We’ve all thought about it. Unless you have prior business experience it is likely going to be your strategy when you first start your junk removal business. I remember when we first started our junk removal business thinking how ridiculous it was the 1-800-Got-Junk charged $450 for a full load. Preposterous! Who would every pay that?
One of the things you have to know is to have the proper perspective. At the time I was 20 years old and working at a skating rink making about $15,000 a year. My take home pay wasn’t much more than $450 for two weeks of work. Of course it wasn’t worth it to me. I’d do it on my own. Also, I didn’t have a whole lot of stuff to haul off. So I figured if it wasn’t worth it to me it really can’t be worth it to someone else. Disregard the fact that Got Junk at the time already did over $100 Million a year in revenue and had close to 200 locations at that point. I just figured there was no way anyone really wanted to spend that much money on Got Junk. They were the main game in town and we figured we could slip right in there and take away the business just by being cheap.
So we started placing ads on Craigslist. Keep in mind Craigslist was a lot better back then than it is now. Much more widely used. And free. The calls started rolling in and we thought we were making money hand over fist by charging $200 for a pickup truck and trailer load. However, Craigslist customers were a pain to deal with. The jobs were difficult and they customers were so freaking cheap. Some of them were good but most of them were rough and cheap. Also, though we were making good money it still wasn’t enough to really field another crew full time. I was making great money when I was on the truck. Once I got off though the returns were much lower. And work wasn’t consistent enough to have a full time crew either. Jobs could be sporadic from time to time. I needed another way to get more jobs.
At that point I got in touch with a former junk removal company operator who had sold his business. He helped me get set up on Google AdWords. That is when our business really took off. AdWords was simple at that point and much cheaper. However, with our current pricing we weren’t making as much money on AdWords jobs, even though the work was easier and the sales higher. But we had that AdWords expense. We needed to raise prices. But we were scared to do so.
So we were faced with a decision. Do we stop doing AdWords or raise our prices. We raised our prices and… the calls kept coming! We raised prices again and… the calls kept coming! Before we knew it we were making more money and not working nearly as hard. A win-win!
We were incorrect in thinking that the main thing everyone was looking for was price. Yes, some people were looking for price. But many people simply wanted the service to get done and get done fast. Even then we promised same day service. They liked the fact we were locally owned. And we were spending enough on AdWords we were the first person they found. Not being first doesn’t mean you won’t get work from AdWords. You still might get as much business being second or third. But we happened to be first. And people called us. And we were great on the phone so we locked the appointment down.
So, your wondering is there a time you should be the cheapest person in the market? Yes, there are couple of instances. The first one is if you simply don’t have as professional an image. You have an older truck, your site isn’t flashy, and you are very new with little reviews. You might want to be the cheapest in your market at that point. But you must give a reason for you being so cheap! What’s a good reason? “We are the cheapest of the professional junk haulers in this area because the owner is on all the jobs. We are a new company, though our owner, John Doe, has been working for a moving company for years and knows how to move as good as anyone. Since he is on the truck we’ve got much lower overhead than our competitors. That’s why we can be so cheap.” Give them a reason. Otherwise they might come up with their own which is: They don’t offer as good of service.
Another good reason to be the cheapest is you are the most sophisticated junk removal company in your area, and one of the largest. By that I mean you are extremely busy and have a large volume of items that you pick up. You have so much that you are able to open a store. Because you have so much volume your store stays very busy from selling the stuff you get from your junk removal jobs. You also can take advantage of economies of scale and make great money by separating your metals and recycling as much as possible. So you are getting income on the back end as well as the front. Because of this you are able to charge customers less because you will make up the difference when you re-sell or recycle the items you pick up. Be up front and honest about this. Market the hell out of it on your website. This is a major competitive advantage.
Of these two scenarios one is temporary. That one be scenario 1. The second one is permanent. The key with the second one though is the fact you have to have a huge volume of business to do this. Otherwise you will never sell enough for it to be worth your time on a consistent basis. I think you need at minimum $1 Million a year in sales to do this and probably closer to 1.5.
What are the other negatives to going the cheap route with your junk removal franchise? The problem is there is no way to reach enough people. You could have the cheapest and best junk removal business on the planet. But if nobody knows about you then what’s the point? When you have minuscule margins you can’t afford to do AdWords, SEO, Customer Acquisition Management (CAM), or other advertising services to get the word out.
Another issue with going cheap is the fact that the customers that hire the cheapest in the market simply because they are the cheapest generally are not good repeat business. It’s hard to build a thriving business when you are constantly having to get new customers. Customers that hire you because you can get to them fast or are the most professional are much more likely to review, refer, and re-use you. These are the people you want to go after.
Yet another reason is the fact that it is tough for you to pay someone else to work on the truck. To pay a full crew would really make it tough to profit much money. That means that you are going to struggle to answer the phone which means missed appointments. That means that if you want to take off work you likely won’t be able to run another truck. Do this long term and it will be a huge strain on your life and your relationships.
One thing you must remember is you are a businessman. You are not a garbage man. By being a business man one of your primary goals should be to create a business that runs without you. Without profit margins from charging a high enough price you will be unable to do this. You will be unable to hire people to answer your phones (or the JRA call center), to manage your books, to dispatch your crews, etc. Your business will never be one that you could sell for a huge payoff. It isn’t as good of a business as it could be to pass down to your kids. You, at that point, mainly have a job. And a job with no benefits and no paid time off. You are a slave to your work. If you are going to do that you might as well work for someone else with 90 percent less stress.
The alternative to this is to charge enough for you to make a healthy profit on each job you do. You will then be able to advertise to reach a bunch of people, who will re-use and tell others about your business. Before you know it you will have people in all the different departments of your business. You will then have the freedom to do what you want to do when you want to do it. At that point you will begin having a life where you can fully focus on excelling with your business, with your relationship with kids/spouse, your physical body, and your spirituality. You will have flexibility and freedom. That should be one of your primary reasons for getting in business. But to achieve that you must charge enough for your services for sure.
We here at JRA are here to help you achieve financial and life freedom with your junk removal business. We built Junk Doctors to a $2 Million a year business by year 5 and are ready to do our best to get you to that same level. Junk Removal is a great business to be in if it is ran right. If it isn’t you will enjoy it for a while before you get burnt out. Let JRA show you and manage your advertising, sales, job booking, bookkeeping, or get your new business open. Simply call us at 919-466-9322 or visit junkremovalauthority.com.
-Lee Godbold
919-466-9322
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