.

[Dave Ramsey]

Okay, and what'd you do last year in gross?

[Jake]

750.

[Gene]

Okay. All right.

[Jake]

And we've been there, we've kind of been complacent over the last five or six years. And we've been just at that 650 to 750 mark for about five or six years.

[Dave Ramsey]

Where's your, where's your business come from? Your new business?

[Jake]

Primarily residential the last couple of years, word of mouth, some advertising.

[Dave Ramsey]

So somebody calls up and says, I want to fence around my backyard for my kids or my dogs.

[Jake]

Yep.

[Dave Ramsey]

And so you're doing chain link and privacy and.

[Jake]

Yes, sir. Yep. A lot of vinyl, cedar.

[Dave Ramsey]

Yeah. Okay, so some luxury stuff too.

[Jake]

Yeah, a little bit of the higher end stuff. There's not a, a huge demand for that here. But there is. It's getting to be a little bit more of the.

[Dave Ramsey]

Okay, so what percentage of your business comes from the last job you were on? And the neighbors see it and say, hey, I want one.

[Jake]

I'd probably say only about 5 or 10% of it. A lot of it. I mean, we were in with a couple of builders and so we've got a pretty good relationship with a handful of custom home builders.

[Dave Ramsey]

So the custom home builders are. You're putting up while the house is brand new or after the new buyer.

[Jake]

Moves in, usually just before they move in. We're usually the last ones in on those projects.

[Dave Ramsey]

So you're a sub on a custom home build. What percentage of your 750 is new home deals?

[Jake]

It's probably in that 25, 30% range.

[Dave Ramsey]

Okay, so you got a half a million, you got some hundred and fifty or two hundred and fifty coming in that way, give or take, and half a million coming in. Direct to consumer.

[Jake]

Yeah.

[Dave Ramsey]

Where are the leads coming from? Direct to consumer.

[Jake]

A lot of word of mouth from, you know, community donations type of deals. We do quite a bit of radio advertising, a little bit of print. Not a ton on social media, but a little bit.

[Gene]

Okay.

[Dave Ramsey]

So I'm trying, you know, if you want to just double that half a million. Do you double that. That lead, those lead sources or is it. Are they all at a point of diminishing returns?

[Jake]

I don't think they are. We kind of where I say we've been kind of complacent, it seems like over the last couple years will. Will book out six, eight weeks and oh goodness, we've got too much coming in, too much to do. We need to close the tap on those.

[Dave Ramsey]

Okay. Instead of staffing up. Instead of staffing up and then going ahead and going to a million or 2 million.

[Jake]

Correct. And I think that's kind of where we've been at is that we get a little scared we're going to start irritating people and not getting into them soon enough.

[Dave Ramsey]

Well, you can get to them soon enough if you hire.

[Jake]

Yeah, Yep.

[Dave Ramsey]

You can't get to them soon enough with the existing crew structure. And no, you don't want to book out five months out on a dadgum fence. Nobody wants to wait that. No, that's crazy. So. But yeah, you do, you know. So once you get full on your current crew, in order to grow, you're going to have to add crews, are you not?

[Jake]

No. Yep, you're. You're correct. And I think that's where I've just been spending a little bit here lately because I need to get, I think, stepped out of the, out of the field of running a crew to where I can start doing some more training.

[Dave Ramsey]

Yeah, absolutely, you do. And where you can do more marketing and more running of the business instead of actually putting fences up. Yeah. You're just above treadmill stage and starting to hang out around Pathfinder. Right. And so you've got to start getting your layers of leadership in place to move on up through the stages of business. And that's going to be one of the things you do where you're not responsible for the actual production of the good or service and where your main job is running the business. So yeah, you need to, you need to round out those existing crews and then fill them up six weeks out. And as soon as they start approaching four, five, six weeks out, you start hiring the next crew.

[Jake]

Okay.

[Dave Ramsey]

So double your volume and, and don't stop your. And don't turn your advertising on and off and don't turn your.

[Gene]

Yeah.

[Dave Ramsey]

Because you're losing a tremendous amount of marketing momentum turning this stuff on and off.

[Jake]

Yeah, I think so.

[Dave Ramsey]

Oh, I'm positive you are. Yeah.

[Gene]

Okay.

[Dave Ramsey]

And you know, and in your marketing mix, start putting in some social media in there and somebody working, you know, some geo targeted Facebook stuff. And yeah, you need to, you may have to add a full time marketer to help you manage the media buys and the social media. One person that's solid can do all of that at your stage. And yeah, that ought to get you to a million five, close to 2 million. But I don't know how many crews that involves. But that structure will get you there based on what you're telling me. Because, yeah, you're turning it on and off. And here's the thing, when you quit turning it on and off, you're going to see how fast that water does run. It's going to keep running and running and running. And so there's no telling how much that fear and cutting the spigot on and off has cost you. So yeah, you gotta, you gotta get out of the field, round out those crews, get those crews loaded up, but then be ready when you get at that four week mark on the existing crews before you take it all the way out to six, go ahead and start hiring. So they got that new crew out there and you got to be in the field training them and working with them when that next batch comes in and then put a supervisor on them, then turn them loose and then do the same thing again and you layer that up and so you run in two or three crews right now.

[Jake]

Right at two, yeah.

[Gene]

Okay.

[Dave Ramsey]

So yeah, you're talking about going to three and then to four, and that'll put you, that'll four probably produce close to 2 million of what you're telling me.

[Jake]

Okay.

[Dave Ramsey]

And then you'll move on up through the other stages of business because you'll have new problems to solve and man, that's how it works. Congratulations. I like your attitude. I like how you're approaching this. I think you're gonna do well. Good to talk to you. Thanks for sharing that, all that with us. Hey, folks, remember, better a wary warrior than a quivering critic. This world needs more high quality leaders, so take courage and lead. I'm Dave Ramsey, your host. Thanks for listening to the Entree leadership Podcast.