Podcast | Real Estate Investing
Tommy Mello is the founder of A1 Garage Doors, a $30 million-plus home service business with over 250 employees in 12 states. He shares what he’s learned at HomeServicesExpert.com to help fellow entrepreneurs scale their businesses. He’s been featured in Entrepreneur, Forbes, Huff Post, INC. 5000, & Small Business trends. He’s the author of Home Service Millionaire and is a home services advisor and educator.
Get your questions answered on the upcoming show by posting your questions in our community.
Connect, subscribe and like on: YouTube, iTunes, Pandora, Spotify, Stitcher, Google Podcast, Amazon Music, iHeart Radio
Show Topics
00:00 The Data Driven Real Estate Podcast Welcomes Tommy Mellow, CEO of A1 Garage Services
10:16 The number one thing Wall Street is looking for before investing in home services companies
11:19 What makes a garage door company different from other businesses?
13:00 Investing in training and recruiting and the mindset of investment over expense?
15:06 Tommy talks about the difference between Branding vs. Brand
16:45 Tommy explains what is Google Guaranteed and the power it brings to small business
21:14 Google Guaranteed and the future of voice search in home services
27:07 What is ServiceTitan
29:06 Data KPIs important to the homes services business
31:09 Using data to find your most profitable customers and projects to go find look-a-like opportunities
32:50 What is Tommy's advice to small business owners
37:20 The power of platinum response
39:08 How to keep a lifetime customer
46:29 What is Greenfield and how it's different form acquisitions
51:49 Why defining your avatar is so incredibly important and how often to market to prospects
Show Transcript
Aaron Norris 00:06
Welcome back to the Data Driven Real Estate podcast episode 23. This week we've got Tommy Mello, CEO of A1 Garage Doors. This was a company that he purchased. And that was $50,000 in debt, and he turned it into a company worth $30 million, with hundreds of employees in multiple states in seven short years, and it's done even better since he wrote his book, Home Service Millionaire, a couple years ago. This week, we talked about why Wall Street is obsessed with home services companies and spending just a ton of money investing in the space. Learn about technology companies that have done a horrible job trying to enter Home Services and mistakes that they've made. We talked about branding versus brand. We talked about KPIs that a lot of small businesses miss. So, even if you're an entrepreneur in another space, like you're a realtor or an investor, I think you'll pick up a few good tidbits. We talked about the value of a lifetime customer and how to keep people at the table, when sometimes they buy something that they don't buy, but every 10 years, and why that's so critical that and way more as we cover so many topics in this week's show. Hey, welcome back to the Data Driven Real Estate podcast, the podcast for real estate professionals dedicated to driving business using data. I'm Aaron Norris with Sean O'Toole, PropertyRadar. And today we have our very first home services professional, we've got Tommy Mello, with A1 Garage and HomeServicesExpert.com, Tommy, welcome to the show.
Tommy Mello 01:24
Hey, excited to be here. Very, very excited to be on.
Aaron Norris 01:27
I finished reading your book last night. And I want to start with your story of why on earth you would decide to take over business $50 grand in debt to kick out your buddy. Why would you do that?
Tommy Mello 01:38
You know, so, I was three years into the business. And I felt like every time I go out, every time he'd leave, I'd answer the phones, because he was on the phones mostly. And we booked double the amount of calls. I feel like I was able to write better tickets because I learned how to fix things that he didn't know about. I was in it to win it. My head was in it. And he wasn't so I always had animosity. And it was either I was going to go start my own business or give him the business with some debt. Well, we already had a lot of phone calls coming in from stickers and repeat business, and I wouldn't be able to be entitled to that business if he took it. But him being my best friend. I just like, what do you want to do? It was kind of worse than getting a divorce. And I've never been through divorce. But I felt like it because it's my best friend, my roommate, my business partner, and we spent 24/7 together. And I had to make a decision. And then I was fully engaged. But at that time I was going through a master's degree. So, I had to wait till 2012 to really dive in even more. But the whole time in my master's I was building links and citation sites and editing videos said that they do, you know, still people aren't getting testimonials. It's crazy. But, but yeah, that's the reason I decided, I knew I could take this business to new levels. And that's why I did it.
Aaron Norris 02:59
For people who aren't familiar with the term Home Services, some of what we'll talk about today carries over so beautifully into so many other different sectors. But if they're not familiar with the term Home Services, how do you define it?
Tommy Mello 03:13
Home Services, basically anything someone comes out to your house to do whether that's landscaping, could be gutter cleaning, it could be roofing, it could be as simple as fixing your fireplace, installing rugs, cleaning rugs, putting in the linoleum floors, there's a million different things that they come out there for. But what we found was during COVID-19 is we are deemed the majority of us essential. You can't get out of your garage. We get to work when no one else was working. So, what happened was, private equity is just bombarding the home service base because they said now it's risky to do hotels, movie theaters are out of play, restaurants? No more, bowling alleys? Nope. So, they're saying anything else that's not deemed essential is not a safe bet. So, right now Home Services, one of the best places to be at and the multiples basically what happens is and the home service base, they take your profit, and they give you some add-backs, and it's called EBITDA. So, it's earnings before interest, tax depreciation and appreciation. And it gives you a multiple, and what we're seeing with very, very successful companies over $20 million of EBITDA is 17 to 20 times. So, that means if you're making 20 million people are offering you anywhere from 300 and 40 million to 400 million. And that's nuts to me, that's crazy numbers. But what they want is a safe haven to put their money in where they're going to be able to pull cash out because there's institutional money. There's, there's a lot of people that are using pension money, huge funds to be able to do this and you know, they put their money in hotels. It just it only south for a lot of people unfortunately.
Sean O'Toole 04:52
And I just want to put this in perspective for folks because you know, services businesses were always kind of seen as a low multiple business, right? You're always chasing the next deal, you've got to hire and manage a lot of people. And, you know, so 1X, 2X 3X, like really low multiples, so, the multiples you're talking about are really crazy, right?
Tommy Mello 05:18
There, they're not, you're seeing this with Uber successful, they're the flagship company. So, what you have is private equity companies, they want to come in, and they want to find a company that they could, they could just pack on underneath you. So, you are the leader, you are the example company, you are what they call the kind of the of the name, but you're the company they want to emulate under. So, you are like the perfect avatar of a company that you're gonna, they're gonna stack companies underneath you. So, private equity companies come in, and they say, here's what we're gonna do, we are going to buy a ton of companies, because institutional money only leverage you up to three times, usually you bet, they'll go up to six, seven times, and they'll stack companies, basically, what they want you to do is help fix them. And I'll make them look a little bit more like your companies. But they need to spend the money. And what's crazy about it is, as they add a million, or 2 million or $3 million of each company of EBITDA, that number I told you the profit, what they're doing is they're increasing the multiple at the same time. So, the first company they buy, they might take you from seven to eight times, the next company, you might go from eight to nine times. So, every company they add, the more they can make it look like the platform company, the platforms that I was thinking of, the more they like the platform, you're fixing it, you're bringing out more money, and then you're adding the multiple. And that's what you call making money out of thin air. So, you're saying if I go out the three times multiple by 10, companies create them a lot to look like me, I get 10 times. That's nuts. It's just crazy. how it all works. It's better than, it's better than drug dealing. You can't beat it. It's just crazy. So, in this world, because no one talks about this stuff, no one that is, they don't talk about it at school, they don't talk about it at college MBA, the doctorate program, they don't talk about it anywhere. Except there's like this book right here. It's called the private equity playbook by Adam Coffey. I had this guy on my podcast, largest commercial HVAC company in the world and his goal. I mean, he's got 21 people on this acquisition teams, so fun subject for me to talk about, because it's the one thing that a lot of people talk about.
Sean O'Toole 07:39
Yeah. And, you know, it is interesting, right, though, that this has come from here, because like, historically, you mentioned Uber, right? No, Uber is really a software company, right? They're not hiring the drivers, although California has tried to make them hire the drivers. It didn't work out for them, they lost that proposition. But you know, they're not hiring the drivers, they're not owning the cars, right? It's kind of an asset light business, but it has huge scale, right, worldwide scale. So, you know, that's typically what's driven these really high multiples and the services businesses, that's not really necessarily the case, right? You got to hire the people, you got to have inventory, you got to have all this stuff. So, it is kind of, I think, a really big shift for this to be happening. And, to me, a big part of that is there's too many dollars chasing too few deals. You know, I have a friend who runs a private equity firm, and it's really more of a family office. I won't mention which family but he basically said to me the other day, he said, I don't have time to look at deals less than half a billion dollars. So, I need, I need a lot of scale before it's worth my time to invest because I have so much money to invest. And....
Tommy Mello 09:01
Yeah, that's the family that, that's when they have their own lawyers. They have their own CPAs. And that's all they're trying to do is that when you reach 100 million dollars in your portfolio, you tend to put together that what you exactly said and you know, the same thing you mentioned right now is Airbnb is about to do an IPO I think pretty soon and it's valued at the valuation is all about scalability. You know what I mean? It's a network effect. So, even though I'm a Garage Door company, you don't think about across your company unless you do very innovative things. Like for example, use your company to grab certain types of data, that no one else is doing. It's hard to really articulate something that's in the marketplace that no one else has. And the problem is, is usually they catch on. So, I have a lot of trademarks. I've got several patents. And more importantly, I've really tried to focus on that, that thing that we talked about earlier on before we started is it's all about recruiting orienting and training your people, because that's the future. And if you can build that piece of it, I think you've got your, you're in the 3% of companies and in the garage or a niche, I'd say, it's upwards of 1%.
Sean O'Toole 10:16
At the end of the day, these guys are investing in systems that scale. And so you're installing garage doors that don't really care. If you're building a system for hiring a recruiting, hiring, onboarding people and building the systems to do that at scale, then that becomes very interesting. And so that's where you're focused.
Tommy Mello 10:38
That's literally I tell people all the time they I was on the phone on Sunday, and he said, one of the guys that listen to the podcast, he said, 'What do you think your biggest lesson is?' I said, I think now, I only think in systems, I only think in standard operating procedures, I only thinking cookie cutter options that I could scale. You know, in the book, The E myth with Michael Gerber, he talks about how you can take the minimum amount of pay to get the maximum amount of outcome. Now, I don't like to pay my people the minimum. But the point is, the systems work so well, that you don't need a rocket scientist to do the things. Now you want rocket scientists that keep working on the system. And they continue to make the system easier.
Sean O'Toole 11:19
Right.
Aaron Norris 11:19
Let's, let's talk about what a $30 million garage door company even looks like, why would a private equity firm want to, what are they looking for in a company like yours that makes you stand out?
Tommy Mello 11:30
So, we're gonna do $44 and a half million this year, and we'll do $90 next year. And the way that we're doing that is it took, it took a lot of forecasting, to figure out how to go into new markets. And this is what I was talking about Greenfield versus acquisitions, but what they look for is number one, that it's maintainable that it's not just a fluke year. Number two, have you made it through bad stuff, I started in the housing depression, of 2007, '8 '9. So, I made it through that. And then COVID, we actually excelled through, I actually wrote a case study called the rise of A1 COVID-19. Because when everybody else pulled out and went backed up on their marketing, I tripled down. I realized I could buy TV at a fifth of the cost with five times of viewership. So, that's a 20 500% gain. So, I think what they look for is leadership. They look at, they want expected results, they want you to move, they don't need a hockey stick, but they want you to continue to grow. And more than anything, they want to see a budget. And they want you to come close to hitting the budget, they don't care. Even if it's a little less that you can predict a budget. So, we're within 3% of our budget, we always had three budget goals. And we're right in the middle one. I've had some things happen this year that weren't bad. But like the Training Center, the trainers, our LMS learning management system, we've learned a lot about that. So, now we've got two full time recruiters, we're just hiring our third, we've got full, five full-time trainers. And the difference that I learned is investment versus expense. And most business owners say it's expensive. I had another expense, I had to buy a new van, why not say I had to invest in a new van. So, I can make more money. So, the difference is in your mental capacity is changing in your mind. Investments versus expenses, and expenses. Well, it's hard now that I think like this, but an expenses. You know, there's a lot of expenses that when a car breaks down, that's an expense. But, you know, I was gonna say pizza when I bought everybody pizza on Friday. That was an expense. But really, that was an investment into the culture. That was an investment for people to say, so I got a video of everybody the pizza went on Facebook Live. And people are like, man, I kind of want to work there. So, it seems like all they do is play games and eat pizza. So, anytime you can maximize that and understand in your mind that you're not really it. A lot of people think advertising is an expense. And it could be if it's not, there's no ROI. I look at it as an investment in the future. And I always try to get at least a 10 to one ROI. When you could start with a 10 to one, you can generally get it down and then I believe in there's direct response. And then there's branding. So, direct responses if somebody searches garage door repair Phoenix branding is when they search A1 Garage Door Service. I want the latter, I want them searching by name because then my conversion rate they want us it's not hard to sell because they say we know you guys, you guys are gonna do the right thing. And it's a completely different mindset than lead generation. I love lead generation but the brand, everything is the brand. And that's what, that's what the reason I said that is private equities want to buy a brand. They want to say how much market penetration do you have, they want to understand? Who knows you they want to understand your net promoter score. There's a lot of things they look at, but to know this stuff before you even go into a deal is the ultimate advantage. And that's some of the things that we talked about.
Aaron Norris 15:06
This is a good, you talk in the book about branding versus brand. How reliant are these private equity firms looking at those kinds of things and things like reviews, what, what you look like online?
Tommy Mello 15:19
Oh, it's everything. I just talked to a guy actually is gonna be on my board. And he, he puts deals together. And he's the guy who kind of consolidates. And he happens to be in the middle of a lot of these deals. And he said, everything is your Google score. I don't love the Google scores a little bit too much. It's easy to manipulate. Because everything sticks on Google, I think Yelp is a good score, too. But then there's next door, there's Facebook, there's, I mean, there's Angie's List homeadvisor, there's Thumbtack. There's LivingSocial, there's Groupon, there's a million different places to be on. And I've got over 700 citation sites, you know, my website right now ranks. I'm not being cocky here. But I can't find a home service company that ranks better than our website. And I use a tool that basically tells us and I've got 5000 pages, It'll soon be 20,000 pages. And I believe that SEO is probably the best ROI because that's your brand. That's your everything. And I don't think people, a lot of people say oh, that's that's dying breed. Now it's pay for play. And I just don't agree with that. Although, I do think it's important to run on every algorithm, including Google Guarantee, the pay per click as well as they caught the Google My Business Page. So, the GMB is where your reviews are at. So, Google, in the home services space is kind of a big deal.
Aaron Norris 16:45
I didn't actually know about Google Guarantee until I read your book, I read your book. And I've been in the SEO space a long time, but maybe I'm not so location specific I've never been, so for those people not familiar with that. What is Google Guarantee?
Tommy Mello 16:58
So, Google came out with a program because they understand that people want to do business with local companies. So, they understood that and what they did is they wanted to guarantee the consumer that there, that this vendor on Google will give you good service. So, they go through a company called Pinkerton, they do background checks on the owner and every one of the technicians that will be out at the home. And then what happens is, they'll guarantee the job up to $2,000. Now, they don't make it easy for the consumer to do it. But they track the phone call from the call tracking number. And they could actually find all the results. And you need to maintain a good status, you need to do the background checks every year. And you got to pay for that. But it's much more affordable than pay per click. And there's not as much competition. But it kind of works off of your Google My Business Page, because they want to do it in your local area, they're not going to send you way out. So, there's a lot of I don't want to say tricks. But I'm very up to date on the latest and greatest all the time on that program. Because I think that program is something that not every company gets into. And it's a lot of them can't get into it. Because some of them don't do background checks and do the right things they have to. A lot of them use 1099 contractors versus w2. But it's a game changer. And I think it's only going to get bigger.
Aaron Norris 18:19
For those of us...
Sean O'Toole 18:21
With the local piece there, right? You know, in the COVID world, we don't, you know, kind of moving away from offices, but you know, how do they tell your local without an office, right? Just the fact that you got a truck in the area doesn't necessarily mean anything. So, that's, that's got to be part of that game, you got to figure out of like, you're expanding, you're going into a lot of markets, does that force you to put, you know, offices in all those markets.
Tommy Mello 18:48
So, I've got a different approach. You know, there used to be some games we play with with, you know, barefoot verifying a Google My Business Page. It got so bad in the garage door and locksmith industry, they do advanced verification. Now you've got to take a video on Google Hangouts, they want to record the office, it's geo, geo tags, so they know you're really there. And they want to see the tools they want to see my business cards, they want to see the embroidery or the decal on the building. They want you to start your truck, it's got to be permanent, not magnets on the truck. They want to see the license. They want to see, they go through this huge deal. Now, people are like, man, that's, that's way overkill. And I'm like, I love it. That's creating competition. So, now we go into a new market. For example, we're launching in 10 markets in the next six weeks. And you might think that's crazy. And a lot of people do but I've got a whole method to my madness. But every single location gets $17,000 worth of stuff. Costco chairs, Amazon tables are our core values, which is on everywhere. We've got them everywhere. We've got our mission and vision. We've got training a nine by seven door that we train on and teach guys how to do things as they apprentice. And it's a, it's expensive, $17 grand. So, just think about that there's $170 grand boom. But that's an official Google My Business Page. That's where customers could come into. And it's real. The one thing I've learned years and years ago is, play by the rules, do things white hat, and you'll be a lot further for it. It's an investment. Once again, it takes it takes longer, but the resolve lasts forever.
Sean O'Toole 20:31
Not just the $17k, it's also the rent and having somebody out that location and some of those things.
Tommy Mello 20:37
They're gonna look at everything, especially in garages, and locksmiths, they're gonna look at the bills, they're going to ask for random stuff. And the big thing is, for me is everybody's going to try to take you down, they hate me. I, a lot of them love me because of the podcast, and that changed things. But when you go into a market, and all of a sudden take market share, people are like, they just that how could they like you, you're there. You're their nemesis, in a way what I'm trying to elevate the industry not necessarily take market share, I'd I'd rather have a third of the clients that pay me 10 times more than have 80% of the clients that pay me 10 times less, you know.
Sean O'Toole 21:13
Right.
Aaron Norris 21:14
The new, for those who are not familiar with Google Guaranteed, it's just, it's amazing. I tried it on my phone at while I was reading your book. And I was shocked that it cleaned it up. So, the top two options, were Google Guaranteed results. And there was no ads before it those were and it's really clean, really simple. Is this a play you think in voice search as well? Are you, do you have any data on if voice searches leading to some of your leads online?
Tommy Mello 21:39
Yeah, voice searches, HomeAdvisor was the first one to jump into Voice Search. And there's so some of the things right now is we're trying to get into that market to where eventually they think that with, with artificial intelligence that you're just going to tell Siri, I got to be careful here because someone's going to start talking, if I keep saying all these words, but you know, Google or anybody, you could ask Alexa, you're going to tell them what you want. I need my garage door fix tomorrow, at 3pm. I got a window this big, they're going to go out and they're going to find the best company in that area with the most reviews that are validated. Soon, that will be the case. But I don't think it's kind of like some people said, we won't have checks anymore. We don't have cash anymore. 20 years ago, I don't give people the benefit of the doubt of learning as fast as technology goes. They just don't feel comfortable. Now, more millennials bought houses last year than baby boomers. So, that's something to think about. Things are changing. But you see, Amazon thinks they could change things overnight. They're doing an amazing job. So, it's Facebook, so as Google, but at the end of the day, I'm sorry, I just the problem between Uber and Airbnb versus home service is they're trying to make it like Uber. The problem is, you've got to have a clean driver's license, a clean background check, a clean drug test, you've got to have a dependable van. But you've got to have the know how sales technical and operational, sales just means they know how to smile and have a conversation with you. And you can trust me, doesn't mean take advantage of anybody. So, they can't Uberize, these businesses because how they they tried to do it with with Thumbtack, they tried to do it with HomeAdvisor, they've tried to do it, Google got it right, Amazon tried to launch three different times in the home service base and sucks at it. Because they always big commoditize this business, they can't commoditize home service...
Sean O'Toole 23:38
We all learned, we all learned to drive when we were 16. But we didn't learn how to install a garage door.
Tommy Mello 23:44
And you didn't learn how to go to the manufacturers, make sure you're getting the right parts, diagnose it correctly, and install correctly. Make sure you didn't leave fingerprints and oil in the house and make sure there's not stuff falling through the roof and make sure you're not a felon around your young daughter. All these other things play factors. So, they think oh yeah, it's simple. The home service fee billions, hundreds of billions of dollars. And it's like, you guys didn't really think this one's true, because you're very smart when it comes to computers and technology. So, we did Amazon Home Services for a while. And then we realized there's no money to be made. And you got to snap a picture that, they want us to be pro's in technology and the latest iPads have the best signals. You got to be on Verizon, and this year, AT&T here, and it's like, wait a minute, you're not you're never going to be able to Uberize, this industry, if that's your mentality, Google said let me just be your partner. Let me hook you up with the leader. Let me make sure you do it right. Let's give the customer a choice of who to use rather than a monopoly, rather than make it socialism where we pick for you. They said we're going to give make this capitalism or we're going to have the survival of the fittest. And that's how it should be customers want choices not to just give you one. And they want to know.
Sean O'Toole 24:54
Earlier you said you know you can say hey Siri or whatever, and it's gonna come back and say, and it's gonna find you the one with the best reviews and the best. There's a lot of trust in that. Like, why aren't they going to give you the one that's most profitable to them? If they own that interface, right? Like, it doesn't necessarily have to be the best, it just has to be the one that makes them the most money, and doesn't get them too many complaints so that people keep using it. Right? It's kind of like not necessarily a race to the top.
Tommy Mello 25:20
Yeah, you know, here's what they got to say is, it HomeAdvisor learned this a long time ago, they used to be called ServiceMagic. ServiceMagic had a really bad name, somebody would go out there, they say, wham, bam, thank you, man, they tried to get the most amount of money, then HomeAdvisor started really paying attention to the reviews. And then they said this, unless the customer has a great experience on their garage door, they're never going to use HomeAdvisor, again, for their roof, or their pool, or their landscaping or their drywall. So, now they understand. We need them to have the best possible experience. Yeah, we can make a little bit of money, but we need them coming back to this interface. If they don't come back to this interface, then we fail. And that's why I think positioning myself as the largest, I'm growing so fast right now on purpose, because there's going to be a lot more opportunity for people to partner up with me when they understand the area coverage I have. And that's why I'm the perfect partner and almost anything technology wise, I'm getting as much as private equity companies are talking to me. And I love learning. A lot of technology companies are saying, Hey, we want to test, test you guys out because you guys are in 20 states. And I think that's the secret sauce. I want to be in 40 states here in the next year and a half. And then they're like, why don't we just go to the source, they've already got coverage in all these areas. And it's a specific market play. And I'm very fortunate that I have the team and everything is the team to be able to do what we're doing because otherwise it's it fall flat on its face.
Aaron Norris 26:52
You spent a lot of time in the book talking about technology. And ServiceTitan was the CRM, but it sounds like ServiceTitan is much more than a CRM these days. Can you talk a little bit about ServiceTitan and how you leverage it in your business?
Tommy Mello 27:06
Yeah, ServiceTitan is a very robust software, I mean, that for some reason that the CEO and the co founder, they decided that they like to build things, once they test something, they'll build it into the API in and then they'll build it themselves. So, they've got everything from email marketing, they're coming out with text messaging tools, which they're a little bit scary to do because of some of the opt in requirements. And then they're coming out with reputation management, they've got partnerships with Google that you could go right through Google Guarantee, without talking to a human and book on the capacity board. There's, it's the secret sauce, I mean, I've got over 4000, called tracking numbers. So, I can track every single campaign down to the penny. Even my new employees get a tracking number. So, they get post on Facebook in January, I'm going to start a class once every other week for an hour on how to teach my employees how to get business. And they make a good amount of money on every job that calls for that tracking number for doing nothing. So, my goal is out of the 300 employees, which will be 500, within the first quarter of next year. To train, I'm going to call them disciples here, because there's going to be 100 people that listen to do what I say. And it's not cheating. It's posting in groups on Facebook, it's contacting people through their Yelp account. It's literally going on next door and saying I'm the roster guy if you need something. And when I teach them how to do this, and they make $1500 dollars for recruiting somebody that they know if they get hired $1500 bucks. But that's the whole goal is get if I can get 100 people getting 10 jobs a week. That's an extra thousand jobs a week. 4000 jobs a month, why not pay them good money to get it and because the jobs are laid out their friends, family, they've heard of us, and it's growing the brand. So, up and that, that dimension, I think we're, we're the we're the fastest or the best quality and apples apples, I think we're the most affordable
Aaron Norris 29:06
When you talk about data, using sort of a, doesn't sound like a CRM system stores sounds more like an ERP system that really combines a lot of things. So, what kind of data KPIs are you looking at when you're running this kind of organization?
Tommy Mello 29:19
Well, it's the same same data in every single home service company that you'd want to focus on. Number one, you want to find out how much money you want to make and figure out what you want your profit to be. If it's a $5 million dollar company, you want to be it 20%, you want to be a million dollar company, but I always take that revenue number and I take the average ticket. How much is your average ticket? Then I back into the next KPI is your conversion rate. When you see a new customer, how often do you convert that and then you look at your call booking rate. So, your call booking rate is probably the most underutilized KPI in all of home service because no one is tracking it to the 10th degree only very few call centers. And then the final one, not to mention the sound of the call centers, its form fills its fields on Facebook, there's Angie's List and HomeAdvisor fields, there's there's Google fields that you need to pay attention to. And then the final one is cost per acquisition. cost per acquisition can be variable, as long as as a smaller percentage of revenue. So, if I paid $1,000, for $100,000, the same thing as paying $100, for $1,000, it's still 10%. So, understanding that you might pay more per acquisition with a certain marketing source, but you got to follow it all the way through the funnel. And those are the main ones you got to pay attention to, there are a lot of other ones like, you know, how long their employees lasting, what's the overall mood, what's the culture like of the employees. And there are a lot of other ones I look at as more of the CEO. But if you had to make a company work, you need jobs, and you need technicians to run those jobs. And if you can figure out those ones I just mentioned, you'll be doing very, very well. And I'm service base.
Aaron Norris 30:58
Do you ever dig down into the data and decide there's certain jobs that you really like because they're more profitable, and then you sort of do look alike, and really focus on those kind of deals alone within your marketing efforts?
Tommy Mello 31:09
So, I've done this a couple of times with data scientists will, they'll take things and they'll find, they'll look at regression testing. And what they'll do is basically take our whole database right now it's well over 200,000. And they'll take the largest percentage of tickets, and then they'll run that against age, gender credit score up, how much they paid off in their home, all these factors. And we're actually trying to figure out within a certain degree of standard deviation of how much these outliers matter. And when they do matter, we understand that Phoenix could be different than Milwaukee could be different than Detroit. So, we're actually pulling it in. It's complicated, but it's worth it. As long as you could find that one attribute that really stands out. And then when you find it, it's what I call nail and scale it then you just frickin find that data, and then you just attack it. Sometimes it's new homeowners, sometimes it's because they've been in a neighborhood this long with a certain type of builder. So, the more that you could educate, I think a lot of people say they go to a data scientist or some type of data collection house. And but they they don't know what to look for. Like, for example, there's a certain manufacturer that does most of the new builds. And they've got a one year warranty on their Torque Master System. And they break within it, usually two years. So, if I could tell them the builder know for sure that those got installed. That's another thing that they could test against the regression. So, it's something that most people don't think of it. And that's why they fail. And that's why they say, Well, I don't believe in data. And I don't believe in SEO, and I don't believe in this. There's nothing I don't believe in because somebody made money doing it. Someone else can.
Sean O'Toole 32:50
It's so true, though. I mean, like we have 200 criteria, and there's probably 200 more we'd like to add, and but it becomes overwhelming for most people, right? They come in, and they just they don't know where to start. They don't have a thesis, they don't know which data to use. And it's just like, you know, we had the wildfires going on in California and like, Okay, we've got roofing material. So, go in and look for everybody that has a wood shake roof, and market to them why all those wildfires are going on, like, you know, but just to even come up with that or to think about it. Like, I think so many folks, so many Home Services companies start they are small businesses, and they're working in their business rather than on their business. And so what's your advice for the smaller guy, right, that, you know, he's got a good business, it's local, whatever, he's got two or three Tech's like, how does he kind of step up? At least? A little right? He's not going to be maybe the next time, you know, he's not going to go into 40 states. But, you know, what's your advice for them to kind of make some, some progress, some headway, have a little better year next year than they had this year, maybe going a little nicer vacation.
Tommy Mello 34:04
You know, this is most business owners property is the owners don't get out of the way, the number one thing they need to learn how to do is hire, they need to understand that there are a visionary or an integrator. And that's a book called rocket fuel that they could learn a lot about. But a lot of them don't have their integrator yet. So, they are the integrated, they're playing both roles. Now, they never learn how to properly delegate. They still open their own mail and their own email because they don't trust. They don't have checks and balances. They don't understand system standard operating procedures and checklists. They don't have an assistant like I do, who fixes all my weaknesses. My organization is now, my literally the stuff around me is more organized. My emails are more organized. We've got a system. So, I think a lot of times they don't attack the biggest things first, they get sidetracked, they're visionaries. They're dreamers that become a vision but they can never fully do it because they think employees just don't do what I can do. I always have to do it if I want it done. I got to do myself. The problem is they never wrote a manual. They never trained somebody, they never gave them a performance pace. And so they've got skin in the game. And the best thing to do is go visit a shop like mine, asked a lot of questions, I welcome people to come here. And there's 100 other shops, I've been to usually HVAC because there are a lot further down the evolutionary side than I am. But go to visit a shop, take a lot of notes, ask a lot of questions and figure out what your biggest weaknesses are, and then hire around them. Because a lot of people, they focus on everything, all of a sudden, they're the accountant, their AR, they're the trainer, they're the salesman, a lot of times they're the salesman and this, they can't step away from that. And readers are leaders. So, I think the fact is, read more books, ask more questions, be around the people you want to be around and give it time. Another thing that owners do, is they're always pulling out the money for stupid crap. Like now they're gonna be flipping houses when their air conditioning business was the one that got them the money, so they don't focus on the price. And the other thing is they're underfunded, they always go in, they used to be a tech, they got $10,000 loan from their, their mother in law, and now they're supposed to make it big. And they're putting in harsh long hours instead of cash. And that's gonna happen for two to five years, depending on how well they invest the money. So, I gave you a lot of reasons there. But the first thing is, hey, around your weaknesses, build an org chart, build manuals, build training processes. And don't make the same mistake twice. People do the same shit all the time. And they make the same mistakes. And I'm like, did you write it down? Did you build it into a staff standard operating procedure? And a lot of times they don't.
Sean O'Toole 36:39
When those people, people and processes, right people and processes systems? Yeah.
Tommy Mello 36:44
It's the hardest one is people, people, the processes come easy. I think I spend more time on how I'm going to monitor the process than I do on the process itself. How do I make sure that there's checks and balances? What are the repercussions? What is the carrot? What's the weapon? The carrot, I guess? What are you going to do? And a lot of people aren't disciplinaries. And it's crazy. When you write something up, it doesn't even need to be a real write up. And you make somebody acknowledge it, they got to sign it. Imagine, it just changes their behavior so much.
Sean O'Toole 37:18
Wow.
Aaron Norris 37:20
You wrote in the book, platinum responses are table steaks in the home services sector. How demanding are the consumers nowadays. They go online, they're looking for a service and they don't know you from Adam, how much effort and time do you spend on making sure that phone call gets picked up live? How critical is it in 2021?
Tommy Mello 37:39
You know, I think we do a really, really good job. But can we do better? Yes, I mean, anybody we try to book between 84 and 87%, I think 90 is where you hit the ceiling. Because you don't want to book every call that's calling you. Because certain ones, there's it's not possible to book every call. Because you're always flipping things around. You're watching for drive time. And the big thing we've always tried to do is expand capacity. So, that means we have night shifts, we give a point system, whoever it takes nights and weekends gets more, but capacity is a big issue. But I'll tell you what, we've got a secondary company that if we don't answer the phone within three rings, it rings to them simultaneously. We could do Round Robin, we could do weighted averages, we do a lot of different things, depending on the time of day. And we have performance pay, So, believe it or not, since COVID happened. And this is going to stay this way forever. All the agents answer from home, and they stay at home. But they're incentivized they make minimum wage, or the thing is not plus it's or their performance pay. And I got people making 20 to $30 an hour, every single week, I've got other people that I love when they make 12. Because either they get their ass in gear, or they quit, we create an environment that either you're gonna quit, or you're gonna make awesome money because I've always said 1A equals 3B players. So 1A equals 3B so our top All Stars could run circles around three B players.
Sean O'Toole 39:07
Right?
Aaron Norris 39:08
Lifetime value of a customer. What does that look like when you're installing and garage that's hopefully gonna last for 10 years.
Tommy Mello 39:16
Well, hopefully you can get them on a maintenance agreement of some sort because there's a lot of different components on a garage or that need to be lubricated, adjusted and tightened over time. Not to mention the average lifetime of a person living in a house is now under seven years. So, they're moving. Not to mention a lot of people have second homes in Sedona and Flagstaff where we'd like for Phoenix we do those areas. And also the word of mouth. And when we're reaching out to look for new employees, we ask our customers we want to leave that good. The LTV of a customer but you also got to think I've got a customer that spent $800,000 this year with us. He builds a, he revamped, re, re does condos and apartments and he does a lot of things like that. So, you know, there's a lot of a, lot of different things that the LTV still matters to, to us with commercial clients.
Sean O'Toole 40:11
How about that, the follow up maintenance, I get it, it's crazy to me, you know, I built a home back in 2012 have really nice, cool glass doors. But you know, every couple of years, like I realized they're kind of sticking and jumping in the rest. And I have to call like, I've never had a proactive call from that company never had to follow up. Never had," hey, let's put you on a maintenance contract and come out once a year". And I would I would sign up for that and do that. Like, is that maintenance piece? Just maybe not worthwhile is why they don't do it? Or do you think.
Tommy Mello 40:45
Well, the last that we charge nine bucks a month, and it's kind of a loss leader, the whole goal and the real science behind it. And this is why private equity companies and large investment companies really love main instruments, because we put kind of a fence around your property saying we're gonna be the ones when something big and you need something new. Now I look at it, like, when I'm out there, I'm never trying to sell you anything that you don't need. But at the same time, if I notice shoes everywhere, and pots and pans or Christmas decorations, we sell groceries storage solutions, now that's going to be something newer that we sell. We don't, you know, we could go back out there. And there's a lot of opportunities because I want to own the garage. And we're experimenting with different epoxies right now. But the fact is that, if I've got 50,000 service agreements, you already like us, trust us, and know us, it's a lot easier that you'll just say yeah, and the good news is, is you offer these things, and I'm actually looking for right now some of the specialized in selling finance, we, we do a lot of finance jobs, we're averaging 15% of the best companies in the world do over 45%. So, we know we have 300% to grow. And it's it's people hate the word financing. It's almost like what I'm not, I don't need financing, Do I look like I need financing? So, you gotta, you got to give them options. And we really believe that service agreements are in a way that kind of solidifies that you're using us forever and to build that rapport. And then hopefully, you sell the house with the service agreement, and the people keep it that not all the time. And then next house, you go to those guys did a great job, let's get them out of here, get what they need.
Sean O'Toole 42:27
And your stickers up there with your phone number. So yeah, they have an issue and.
Tommy Mello 42:33
I've got a door to door team, believe it or not that their whole job is to knock on doors. And, hey, I'm not here to sell you anything, or we're just in the neighborhood. That's the guy that just like that, we're just here, just in the neighborhood. If you need anything, we just want to come in your garage lubricated at no charge. And we'll put a sticker up. And if you need us in the future, then when we're in there, we mentioned a couple of things. But the point is, I want to be that sticker, that sticker is other than a service agreement, that sticker is the most amazing thing. So, I built this really cool one. It's made out of like a vinyl, thicker material, it's like contoured. And it goes right by your wall button. And the whole reason I did that it's very kind of sexy sleek, is because it's all about impressions. Every time you go to hit your button, you're going to see that. And I know the more impressions you see, the more likely you it is Oh, call the guys that we see every day, you know, the guy with his head popping out of the it's a funny little thing, but it's quality. So.
Aaron Norris 43:28
It seems like there's a lot of pressure for Home Services to combine. So, I see a lot of trucks in my neighborhood that are HVAC, and you know, plumbing and everything all in one. You just said I want to own your garage. Do you own more than one home services company? And do you want to integrate? Or do you keep them separate on purpose?
Tommy Mello 43:47
Um, I'm really good at finding the studs in the ceiling so garage or storage solution that my distribution centers that they carry on for me, so it just makes sense. But the reason HVAC needs another partner is because HVAC breaks in the summer. So, they need to rely mostly on service contracts plumbing and electrical. The reason that, that's what they do, they married those three, there's a company called Next Door that basically built the best practices for all three of them to work cohesively. There's two frames of thought here. Number one is I'm gonna own my backyard. I'm gonna own my customer for all these verticals. And that's great because you can control your backyard you can keep your eye on it, you could get to the house if you need to yourself. my thought process was on a vertical. So, go wide with it owning it in every single state be the best, the best at this one vertical. Now, everybody calls me at ServiceTitan and other companies and other CRMs because they go How the hell are you in so many other states without keeping an eye on things and the technology really does but but you know, I look at a company like Parker and Sons they do 125 million here in Phoenix. We still haven't even hit that number in all the markets I'm in but our average ticket is as miniscule compared to theirs. So, I'd rather own the whole thing, because I'm much, much more attractive that way. And I know Milwaukee's gonna do 4.8 million. Next year, they're gonna do 7.4 million, I'm gonna drive these companies past 10 million. It's almost like a seed, the more you water it, you plant it, you hire the right people, you make the right connections, you get the right links, you get the right reviews, it just continues to grow, as long as it starts out with strong roots and a good foundation. So, I'm a lot different than most, but I know what I want. And I think, it I think it's a much better think about this. If you own a large HVAC, plumbing, electrical business, there's billion dollar alliances. What better add on would you want, wait a second, this guy gets 25,000 customers a month, because that's what I'll be doing in the next two years. He gets 25,000 opportunities. He's with the hot water heater in the garage. He's got a service room with a lot of these people. Why don't we just add garages to our service agreements, he's already in all of our markets. So, I'm basically trying to create my ,an opportunity to where there's a good book called Built to Sell. And we always want to be able to sell now, I'm not not selling anytime, like in the next year, or two or three. But you always want to build a company, there's three ways you could do it. You could sell your business make a lot of money, you could give it to your kids make some money, or the government could take it over when you die and parse it out. And whatever happens. So, why not build something you can sell? Because that seems like it's the biggest best payday.
Aaron Norris 46:29
We didn't mention Greenfield but I don't think we've defined it because we talked about it off air. Can you talk about Greenfield versus acquisitions.
Tommy Mello 46:36
So, Greenfield, just organic growth it's starting from zero. And a lot of people think buying a company seed, investment banks look at it like this. You're buying revenue with a certain profits. So, we know for sure that if you're buying it for four times in four years, theoretically, that's without fixing anything, you'll get that money back, it's a safer investment, theoretically. So, they don't mind if you go and debt 10s of millions of dollars if you're at the right, right platform company. A Greenfield is like, wait a minute, you've never been there before. No one's ever heard of you. How are you going to get the employees? Who's your distribution center? How are you picking this market? Are you looking at Google Analytics? Are you looking at the data? What? How do you even come up with this? So, it's in an investment mentality, it just is doesn't make sense to them. Unless you've got a proven track record to go into a market build the online reputation, you have a plan. I have a four tier plan based on key performance indicators that I end up taking over that market. And the hiring process is only increased. So, you know, I could buy a company right now for $6 million. And I really probably will. But you know what I could do for $6 million on Greenfield, organically?
Aaron Norris 47:58
That's a lot of pizza parties.
Tommy Mello 48:00
I can do, I can grow into ten new markets and own them. So, but a lot of people don't have that, they don't know where to get the employees, they don't know how to get the phone calls are going in there. Why don't these people that I know they're like it took me 30 years to build this market, or 20 years, you want me to go into this new market? Like how do you even penetrate it? And that's where we come in. And that's where the SEO and the online reputation come in. And I think that's just underutilized. I think the big thing too, is smaller companies, whether they're, that some of the companies you guys work with, they, a lot of the people that are like wholesalers and things of that nature, they try a little bit of everything. And that's the biggest freaking mistake they could do. They first of all, build your online reputation because everybody that hears you on the TV, radio or billboards, they're gonna check you out online. So, build that first. And they try, hey, I tried the radio, your second week in business, and the only reason they stayed is because, hey, Tommy, I heard you on the radio the other day. It's almost like an ego thing. They love it. They're like, well, I guess the message is getting out there. But you got to look at the dollars and cents in your CRM and say, Hey, the reason I'm doing this is I've got four monitors here, people like what do you do? But you got to CRM and you're looking at what is the data telling me to do? What am I keeping for my syndicators? Am I making money and most people can't see beyond a shadow of a doubt that they are making money. And for that reason, a lot of them never are successful. They try something that they say hey, Craigslist didn't work when I posted for an ad and I'm like, Well, how did you post? Well, I posted one last month. And I'm like, Well, I tried ZipRecruiter too, uh, okay, I tried Valpack for two months. And I'm like, this doesn't make sense.
Sean O'Toole 49:48
We get a ton of that right? Because people pull us to do direct mail lists. And you know, they'll pull 200 Records and send out a piece of direct mail to 200 people trying to buy a house with like, $100,000 of profit. They'd be like, Hey, your stuff doesn't work. We sent 200 postcards, and I didn't buy a house with $100,000 profit. I'm like, Yeah, wow. You know, it's just like, the expectation realm is so wrong. I mean, I did a lot of direct mail. And if I spent 10,000 pieces, and, you know, to this folks two or three times, maybe it's five grand in direct mail, 10 grand and direct mail for $100,000 house, but it's not 200 pieces, like there's this. Yeah, there's a lot of unrealistic expectations.
Tommy Mello 50:34
The right piece should do one to 2%. And it all depends, the right piece of the right person at the right time. And usually, when they see it three or four times, as they say seven times is that magic number. And also, the 80/20 rule is simply 80% of your profits are going to come from 20% of your employees 20% of your clients 20%. So, understanding to grow that 20. And actually the 80/20% even goes further 80% of the 20%. So, So, now you've got a quick math here, what is that? 80% of the 20% at 3.2% 60. 4.6%.
Sean O'Toole 51:18
20 of the 80, whatever.
Tommy Mello 51:20
Yeah. 2020, whatever. You know, I read a book about a year ago, and it said, it's the same thing, one more dimension down. So, when I really look for those clients.
Sean O'Toole 51:35
It's like everybody talking about the 1% and 1%, you're making good money, but you're not flying a private jet. It's the 1/10 of 1% that's actually flying private jets and like a lot of people don't understand there's a huge difference between the 1% in 1/10 of 1%.
Tommy Mello 51:50
And and here's the thing, you know, The Ultimate Sales Machine, Chet Holmes talks about you pick your best clients, but you need to be able to define your avatar, when you find your best hundred, you should be mailing them every single month, you should be texting them, you should be geo fencing them you should be doing look alike audience and popping up all over their Facebook, you should. And you should be sending a gift to them. You know, one of the things I did is I bought 100 small Rubik's cubes. And I mail out and I said I'm so puzzled why we aren't working together. And then you send something else, like a little tape measure with A1 on it. Like, are you measuring the results of your current garage door company, and it's stupid little knickknacks, but all of a sudden, they're like, dude, you keep annoying me, we'll give you guys a shot at the next bid. And those things could be a million dollar account, you land 100 of those. It's the gift that keeps giving. And that's why I think repetition. And, and more importantly, you know, I always talk about discipline, accountability and consistency. And I think repetition is basically being consistent. And a lot of people aren't consistent. And that's what causes them to have a bunch of issues I think is is they they try a mailer. And they don't have any data when they're gonna do their next mailer. They don't have any rhyme or rhythm. The best agents in the world, they own neighborhoods. They own them. They, they're experts, they say I sold Grandpa Joe, I sold uncle Pete over there. I talked to Miss Smith. I own this neighborhood. I know more about it. I know the buyers, I know what people are looking for. I know the schools. I know where the nearest library is. I know everything about this neighborhood. They're experts. And that's what I am. I know residential garage doors. I'm not doing HomeDepot, I'm not doing property management companies as much I'm not doing home warranty companies. We just said we're going to be the experts in retrofit residential garage doors. And it's a, it's a, it's a rifle shot. And I get a lot about other opportunities. And we just stick to this and it's what's it's what's scalable.
Sean O'Toole 53:48
How to, you've got a podcast, you've got websites, how do people find out more? Listen to you? Yeah, tell us, tell us where people find you.
Tommy Mello 53:59
This is my.
Sean O'Toole 54:00
The Home Service Millionaire, the book.
Tommy Mello 54:03
It's hardcover. It took me two years, I got 12 co-authors, I got the CEO ServiceTitan, the CEO of Valpack. There's a lot of smart people in here. Because you had to sell your company how to build a reason for doing it. So, if you go to HomeServicemillionaire.com/free, I think you pay nine bucks shipping and handling is one of those deals, but it doesn't even cover the cost of it. And then I the podcast I have is HomeServiceExpert.com So, HomeServiceExpert.com. And those are probably the best two ways. If you want to reach out, you can email me on either of those or via LinkedIn. I've got a lot of messages through LinkedIn. So, these this way would probably be better through one of these channels. And yeah, I'm always here to lend out a hand and always wanting to learn something new. So, I love phone calls. I love that touching base.
Aaron Norris 54:56
Awesome. Well, thanks for your time. I'll make sure to post all those links. It was great. Book even if you're not in the Home Services space, I learned a few things. So, I'm actually glad I really took the time to read it before the interview today. And this is my my huge list of questions. We didn't even get to all of them, but I had a good time reading it. So.
Tommy Mello 55:12
That's great. Thank you for reading it. And thanks for taking the time to do this, you guys. I really appreciate it.
Aaron Norris 55:17
All right.
Sean O'Toole 55:17
Yeah. Thank you for joining us really appreciate that. So, all right. Take care. See ya.
Aaron Norris 55:24
Thank you for listening to the Data Driven Real Estate podcast, you can find show notes and links to some of the resources mentioned in the show at datadrivenrealestatecom. Click that, join the community. And you'll be forwarded to the PropertyRadar community where you can ask questions about the current show and even see upcoming guests and ask questions there. We'd love to engage with you in the community. So, check it out. Please don't forget to like favorite, subscribe and share on your favorite platform where you're listening to the show. It helps us out a great deal. Thanks for listening, and we'll see you next week.
