How to Handle Tariffs & Price Increases Like A Pro with Leland Smith and Aaron Gaynor

Summary

Podcast Summary: To The Point - Home Services Podcast Episode: How to Handle Tariffs & Price Increases Like A Pro with Leland Smith and Aaron Gaynor Release Date: April 29, 2025

Introduction

In this insightful episode of "To The Point - Home Services Podcast," hosted by RYNO Strategic Solutions, Leland Smith engages in a compelling conversation with Mike Barnhart of Service Champions. The discussion centers on navigating the complexities of tariffs and price increases within the home services industry, with a particular focus on HVAC, plumbing, electrical, and roofing companies. The episode delves into strategies for managing price adjustments, the significance of membership programs, training methodologies, and operational efficiencies—all pivotal for fostering business growth in a competitive market.

Handling Tariffs and Price Increases

The conversation begins with Leland addressing the challenges faced during the COVID-19 pandemic, highlighting the difficulty in implementing timely price increases. At [00:00], Leland confesses, "During COVID we screwed this up. We got behind the eight ball. We fell short on making price increases quickly." This admission sets the stage for a deeper exploration of effective pricing strategies.

Mike Barnhart shares his approach to price adjustments, emphasizing the importance of benchmarking against competitors. At [02:20], he explains, "The first thing we would do is the prices we're getting that are going up, is it in line with what everybody else is getting." By ensuring their price increases are consistent with industry standards, Service Champions maintains healthy margins without alienating customers. Mike further discusses his technique of presenting price hikes positively to the sales team, stating at [05:48], "I would always walk into our sales meetings... and I say, guys, this is an exciting day for you. Every one of you guys in the room just got a raise."

Leland reinforces the necessity of proactive communication by detailing his method of informing the entire management team about upcoming price changes ([04:21]). This transparency ensures that the organization is prepared to implement adjustments swiftly, thereby safeguarding profit margins.

Memberships and Club Programs

Transitioning to the topic of memberships, Leland commends Mike for his expertise in developing successful club membership programs. At [07:41], Mike elaborates on the foundational role memberships play in generating consistent revenue: "Every club you sold was $500 or more... two tune ups you're going to get next year." This strategy not only stabilizes income but also minimizes marketing expenditures by securing repeat business through club members.

Mike shares the impressive growth of Service Champions' membership base, noting that "65% of our revenues came from the club base" ([09:00]). He emphasizes the critical role of high-quality tune-ups in convincing customers to commit to memberships, stating, "I'd rather you sell a $19 a month club member than a $40,000 job." This approach fosters long-term customer loyalty and ensures a steady stream of work for the company.

When discussing acquisitions, Mike highlights the importance of robust membership programs in potential targets. At [11:05], he notes, "If we were wanting to buy a company, that's one of the first things we look at how many club members they have." Ensuring that acquired companies maintain strong membership bases guarantees continuity and enhances overall business value.

Membership Fulfillment and Metrics

Leland probes deeper into membership fulfillment, seeking Mike's insights on key performance indicators. Mike responds by outlining the metrics Service Champions uses to evaluate membership success. At [13:21], he explains, "We had about an 80% renewal whenever a cancellation came up. Even if they called in wanting to Cancel, we were 80% convert them back into it." This high renewal rate underscores the effectiveness of their membership fulfillment strategies.

Additionally, Mike underscores the importance of monthly credit card payments in maintaining consistent revenue streams ([14:25]). By automating payments, Service Champions reduces the administrative burden of managing renewals and minimizes the risk of payment defaults.

Training Programs and Building Teams

A significant portion of the discussion centers on the pivotal role of training in building a competent and efficient workforce. Mike recounts the early challenges faced when hiring technicians who were unaccustomed to Service Champions' pricing and service standards ([20:51]). To address this, the company developed a comprehensive 14-week training program designed to instill the company's values and operational procedures.

Leland emphasizes the transformative impact of such training programs on business success. He shares a success story of a young technician who, after completing the training, achieved remarkable financial milestones ([26:11]). Mike corroborates this by detailing the career trajectory of another high-performing technician, highlighting the potential for significant earnings through dedicated training and effective sales strategies ([26:42]).

The training program focuses not only on technical skills but also on customer service and sales proficiency. Mike stresses the importance of role-playing and real-world scenarios in preparing technicians to handle customer interactions effectively, ensuring that they can sell memberships and services confidently and competently.

Operational Efficiency vs. Pricing

Towards the end of the episode, Leland raises a critical issue regarding the balance between pricing and operational efficiencies. He questions, "At what point do we stop covering all the inefficiencies inside of the operation with price?" ([27:20]). Mike responds by asserting that Service Champions has consistently maintained high operational efficiency, negating the need to rely solely on price increases. He attributes this success to rigorous management practices and continuous quality control, stating, "We focus on it every day... If a manager comes and says we need to fire this guy because he's not doing the work, I would always ask what did you do?" ([28:00]).

Leland concurs, emphasizing the necessity for businesses to periodically evaluate internal processes to identify and rectify inefficiencies instead of masking them with price hikes. This approach ensures sustainable growth and long-term profitability without compromising service quality or customer satisfaction.

Conclusion

The episode culminates with a reflection on the intertwined nature of pricing strategies, membership programs, and operational efficiencies in driving business success. Leland and Mike underscore that while price adjustments are essential in response to external factors like tariffs, maintaining internal efficiency and fostering strong customer relationships through memberships are equally crucial.

Notably, both speakers highlight the significance of training and culture in sustaining high performance and adaptability within the organization. Mike's anecdote about the technician achieving unprecedented earnings exemplifies the potential rewards of investing in comprehensive training programs.

Overall, this episode provides valuable insights and actionable strategies for home service companies aiming to navigate economic challenges, enhance customer loyalty, and achieve scalable growth through effective pricing, membership management, and operational excellence.

Notable Quotes:

• Leland Smith [00:00]: "During COVID we screwed this up. We got behind the eight ball. We fell short on making price increases quickly."
• Mike Barnhart [02:20]: "We would just raise our prices accordingly to keep our margin. What we wanted a 58% gross margin."
• Mike Barnhart [05:48]: "Every one of you guys in the room just got a raise. Prices are going up."
• Mike Barnhart [07:41]: "Every club you sold was $500 or more you didn't have to spend in marketing for the two tune ups you're going to get next year."
• Mike Barnhart [13:21]: "We had about an 80% renewal whenever a cancellation came up."
• Mike Barnhart [20:51]: "We found the first four or five years in business when we hired a competitor's tech they just wouldn't work out because they weren't used to selling at the prices we're charging."
• Mike Barnhart [26:42]: "A smart kid, clean cut. He did what we taught him. He did it well."

This comprehensive summary encapsulates the key discussions and insights from the episode, providing a clear and detailed overview for listeners and non-listeners alike.

Transcript

[Leland]

During COVID we screwed this up. We got behind the eight ball. We fell short on making price increases quickly. We kind of, we sat on our feet a little bit, tried to negotiate, and then we didn't actually. We had to come in at one point in time and do a 20% like price increase just to even get caught up because we sat too long and our margins are getting hurt. And I wanted all the management to already be a known that this is something that we're going to be prepared to do. And every price increase that we've got from tariffs already done or got letters back. Our guy, our head of purchasing is done. I send that email, forward that exact same email to our whole entire management team as I the whole organization. So they all see it and know it's coming so they can be on board as we get ready to make these changes quickly.

[Mike Barnhart]

I think sometimes it's how you deliver it. And I would always walk into our sales meetings when I had a 10% price increase or 20, and I say, guys, this is an exciting day for you. Every one of you guys in the room just got a raise. Prices are going up. So it was an attitude, but they knew I wasn't going to back off of it and they had to accept it.

[Leland]

This is to the point a Rhino experience voted one of the top home services, marketing and operations podcasts. Cutting through the bullshit and getting to the point. It's an honor to be up here. Leila, the legend in this industry.

[Mike Barnhart]

Sure.

[Leland]

No, the number guy. Right. You're the guy that's always been the numbers guy, I think, in the industry. So people have always looked to you for numbers, memberships, accounting background. Right. So we're gonna probably get into topics. I'll give you guys a couple of topics that we're gonna talk about here. One we're gonna bring up about tariffs, pricing that's happening, how he's handled pricing, how he's handling tariffs today we've been pushing on tariffs. I just got an email. I think we have 63 price increases coming through a tariffs right now. So I don't know what everybody's doing with that on their terrorists talking, talk about that. We're going to talk a little bit about memberships and then we get a chance, we'll talk about some of the training that we both have done. Okay. So right now, pricing, tariffs, price increase, you've been around pretty long time in this industry doing a lot of pricing. Right. So when you're getting into pricing and changing pricing quickly, how do you handle that? Are you. Are you guys executing it as they come in every day? Are you sitting back waiting to collect them? Are you negotiating these. What. What are you. What's your strategy on this as this starts to happen right now for us?

[Mike Barnhart]

Yeah. It's always been one thing when prices are raised. The first thing we would do, I would always do is the prices we're getting that are going up, is it in line with what everybody else is getting? So in the family that we were grouped with Kevin Comerford and different people, we would check like, Dave Geiger is not here. We would check with them. They were twice our size. What was their price increase? And we'd find out that ours was higher than theirs. Then we would negotiate our prices to get down to where they are. But if everybody's getting the same price increase after we've confirmed that and we couldn't negotiate it, we would just mark it up. You know, if we had a hundred dollar increase, no matter what it was, we'd mark it up three times. We'd raise our prices to 300 because we had to make the money we wanted. We knew the bottom line. We wanted whatever. The prices went up. Our competitors were getting the same. We've confirmed that. So we would raise our prices accordingly. And we kept our margins. Right. Our profit. Right. We could still pay. But if the industry has a price increase in equipment, everybody's getting it. Everybody's got the same issue. We just kept our prices in line with it. So it wasn't a big deal. Whatever we had, we would just always mark it up accordingly to keep our margin. What we wanted a 58% gross margin.

[Leland]

So when you. I agree with that, by the way. That's. Let's do that. We think about these tariffs and price increasing in general. Do you think this is going to be big, like Covid prices going across the board? Do you think we're going to hit. Do you think they're going to have real impact on our. On our market, our industry right now? Or do you think they're just part of. Part of the journey of business? And we're going to. Everybody's going to be fine. What's your. What's your outlook?

[Mike Barnhart]

I believe it's just part of the journey. I think they're doing it and some people are going to be a little bit less or more, but it is what it is. And the industry's changed, the Freon change, all this stuff is changing. We just have to change accordingly, as all of us will have to.

[Leland]

We just want to address the Tariffs, quickly, price stuff. Because I think it's important that everybody's thinking about is everybody actually gone out and got prices and started looking and.

[Mike Barnhart]

Already what are you doing?

[Leland]

What am I doing? Yeah. Well, I sent an email to the whole entire management team and then to our purchasing guy about two months ago and I said I want you to get a list together of everything you think could be tariff and then I want to get an idea of how much that's going to be and what do you think is going to be and give us that list. And I wanted all the management to already be a known that this is something that we're going to be prepared to do. And every price increase that we've got from tariffs already done or got letters back. Our guy, our head of purchasing is done. I send that email forward that exact same email to our whole entire management team aside the whole organization so they all see it and know it's coming so they can be on board as we get ready to make these changes quickly. Mike Barnhart, where are you? Quickly, right. Each as they come in so we don't lose margins. Because I will say during COVID we screwed this up. We, we got behind the eight ball. We fell short on making price increases quickly. We kind of, we sat on our feet a little bit, tried to negotiate and then we didn't actually we had to come in at one point in time and do a 20% like price increase. Just even get caught up because we sat too long and our margins are getting hurt. Did stuff. So that's why I like to understand is like when you are doing pricing too, not even just tariff pricing or price increases, do you find it to be something that you try to do three times a year, natural price increase? Do you tell the whole organization about nice price increase or is this things you just do and they're just part of the culture of the organization over the years?

[Mike Barnhart]

Well, two things. We would always have a two or three year contract. Kevin and I would do that a lot with equipment manufacturers and we would lock in more than, no more than like a 2% increase each year. So no matter what they were doing in the industry, we had it in writing that they couldn't raise our prices more than that. So we really didn't adjust it until first of each year. But if we got something during the middle of the year, unless it was substantial, we'd wait until the beginning of the year. Now one thing I want to comment about you is talking about, you know, all these price increases that happen and you Got to go in and raise your prices. I think sometimes it's how you deliver it. And I would always walk into our sales meetings when I had a 10% price increase or 20 and I see guys, this is an exciting day for you. Every one of you guys in the room just got a raise. Prices are going up. So it was an attitude but they knew I wasn't going to back off of it and they had to accept it.

[Leland]

I could see that. I like that they all do get a raise, that's for sure.

[Mike Barnhart]

That's right.

[Leland]

We like when our sales guys make moments money too. I know you do.

[Mike Barnhart]

They still complain but they still knew that we weren't going to change for sure.

[Leland]

All right, well we're going to jump off that. I want to jump over to something I think that you're known for many things is memberships and club memberships. Known as one of the people have done this the best in the industry. I think a lot of us has looked towards Service champions and their model of how they've done. We call it a cleaning check. But your tune up whatever language you use and there's a lot of conversation around memberships. I think today you hear different things or memberships dead. Is there, you know, there's monitoring systems going on. There's all types of things. I think there's, there's benefits on both sides of these. Right. But maybe talk a little bit about why you believe so heavy in club memberships. What do you think value of that is? And then I'll follow up maybe with what do you think the future is in some level with those relationships while bringing in these other great products that we have some of those people in the room today that are bringing to.

[Mike Barnhart]

The space, you know, clubs. When I started Service Champions I was told that was one of the most important things you could do is sell clubs. Because every club you sold was $500 or more you didn't have to spend in marketing for the two tune ups you're going to get next year. So when I started In March of 2000, I told the techs they had to be. When you walk into the home and they're not a club member, 50% of the time you had to walk out and they had to be a club member. And we focused on monthlies. We're getting 17 but we got getting 19 now or so. But everything was tied to that. And you know I wouldn't fire anybody over it. But at the prior years it was 50% to get your bonus, 40% you got half your bonus. Anything less than 40% converged, you didn't get a bonus. So the company was consistently around 50% conversion. And then we started focusing on 12 month trailing, meaning that techs would sell a club, but they would tell them, I'll give you a discount today, but you can cancel it next month and they're not going to care. So we filed with that that they had to be a member for 12 months even to count towards their 50% for us. I saw the first time we were 50 million and we had 25,000 club members. And at every tech we had, we never had a slow day when back east the weather wasn't there. They get slow in September. We always had three calls for all the techs every day of the entire year, sometimes four when we got busy and when the weather was there, obviously we wouldn't be doing the clubs, we'd do the repairs. But off of those club members, I think I said 65% of our revenues came from the club base. 35 was something we market out of. And we found that if the guys had to do a great tune up though, the customer wouldn't invest with you unless they did an hour to hour and a half tune up. It had to be a great one pulling the blower motor. Some of our guys even would pull heat exchangers and show the customer how bad it was. And they would. I always told them, I'd rather you sell a $19 a month club member than a $40,000 job. Because if you don't build the value on the doing the tune up right to get the club, you're not going to ever get the $40,000 job. But if you convince the customer that you're presenting enormous amount of value and they see it because part of our tune up is bringing the customer out three times to show them what you're doing, they build a lot of value and they're, they're, they're, they're impressed with what you're doing. So when you start making offers, they start saying yes to it. Maybe not the first time, but after they see what you're doing. We're their air conditioning company and they're not going to shop us. We're the most expensive and they know that. But the quality of work that they see then, the quality of work they see on installs, they continue to stay. But we're constantly bringing clubs in, bringing clubs in and it's worked for us. And it's not something that I don't think everybody agrees with, but for us it worked for us from the very beginning. And I think right now Champions group has like 130,000 club members in our group. So it's working for us.

[Leland]

Yeah, obviously you guys have been very successful at Service champions with that. And then you've acquired some companies too. So when you've gone to those, is that something that you've looked for in those companies that you guys have acquired that have great membership bases behind them or did you guys come in and try to help? I know you want to let them be their business, but is that something you came in and really pushed on when you guys acquired them or did you really look for companies that were already strong, member driven businesses?

[Mike Barnhart]

If we were wanting to buy a company, that's one of the first things we look at how many club members they have. And then when they tell us they have club members, we ask, do you give them away on a new system? Because those really aren't a lot of value. And I've had people, even part of a group or group that we had, there was one company that gave them away all the time and he said they were 80% conversion, but 60 of that was free ones that they gave out that didn't renew. When we got down to it, you know, they were about 20% of what they were doing. But we would never give it on a new system. We always wanted the tech to sell it. And it's important, and it's important that it's offered every time and that they got to at least earn the right to get it.

[Leland]

So I had dinner with Frank in Columbus maybe three months ago and started asking a lot of questions about you guys.

[Mike Barnhart]

Our CEO, Frank DeMarco.

[Leland]

Yeah, CEO, he was coming down from Cleveland to Cincinnati, reached out and said, grab some dinner. So I spent majority of time asking about, majority of time, majority of time asking about membership.

[Mike Barnhart]

We want you to be part of our team.

[Leland]

Yeah, he asked me, well, he asked me why is he always with the old, old guys and not with me? He said, he said, were you. He told me that him and I are about the same age. So not sure why he gets stuck with the older guys. That's what he claimed. And when he, when he said he thinks he's pretty cool and he should be hanging with the younger guys.

[Mike Barnhart]

There you go.

[Leland]

But that's a whole different conversation. Really. Was asking a lot of questions about fulfillment on memberships and how many, how many memberships do you actually fulfill? What is fulfillment rate? You know, how do you quantify that? And then some questions about you know, cancellation percentages, like how many members do you keep? And maybe we'll talk towards service champions itself. Not all the members stuff. But when you talk about fulfillment of memberships, what is a metric for somebody like me that's only been at H Vac for a few years now. Right. And we're trying to build our membership program. How do you consider membership fulfillment like, and how important is it to actually fulfill this membership every year, both the spring or fall cleans? How important do you think that is to fulfill them? What is a rate that somebody, a business is growing, should be doing?

[Mike Barnhart]

You're talking fulfillment and running the two tune up.

[Leland]

Yeah, the two tune ups.

[Mike Barnhart]

Yeah. In our group everybody was pretty consistent. 15 to 20% would never return our calls and never get the work done, but they would still pay the monthly fee. And that was okay, 15 to 20%. In our case of the 20 some million, 20 some thousand we had, it's like a million dollars we got given to us free and we didn't have to do anything. So it wasn't, you know, we always would call them, we always try to get them, we always made the contact. But that many didn't do it. As far as renewal, some people might differ with this, but we found monthly credit card was the best way to do it because if they got a new credit card number, American Express and all these people carry over your monthly chargebacks, you got even on the new card so you didn't have to call it most of the time. But we also found out again, the guys have do a quality tune up and this customer sees it. We had about an 80% renewal whenever a cancellation came up. Even if they called in wanting to Cancel, we were 80% convert them back into it.

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[Leland]

So let's move over as I don't have that much info on H Vac. We're trying still.

[Mike Barnhart]

We'll help you.

[Leland]

I know. I love what you did. I mean, when we started H Vac, I mean, one of the conversations we had was a lot of friends in the industry do a lot of great, great things. Some of them in this room and talked to Mike and our team and I said, I really want to do it the way service champions did it. I really want to focus on that great model of building back the idea of just being a great tradesperson, doing great trades. We're taking care of people's equipment. You know, I'm not in H Vac, but I believe that even our plumbing business, as our mission is, is to build great tradespeople, advance their lives and win big, right? So it's like we need to focus on making sure that they do this trade work. I think it's important because I think when people, even your guys, when they think you're doing a 30 minute cleaning check or a tune up and they don't feel the value of, it's like flip it, move quick. Felt like they were losing connection to the work, to the trade themselves personally. And we're gonna go over into the training I think in the school and building that here in a moment. But let's talk about some technology moving forward too, where I think there's a crossroad here while technology's coming in with some monitoring programs and the clean, you know, memberships. I don't know how much time you think about this or where you are today in your career, with the organization or not, but how do you think these two merge together? What do you think is the value proposition of them together? Cause I think there's value with them together. I really do. I don't think you need one or the other. I think you need both in many ways. And how do you get both? But what's some of your thoughts on this?

[Mike Barnhart]

Well, let me say something off subject here first. Jim Abrams taught me something back in 1992 when he owned CSG, if any of you guys remember it, if you're not, he's the one that started airtime 500, which is certain path. Now, three things I remember he said number one, you have to be the most expensive in your market. You want to be the highest priced H VAC company. That was number one. Number two, you got to focus on clubs. That's going to build your company. You got to have that club membership constantly. And under the being the most expensive, you have to pay your people better than anybody else in the market. And then the other side of it, two other sides, you treat them like family. And I always treated our people like family. They all had my cell number. I always say, this is the number my kids call me on. And the third one, you have to make sure they talked about it earlier. Treat them like family. Then they would treat the customer like family. So you're paying them the highest you can because you're charging them more than anybody else. And you've got to deliver the quality of work. You cannot be short on the install. Because he taught me the cheapest guys are never the largest. The cheapest guys are generally not making any money because they're cutting corners. They're not doing the right install, they're not doing the right tune up. They're doing everything as cheap as they can. So when they see us come in and do the tune up right, customers go, I've never seen anything like this before. You're phenomenal what you guys do. And the same with Pray. Out of 100 installs that we do, 2 will complain, but 98 will know we're expensive. But the quality is there. And they've seen the quality and the quality of the tech that walks in. We'll talk about that in a minute. But having a clean cut tech walk in, that your wife, if she's alone or I got two gorgeous daughters, my daughter's alone in the house and this guy walks in. My thought is, would he scare my daughter or would she feel comfortable? The creep factor, we called it. You got to make sure there's not a creep factor involved. So the club part is what everybody's got it. Then another one was a success rate. Want to track your text that out of 100 calls, they go on. And if you're selling texts, 100 older calls, you want at least 20 of them to sell 20 systems. That so it's tied into conversion rate. We would Track. We want 30 to 40% of those hundred calls turn into leads and they'll sell 60 to 65% of those that turn in about a 20 to 25% success rate. And that tells you how well the tech is. Then you look at the tech, if he's turning A lot of leads and not selling them. Why is the tech's leads not selling? They're not turning it right. So there's different things you have to do in that aspect. But that was all from Jim Abrams and I just always followed it and always did it and it always worked well.

[Leland]

Seemed to work out all right. Here we are. And you're always supporting stuff with your numbers and I think you do got to talk about it. I don't know how many people spend every day talking about their memberships and what the importance are. Whatever it is. Mike and I do a weekly call with the whole entire company, the whole field, every week on Wednesdays. And one of the things we bring up is membership sales every week, every Wednesday we talk about how many times it got presented, how many we sold, how many, what's going on, what's the value of it, why it's important every week. And I know we got just a few more minutes here and we're gonna make sure we get questions right.

[Mike Barnhart]

We said we'll stop when you said.

[Leland]

I saw him back here. He's already. But I do wanna bring up. We talked a little bit. You and I were chatting a little bit too is like about the training programs you guys had and we built the school to bring people in the build from the ground up. It sounds like a lot of your success in the organization was doing something similar at training your own text because of their belief, the culture, all these things. So maybe share a little bit about that for anybody that isn't doing that quite yet and might have the opportunity to get there eventually.

[Mike Barnhart]

We found the first four or five years in business when we hired a competitor's tech they just wouldn't work out because they weren't used to selling at the prices we're charging. As I looked one time that our 2 ton basic system we were selling for 15,000 and people in our market were advertising 5 or 6,000 for a 3 ton system. We were over double what they were getting for. So the pricing is one thing, but it certainly is something that you've got to build the value on and. Don't mean to interrupt. I want to interrupt yourself. Go back to your other question. Sorry to skip on you. The smart AC and the thermostat nuva that stuff I'm not familiar with. It's probably a good solution for some of them and I think it's a good thing to look at. We just have it and we've always focused on the club side.

[Leland]

Yeah. So I just think there's great technology merging with the idea of the historical membership. And I think as we think about how do they work together? Right, Skip.

[Mike Barnhart]

Sorry to skip one year, but the training. We found out we had to train our own techs because the guys coming in the market weren't going to work for us. So we started training for the last 10 years we would have in the later years we'd have a 14 week class. We'd have at least 20 guys in the class and we would have. After the 14 weeks, about 12 would graduate because we learned to have. The first week was role play. They had to stand up in front of the crowd and role play the opening with the customer. Two would quit the second week. We built an attic in the training that we put them up there for an hour or two in 100, 120 degree weathers in the attic warming up, we'd have another two quit. Now we've got our class. So those 16 would be out riding along, they'd ride with us, they'd come in for training, they go out and ride with the tech, come in for training, then they go out by themselves and they had to turn a lead because they couldn't graduate unless they were turning leads. At least one every week. We wanted two or three every week, but they had at least learned how to do one. But the training of that was we had all the techs. They knew nothing different than how service champions ran. They knew nothing different how we had to do a tune up. They didn't know anything different on the pricing. This was normal. In fact, I was telling somebody earlier that my cousin Ed Ballard, we bought his company a couple years ago and Ed and his son Colby were the two sales guys. So when they came over, Colby the son, after about two weeks came in and said, Leland, I have to quit. I can't sell for these prices way too high. I can't do it. His father stayed on and he is now one of our top salespeople because he said, Leland, if I knew we could get the prices that you were getting when I owned my own company, I would be rich as hell. Because he said literally if you sold it for 10,000, we were selling it for 5,000 and we weren't making hardly any money. He's got hold of it and he's making more money working for me than he did owning his own company for 20 years. And it's just a standing thing that you can do that. It's an attitude. But the training we did, they all knew only one way to do it. The way we did Service champions, you had to do it right, you had to do it perfect. And we always knew that they had to take care of the customer and they were trained about that. That was another thing that we'd always would teach. Even a call taker or a tech first day. If a customer complained, you can solve it on the first call or when you're on the job. Just think if that was your mother complaining, how would you want your mother treated? Or if that was your sister or your friend. Whatever you thought you would want your family treated. I don't care what it is. If you want to give it away free or discount it, do whatever you want your family treated. If we didn't agree with you and thought it was wrong, you'd never get in trouble. We would teach you what we want you to do next time. But always think about family and make that decision. Because if you solve those complaints on the first call, the first few minutes, they don't grow up. But if you don't solve them right away, they get bigger and they get bigger. So you've got to solve it as soon as you can. But the training was huge for us that we got the people in there.

[Chris]

Sorry for the interruption. To the point listeners, have you heard of rilla? Are you using Rilla yet? If not, are you for Rilla? See what I did there? Rilla is the leading speech analytics software for the trades. It is on a mission to bring physical ride alongs to an end. You can coach your reps with virtual ride alongs now that are 100 times better, faster and much more more efficient than the physical ones. All you gotta do is use the killa Rilla. That's R I L L a Rilla.

[Leland]

I think everybody should.

[Mike Barnhart]

You've done the same thing. Tell me about your cloud.

[Leland]

Well, we're gonna get some questions out here, but I agree. Building a school, building, training, getting people involved, starting from the ground up, inviting people into the trade, I think is very important. Trade saved my life.

[Mike Barnhart]

So now we have classes of 20.

[Leland]

Yeah. I think we have about 40 people right now going through our school and training our H Vac and our plumbing right now.

[Mike Barnhart]

And they learn your way and they.

[Leland]

Learn the way and we teach them and some survive and do a great job and some don't. But we try. It's like learning a new trade but usually once they go through, they're great. We've done some case studies on a lot of success in these right now. So we enjoy it and I like bringing people in the trades. Trades are a great place, and you guys all know that already. But I think it's creating an opportunity to bring them in and then teaching them through that. I know we want to get some questions right now.

[Mike Barnhart]

Let me do one thing here. I had had a technician, 21 years old, 21 years old, came to us, went through our training, 14 weeks. The next nine months, he made $100,000 turning leads. 20, he's living home with his parents. 22, still living home with the parents, made 120,000. Third year, still living with his parents, he made 140,000, went out and bought his own home, bigger than his parents, bought himself a Mercedes, bought his girlfriend at BMW at 26. Last year he made $900,000 at 26. He tells me at 27, he'll make over a million this year. Unbelievable. Just a smart kid, clean cut. He did what we taught him. He did it well.

[Leland]

We got one of those young guys that. Well, yeah, guys, it just has killed it. Been with me for 12 years. And you made $600,000 last year.

[Mike Barnhart]

It's crazy.

[Leland]

It's crazy to see. All right, Chris, Business making a million dollars at 27.

[Chris]

So, thank God, might not be here right now.

[Leland]

I'm with you, brother. I'm with you.

[Chris]

All right, Ish, kick us off with some Q and A. I got a.

[Ish]

Question for you, Leland, because the pricing's always been your driven, your driver, and you're always emphasizing how you should price. Price yourself higher and pay people higher, which I'm a firm believer, obviously, we dealt in the same market. I had a higher average ticket than you did on our install side. That's why I was able to take most of your employees. But that's here, there. But my question is, at what point, at what point do we stop covering all the inefficiencies inside of the operation with price?

[Leland]

Great.

[Mike Barnhart]

Well, you can't get the price if you have that issue.

[Ish]

Yeah, but. But we keep raising our prices to cover to be able to make the 10, 15, 20% EBITDA that we're. That we're wanting. We keep raising our prices, keep paying our people more. There has to be a point where you're pricing yourselves, because whether we see it or not in the industry, we have a major issue right here where we're always chasing the price to be able to compensate for the inefficiencies in the operation.

[Leland]

Right.

[Ish]

And whether. And whether you guys want to see.

[Leland]

It or not, we are.

[Ish]

We are keeping the small mom and pop shops employed. We are keeping them in business because they're, they see how much we're pricing them, they're going right below us. Right? So we back that there's inefficiencies in the operation. That's over and over.

[Mike Barnhart]

I will share with you. In the 20 years of service champions, that was never a factor for us. We never had any problem with efficiency because we focus on it every day. We had installers, managers out to check and make sure the quality was there. And I always said that you don't have bad techs, you have bad managers. Because if a manager comes and says we need to fire this guy because he's not doing the work, I would always ask what did you do? Well, I haven't done anything yet. That's your manager issue. That manager needs to be out there to make sure the quality is there, the install is right, the tune up is right.

[Chris]

I don't have time.

[Leland]

Yeah, I think there's definitely some opportunities. But we'll talk about this too a little bit in our business and had some dinner with some other CEOs in the industry and I asked a question one time, I said, what EBITDA percentage do you think is how hard you can push your team and your vendors till it breaks? Right? Where is that? Where's that line? Because there is one right somewhere. How hard can you push your employees to a point where they break with efficiencies and where is non efficiencies and where is price? So I think those are great questions. It might be different everybody's business but there is a line that's going to happen and we do got to go back and say can't just cover up the inefficiencies of our staff and do so we have a thing old school from next door guys sold ours, sold our efficiency. Right. And a lot of us probably forget to use that metric these days. I see a lot of next door people smiling, kind of like yeah, shit. Great opportunity to always go back and reevaluate using sold our efficiency to keep a pulse on whether your team is being efficient or the inefficiency. We're trying to pick up on the price but I definitely think it's something we should all be evaluating. It's a great point because I do think we just keep talking price, price, price, price, price. And then when do we actually look internally at our business, say we're not doing these things right, we're not operating strongly. But that takes some work. That's hard work, right? You got to go look around you got to ask yourself, you got to be candid with your team and yourself and say, we're not good at this.