The Truth About Profit Margins: Balancing Stability and Growth in Business

Someone asked me what my profit margin is,

I can tell immediately if they've ever

actually run a company.

Because the people who've never carried payroll

love that question.

What are your margins?

Like it's fixed, like it's clean, like it behaves.

Yeah, I know my targets, I know what it should be on paper,

but paper doesn't deal with customers.

Paper doesn't deal with the client

who changes scope three times

and then acts surprised at the bill.

Paper doesn't deal with rework or fuel spikes

or the employee who calls and sick,

the day a big job goes sideways.

My margin changes based on how much chaos shows up that week.

Some jobs are beautiful.

Some jobs turn into babysitting adults.

Some jobs you protect the relationship

instead of protecting the estimate.

And here's the part Guru's hate.

You can know your numbers

and still have margins that move.

Because real small business isn't optimized in a vacuum.

It's negotiated in real time.

So when someone asks, what's your margin?

What they really want is a stable answer.

The honest answer?

It depends on how difficult the customer is.

It depends on how disciplined I was.

It depends on what went wrong that nobody planned on.

Margin's aren't fantasy.

They're friction.

And anyone who's actually done this knows the difference.

Turner, bro.

What exactly are you trying to prove, your man?

I'm trying to seem like you're talking to me.

I know you're not, obviously.

I keep this a deal in mind.

Season one, season three, and season three is being great.

What's going on, KT?

Do you think I'm not yet?

Man, it's been a long time coming.

Tyler here from Minnesota.

To get kicked and involved,

but you're doing it to yourself.

And that makes it great.

Five, four, three, two, one.

Welcome back to the brandy and podcast.

Hey, how you start is how you finish?

How you feel like nine to five?

We stand on business.

And here's the catch of you going to need a villain.

OK, OK, OK, we got no limits.

Huh?

We got no limits.

What's your margin, bro?

What's your money you making this year, dude?

Man, this one's going to be fun.

I'm excited.

I don't get to talk about margin enough.

Welcome back to the brandy and podcast.

I'm Keaton Turner.

We're alive and fighting the good fight another day.

Love, love the conversation.

Love the topic.

That guy is one of my new favorite follows.

Zero dollar coach on Instagram.

Zero dollar coach.

I've loved some of his recent videos,

but this one, this one, this one hit me.

I know this one hits some of you guys,

some of you smaller business owners like,

hey, when you talk about margin, it's a never-ending moving

target.

The thing moves all the time every day all day.

Before we get into that, what's happened in my world?

We just dropped a press release this morning.

I'm excited about it.

I'm pretty amped up to be honest with you.

And the headline reads, from business wire,

Turner Mining Group secures up to $150 million

in equipment financing with wingspire equipment finance

to power expansion.

I'm excited about this one.

We've been working on this for a long time.

This is one of those things that takes a bunch of time

and we work on it behind the scenes

and we don't talk about it until after it happens,

after it's announced.

But wingspire has been awesome.

Obviously, you guys know, we've purchased a ton of equipment

in the last six months, a ton of equipment.

And actually, in the last year, year and a half,

it's a disgusting number.

It's like nine digits.

And so, yeah, we need capital partners.

That's how the business grows.

I talked about this on one of the most recent episodes,

like the number one thing that you need to get figured out

in order to scale and grow your business is capital.

You need capital.

And so, we're super pumped to announce the deal

with wingspire.

Wingpire has been great to deal with.

They actually, here a while back, sent me a pair,

and I guess this is a thing they do.

I didn't know this at the time.

They sent me, and if you guys are an office,

a pair of custom Nike Air Force ones, custom painted.

They're like blue and they've got the wingspire thing

on the back.

And so, yeah, pretty wild.

I don't know if I'll actually wear Air Force ones around.

Maybe when I go to a Nelly concert, I'll put them on.

But really pumped to be partners in this equipment,

finance world with wingspire.

And really, the deal we put in place with them,

and I'll talk maybe more about it on future episodes.

I'm not gonna talk about it a ton here,

giving them some free promo time on the airwaves.

The deal with wingspire was put in place

so that we can grow into it.

We're not using all 150 million of it today.

We have all kinds of different equipment,

finance, companies, and lenders we work with.

We've done some business with Kamatsu Finance

and some Cat Fy stuff and Volvo Fy in the past.

We've got all kinds of other wind trust.

We've got all kinds of other local banks

and local banking partners on some regional banking partners.

But this deal with wingspires a little different.

They obviously buy into what we see

as a huge opportunity in mining here in the US.

They have heard our story.

They've seen what we're about.

They've seen us do business now for several years.

And I think they are on board with the opportunities

for growth for a company like ours in the US.

And so it takes capital to do that.

The challenging part, it's a chicken and egg thing

in our business.

And again, I'm kind of talking inside baseball

a little bit, I'm giving away some strategy.

It's really hard to go win the massive projects,

the massive contracts if you don't already

have the equipment and the people, right?

Like imagine you're starting a gold mine

or you're bringing a gold mine back online

or you're starting a copper mine

or you're a specialty minerals company

and you need a contract miner.

Are you gonna just go hire a contract miner

who doesn't have the people

and they don't have the equipment?

That seems odd, right?

Like it's hard to,

and a lot of people struggle with this.

It's hard to see the finished product

when there's nothing tangible in front of you, right?

You see this with home builders.

You see this with people that build spec homes.

Spec homes sell pretty easily

because there's actually a home there.

They can touch it, they can feel it,

they can walk through it,

they can smell the paint on the walls,

they can visualize what it would look like.

It's really hard to sell spec homes based on an idea.

Even a conceptual drawing,

like people just don't get as jacked up about it.

Some people do,

but it's much easier to sell a home

when someone can walk through it.

It is much easier to hire someone

who has the people in equipment ready,

standing by ready to go.

That's what this deal with WinxSpire is for us.

You guys know we have the people, right?

We have access to people,

and I think we do a pretty good job at the people game,

although we've hit some stumbles here recently

with our own internal process.

It was just on a call about that.

I'm not gonna ruin my day and run down a rant.

I am turning a new leaf,

and I'm gonna put the rants on the shelf for a while,

so I'm gonna just move on past that.

We can get the people.

The challenge is the equipment.

And this mining equipment, triple sevens, 60, 20 shovels,

992 loaders, D10 dozers, drills,

this stuff isn't just off the shelf stuff anymore.

Used to you could walk into a dealer,

you could buy a triple seven,

and in a month or two, you have one sitting there.

Post-COVID world things changed.

If I want a 60-20 next year, I got to buy one this year.

If I want a 992 next year, I got to buy one this year.

And what happens if I want three or four or five of them?

What happens if I want 20 triple sevens or 30 triple sevens?

I gotta really be talking to Caterpillar,

locking in my build slots, signing paperwork,

committing to this gear,

way before I am ever ready to put it in the dirt.

And so what we're trying to do now

is get much closer to our customers

and get much earlier in the planning phase.

Help them plan out what this mine's gonna look like.

Help them plan out what the operation's gonna look like.

And it also allows us the ability to get much closer

to the OEMs, get closer to Caterpillar and Kamatsu,

get closer to these folks and say,

hey, what do build times look like?

How soon do I need to lock in my build slots for a 992

or 5992s if I want them next year?

It's really hard to sign up for $50 million

worth of equipment if you don't have the capital partner.

And so for us, one of the ways we're solving customer problems

and being quicker to market than our competitors is,

let's get this financing locked in.

Let's get these equipment financing companies

on our side, believing in our story.

And then when we get the project,

then we can talk with them about underwriting the project,

whether it's gold, copper, silver, specialty minerals,

maybe it's fracks and right,

they all underwrite these projects a little differently.

And I'm not gonna nerd out on how they think about it,

but the yellow iron is the yellow iron.

You know, assuming we do our part as the contractor

to lock in a good contract with reasonable terms

and reasonable pricing and a fair partnership with the customer,

these equipment finance companies love putting capital

to work for yellow iron, they love it.

So for us, really pumped that WingSpire believes

in our story, really pumped that WingSpire believes

in the industry and where mining is going.

I mean, domestic mining here in the US is a thing now

and will be more of a thing in the future.

I fully believe this.

Over the next 20, 30 years,

you're gonna see a lot more domestic mining.

I fully believe it.

So we're pumped about that deal.

But to today's point, today's topic,

you only get deals like this.

You only get $150 million equipment financing package.

If and only if you're making a little margin,

you gotta make money.

You gotta be able to show banks,

you gotta be able to show lenders,

you gotta be able to show underwriters,

hey, we're a safe bet.

You give us money, we're gonna put it to work

and we're gonna give you money back in interest.

You guys will make money.

You have to be a safe bet.

And how to be a safe bet is by making profit.

You gotta make some margin.

This topic's an interesting one

because most people don't talk about it.

You know, a lot of guys,

I've heard some of the craziest things ever.

First and foremost, I just wanna say,

as a blanket statement and I just,

I really hope people believe me when I say this.

I really hope they do.

Generally speaking for,

I'm gonna say 90 plus percent of the companies out there

construction companies, heavy civil companies,

mining companies, generally speaking.

They make a lot less profit

than you would ever guess, generally speaking.

I talked to guys all the time,

they're like, oh, dude, they're printing money.

They're killing it.

Look at all this and look at all that.

The numbers people throw around

are so far off, it blows me away.

Like some of these people,

and mostly it's employees that do this.

Like the employees see the new gear

and they see that big headline, $150 million.

They see the big contract, $200 million.

And they just think that $50 million falls

from the heavens straight into the profit bucket.

And the owners take it and they go to,

you know, like the Bahamas with it,

or they go to the Cayman,

they got an offshore account somewhere.

That's not how it works for 99% of the companies, by the way.

It's not how it works.

These construction companies,

these heavy civil companies,

these mining companies, these HVAC companies,

they slug it away year after year,

making very small profit margins, most of them.

And they try to hold on to it.

And the guys that are in their 70s and 80s

with the fat watch and the big cigar that are in Naples,

they didn't, they didn't make $50 million in profit

one year and then two year and then three,

no, they made like a few hundred thousand in profit

for 40 years.

They made a million in profit for 30 years, right?

Like, it's always funny to me,

and I've got guys that they'll come up to me and say this.

Like, dude, yeah, you guys are just,

you're just printing money left and right.

And some projects do, I'm not downplaying,

I'm not downplaying the fact that we can make money,

but like when you think about reinvesting it,

when you think about paying taxes,

like people just are confused.

Like people see a construction company and it's funny.

It's all of the people that aren't in the business

and actually don't know anything about the business.

These businesses at the end of the year,

most of them are happy to break even most of them.

Then there's the 25% of them that are happy

to make low single digit margins.

And I'm talking like three, four, five percent net margins

after everything is paid and done, net margin,

net profit, net income.

And then there are the other few,

and it's just a small few

that are making more than five to 10% in net income,

net margin, net profit at the end of the year.

It is the extremely, extremely, extremely rare case

where you have a company that's making more than 10%

consistently year in, year out in net income

in net profit when all of a sudden done.

It's extremely rare.

It's extremely rare.

And most of the time, those businesses that are doing that

are very old mature businesses

with very old mature balance sheets

that have a very solid, consistent customer base

that have a very solid reputation.

They're able to charge more for their services

because of the reputation.

And by the way, those companies aren't growing.

Very rarely are those companies growing.

The only way those companies grow most of the time

is through acquisitions.

They buy smaller companies.

They buy the people, they buy the customer base,

they grow through acquisition.

When you get to be a big old, fat, stable company,

you aren't spending huge chunks of your income

reinvesting it into growth.

Most of the time, again, I'm speaking in generalities,

but it's super important.

And again, I talk to business owners all over the place.

I travel all over the country

and I sit in these meetings, I sit in these round tables,

I sit in these symposiums, like I talk to people,

I trust me, I am pretty well versed

in how much money companies make.

They don't make as much as you think.

I've just straight up promised you.

They don't make as much as you think.

If your owner's driving around,

he's got the new Kubota side by side.

He's got the new Laariat pickup truck.

He's got the new equipment.

Like, that doesn't mean he's printing money.

It means he is pretty good at buying things

and financing them and making it look like

he's making a ton of money.

Most of the time.

Now there are the niche businesses that just kill it.

You know, there are a few guys that below me away

that they're making 25, 30% net margin.

Like just, I'm talking straight up printing money.

When you're making 30% net income, net income.

So for every dollar of business you do,

30% of that, 30 cents,

turns into straight profit.

The business owner puts in their pocket.

Those are unicorns.

Those are unicorns.

Those don't exist to normal people.

But they also don't exist for very long

because remember the saying,

your margin is my opportunity.

People figure it out.

Right?

Some of the most intelligent employees

that are helping managing the businesses

for these companies that are printing money,

30% net margins,

what do you think the employees

who are running the business think?

They think to themselves,

well, my owner's renting money.

Why don't I go start my own business and do this?

And so they do it.

And so they take a little market share.

And then the next guy doesn't.

And he takes a little market share.

That's what construction companies are.

There are a million different people

doing the exact same thing,

fighting for margin.

And so it pushes margins down.

Like generally speaking,

excuse me, generally speaking,

if you're making more than 10% net income,

running a business, you're killing it.

Congratulations, phenomenal job.

If you're making more than 10% net margin net income

at the end of the year, phenomenal job, dude.

Great job, you're running an awesome business.

If you're making anywhere from five to nine percent,

five to eight percent, not bad, pretty good.

You got a few areas, maybe you can clean it up

and get to that 10% number.

If you're less than five, man, it's tough.

It's tough going.

If you're less than 5%, net margin, net income, it's tough.

You have one thing go wrong

and you're not making any money.

You have two things go wrong and you're losing money.

You're paying to be in business, it's tough.

So that's, I had to get that out of the way.

I thought it was important to help explain to people,

what the reality is.

Like these big companies,

yeah, they're making a lot of money,

but they're doing it on very small percentages, right?

If you do a billion dollars in revenue,

five percent net income, it's a big number,

but it's still five percent.

Same thing for you guys that are doing a million dollars

in business, five percent net income doesn't seem

like much money, but it's still five percent.

And so I just thought it was important

for people to level set on what is reality.

And I'm telling you reality is most companies,

a huge chunk of the companies out there struggle

to break even at the end of the year.

After they've paid everyone, after they've paid taxes,

after they've paid interest and depreciation

on all their equipment, like they struggle to make a profit.

Most small businesses, most mom and pop companies

that are out there, if they can pay themselves

and pay their employees year in and year out, they're happy.

That's just the reality.

So I had to get that out there, quick pause.

All right, I'm back, sorry about that.

So let's talk margin.

I think it is first of all super important to know

if your employee margin can be looked at kind of two ways.

At least in my world, margin is looked at two ways.

One is gross margin that is money that is profited

from business operations.

So if you have a project, you build a customer

a million dollars for it and your equipment cost,

your people cost, your fuel cost,

or so on and so forth, is $750,000 at the end of the project.

You have produced a gross margin of $250,000.

Not bad, 25% gross margin on a project, not bad.

Here's the kicker.

You now have all your overhead to run the business.

You have all of your salaries that are not project costs.

You have the people in the office.

You have your office expense.

You have whatever corporate travel expense.

You have corporate insurance, general liability insurance.

You have taxes, both state and federal taxes.

You have depreciation on the equipment that you own.

That hits below the line.

And I almost talked about the line in a second.

You have interest on the business,

whether it's an operating line of credit,

whether that's interest on an equipment purchase

or equipment finance.

And so, you know, when you think about gross margin,

gross margin is margin that is above the line.

The line, when you hear people say this in business,

the line, anything below the line,

these are all corporate overhead expenses,

things that it takes to keep the business alive,

whether you are running projects or not.

What happens with gross margin is it becomes even more gross

after you apply corporate overhead to it.

That margin shrinks from 25% now down to maybe 15%.

Maybe it's 10%.

Maybe it's 5%.

It depends on how well your company is doing, managing overhead,

managing interest, managing corporate salaries,

and corporate travel, and insurance expense,

and all the things that are not project costs.

So, when we talk about margin,

it's super important to talk about in my world net income.

Gross margin's fine.

That's how much you're making at the project level,

but that's only half the equation.

How much does it take to keep the lights on for your business?

How much does it take in office expense, in salaries?

Like I can tell you right now,

I really am shooting for our company to stay at 6%

of revenue, 6% of our revenue figure should be corporate overhead,

6%.

And that's salaries, that's, you know,

department budget, so on and so forth.

You then have to layer in, like I said,

interest depreciation, taxes, so on and so forth.

And so, you know, again,

most companies are operating somewhere in the 20 to 40% gross margin.

And again, it just varies.

Every company is a little different,

but you want to make as much gross margin as you can

because those dollars hopefully will fall down

to net income, net margin, you know, company profit

after you've applied all of your corporate overhead.

And so corporate overhead, man,

if you can keep it below 15% total corporate overhead,

that's a pretty good figure.

You know, I'm shooting for six, we're trying to run lean.

I also have a lot of interest costs

and I have a lot of depreciation costs.

When you're renting equipment,

the equipment rental, we put above the line

up in the project cost because as a project goes away,

the rental equipment goes away.

That's not true for when you buy a machine.

When you buy a piece of equipment,

if the project goes away, sure, you could sell it,

but you still have that piece of equipment unless you sell it.

And so you're using that equipment day in and day out,

the more you use it, the more the equipment depreciates.

You can put it on a straight line.

There's a lot of different ways to look at depreciation.

I'm not gonna nerd out on all that,

but because we own a majority of our equipment,

95% of the equipment that we run we own,

the depreciation expense sits below the line.

So our gross margin and net margin

have kind of flipped over the years.

When we were doing a lot of rental,

our gross margin was smaller

because the rental expense sat up in the above the line costs.

So let's say gross margin was, I don't know, 15, 20, 25, 30%.

But we didn't have a big depreciation expense

below the line hitting that margin.

And so most of our gross margin back in the day

when we were running everything,

just kind of fell down below the line into net margin,

except for whatever corporate overhead we had.

So that's, I wanna be clear,

there's two ways to think about margin.

Today we're gonna talk about net margin.

That's net of everything.

That's after the owner has paid himself,

that's after you've paid taxes,

that's after you've paid depreciation on your machines,

you've paid interest on your loans,

that's insurance, that's everything.

We're gonna talk net income, net income.

You'll hear people in business talk about EBITDA,

which is basically, it's a simple way to think about

what a lot of companies, when you sell a company,

they'll value the company on a multiple of EBITDA,

earnings before interest depreciation,

taxes and ammarization.

And so that's kind of a pseudo,

it's not a gross margin number.

But it's not a net income number either.

It kind of sits between the two.

And so today we're gonna talk true net income margin.

And again, if you're making more than 10% net income margin

as a business, congratulations.

You're one of the rare ones.

Margin can fade, especially in a small business,

can fade so fast for items like rework.

When you get paid a unit rate or a lump sum

to do a project and your guys screw it up a little bit

or screw part of it up, you might have to go do some rework,

redo a part of the project.

That comes at the company's expense.

You don't get to charge the customer in most cases,

a second time to do the work because you screwed it up.

You didn't do it right, whether you gave a warranty

or whatever rework causes margin fade.

High turnover for employees causes margin fade.

Every employee you have to hire, you have to train,

you have to onboard, it costs you money

while you're without the employee for a period of time.

And so there's a lot of little things

that can cause margin fade in my business currently.

I'm just gonna speak for my own experience.

I want stable margin.

I would gladly take single digit net margins,

even low single digit net margins with stable customers

who have stable, clear, defined scopes of work

and they themselves are financially stable.

I would take that 1000 times over

before I would take the super high margin

that is volatile.

And here's why, there's a lot of different ways

to think about this.

When we were early in business,

we took a lot more of the high margin work that was volatile.

It was capital expense work from our customers.

It was getting, get out, get dirty.

You know, a lot of contractors do this

when you're building something, when you're constructing something.

The more margin comes from the sketchier customers,

the sketchier scope of work, the lack of plan.

More margin can come from the change orders.

I mean, there's a lot of companies that exist

and make all their margins solely on change orders.

They bid the work at cost.

They get their foot in the door as a customer.

They win the job.

They look for errors in a mission

and the designs or in the drawing sets or the plans.

And then they just go over to Mr. owner

and say, hey, Mr. owner, here's a change order.

You guys screwed this up.

You didn't have this in your scope of work.

You didn't have this design right.

And so we're gonna redesign it for you.

We're gonna build it differently.

You know, by the way, here's what it costs.

And the cost is crazy.

You know what happens?

Arguments happen.

Fighting ensues.

Law suits happen.

Litigation happens.

I've been through it all.

I don't love running my business that way.

A lot of people, it's a strategy.

It's a way to do it.

It's a great way to kind of build a company ironically.

Like a lot of DOT companies do this.

A lot of heavy civil companies do this.

When it's dog eat dog world out there,

man, go win the big contract

and hopefully you make some money on change orders.

That is a mentality.

That is a strategy.

I would rather at this stage of my business,

I'd rather be predictable.

I would rather the customer be predictable.

I want the scope of work to be predictable.

I don't love living in the chaos.

Even though at times you can make more margin,

the chaos can also cause margin fade

before you ever have even realized

the margin faded away.

When a scope of work is not clear,

when a scope of work is not defined,

you don't have clear plans or clear designs or again,

and you heard this back on the demo story

when Brandon came on and talked about his story

with his customer who stiffed him.

Like if the scope of work's not clear,

if the contract's not clear,

if the customer is not stable financially,

if the customer's not stable mentally,

you have massive risk, my friend.

And risk, like the only real way to protect against risk,

like there's a saying, I think Warren Buffett said it,

like the greatest risk is not knowing, right?

The greatest risk for a contractor is not knowing,

not knowing the scope of work, not knowing the contract,

not knowing the customer,

not knowing the customer's financial status

or the customer's, the customer's customers,

like the customer's business,

the greatest risk is not knowing.

So how does a contractor protect against risk

that they're not knowing?

Will they protect against it with more margin?

So naturally, and this is just kind of how the world works

and the way of contracting,

you're going to make more margin on the sketch of your customers.

You're gonna make more margin on the projects

that are not clear.

You're gonna make more margin on the scopes of work

that are undefined or the gray areas.

It's cool, it's fine.

But man, when it goes south, it goes south fast.

When you submit a change order after you've already reworked,

after you've already done the different scope of work,

like I've had guys that I've lived through this with before,

and I literally get sent to the moon every time.

We don't do anything out of scope

without a written and approved change order.

And I have said that sentence more times

than I can count in my business.

Hey guys, reminder, we don't do anything out of scope

without an approved written signed change order

by an owner's rep.

We don't do it.

This might be the easiest way to a road margin

because when you do work without an approved change order

and try to get paid for it later after the fact,

you know what the owner does?

He's got his balls in your hand and he's squeezing them.

He's got you by the balls.

You've already done the work.

You've already incurred the cost.

And by the way, he didn't approve it.

Even if someone in a conversation is like,

yeah man, go ahead and do that.

I'll get you settled up later.

Like, if it's not in writing, it's indefensible.

How are you gonna defend what you did?

I've lived through this so many times,

I mean, this is like probably its own

mini series of episodes.

You don't do any work without a written

and approved change order from the owner at all.

Because if the owner decides I don't really want to pay you

for that, you didn't do it the way I wanted.

You didn't have the design finalized.

I didn't budget for that.

Like I've heard them all.

I've heard every excuse known to man.

And I'll look at him straight in the eyes

and I'll say owner, dude, what are you talking about?

We both agreed on this last week.

We both agreed you wanted us to do this work.

We both agreed it was out of scope.

We both agreed it was not part of the original pricing,

the original contract.

You wanted us to do this.

And now after we've done it,

you don't have the budget for it.

Like you don't have the right design for it.

Like what do you mean you're not gonna pay us?

And guess what leverage we have?

None.

We have no leverage.

They've got us by the balls

and they're squeezing and twisting and turning.

And it hurts, makes your stomach hurt.

Go try to do a million dollars worth of change order work

and get paid for none of it, zero.

You think it hurts to get kicked in the balls?

Dude, that hurts.

Because you've incurred all the cost.

You've got all the labor hours in it.

You've got all the equipment hours in it.

And you're not getting paid for it.

So this is one of the quickest ways to fade margin.

But man, when it goes right, it can go really right.

I mean, we've got a customer

and we've had several of these in the past

where dude, it's unknown.

It is like unknown every day.

It's the Wild West.

It's the jungle.

It's like mining in the Amazon.

There's no plan.

There's no stability.

There's like there is no clearly defined this or that.

Like it's just show up every day.

You guys have probably seen this emoji, right?

Show up every day, grab a cactus.

Something's on fire.

We're going to try to put it out.

Have you seen this photo of these guys

in this third world country

and there's like a car on fire in the background

and the guys like no time to explain.

Grab a cactus.

That's what this is.

But man, there is a lot of margin in that work.

When it goes right, it goes really right.

But that's not a great way to build a business

because when it goes wrong and the lights shut off

and you are left with no business,

it's just not a stable way to do it.

And so I would trade all of our customers

past, present and future.

I would trade them all

for the slow, stable, dependable customers

who have slow, stable, single digit margin work.

Slow, stable, scope of work.

Everything has a plan.

Everything's agreed to.

The customer has a budget.

We live within their budget.

The customer's financially stable.

Like, and not to say we won't go chase work

that's a little sketchier, but my goodness,

we better have the margin to back it up.

We better have the margin on the project

that accounts for the risk of the customer,

a risk of the scope of work,

the risk of like the unknown of what happens.

It's really cool.

To see a business as an annuity.

And an annuity, and some of you guys

have seen these commercials where it's like,

oh, you got injured, you know, here,

like, let me get you an annuity

and put this in an annuity.

To me, an annuity is something we can do every day

that's repeatable for many, many years that's stable,

that we get paid margin dollars on.

There's no variability, there's no fluctuation,

there's no arguing, there's no like,

wonder what's gonna happen next month,

will our margin be there or not?

Will the project exist or not?

I like annuities.

I like dependable.

And I'm willing to take less margin for that.

There are a lot of businesses that could

and should do this, but they don't want to make less margin.

They think, man, if I'm not making my 15, 20, 25 percent,

like I'm not doing the work, meanwhile, they're hand to mouth.

They don't have the backlog growth.

They don't have the stability.

They can't plan the resources for their corporate overhead

because they don't know which contracts are gonna survive

and which are gonna end and which customers are gonna come

and which customers are gonna go.

It's a tough way to build a business.

It's not impossible, but it's a tough way to build a business.

I like being on the subscription model.

I had a conversation with a small business owner

the other day, they do outdoor B2B services

in a local community.

And I was like, man, you need to, like,

and again, I don't know his business super well,

but I hired him and they were doing some work.

I was like, man, you need to get customers

on a subscription model.

Like, I get, like, you're the guy in town

and everyone knows you and they call you

and you've got a great reputation.

But like, dude, it's kind of seasonal work.

And, you know, if they just kind of call you on a whim

and you do it, but you're jumping through hooves,

you're having to schedule your guys.

It's kind of a scheduling and logistics nightmare

for your business.

Like, if a customer calls, you jump.

And when they say jump higher, you jump higher.

Like, wouldn't it be interesting

to get on a subscription based model

where you just sign customers up almost on a retainer

and then you come and provide services once a month

or once a quarter and they don't even have to call you.

It's just on the calendar.

You can schedule your guys better.

The revenues dependable.

Like, you can, you can get them on multi-year deals

with discounts and like, you'd make less margin

for sure, but it's dependable.

You can plan around it.

You can optimize your business growth.

You can start to plan out what the business looks like

in year two and year three and year four.

Right now, you're just taking whatever customers give you.

Right now, you're just like, oh, if somebody calls, I go.

Like, if I win a job, I'll go.

If I get a new customer, cool.

If I don't, okay, we've got to figure it out.

Like, there are little ways.

And again, I don't, I'm speaking in generalities

because I don't know that guy's business.

But man, I know he could make fewer margin dollars

and have a much simpler, cleaner, easier business

and probably ironically, he could grow the business.

Now again, maybe smaller percentage of profit,

but larger top line growth at a smaller percentage

of profit and more stability,

that would offer you some real peace of mind.

And so there's a lot of little,

there's a lot of different ways to think about margin.

But man, I would always, always, always make less profit

with the slow, steady, dependable customer

who I'm locked in with.

I would always take less margin.

And quite frankly, that's one of our pitches.

When we talk about mining services,

like I'm happy to make less margin for the good customers

for the people that I can depend on,

for the people that pay on time,

for the people that I have long-term relationships with,

for the people that have a real solid plan

and a good budget, and they don't beat us up

over every single thing.

It's kind of a given a take.

Like, I will take less margin for those customers

because guess what, it's less headache.

You know, again, there's a lot of different things out there,

but more margin, more headache most of the time.

I know some of you guys can relate to this.

Like, more margin, more headache.

Some of these customers, the reason why you're able

to charge more margins, because no one wants to work for them.

They're gonna binge you over every chance they get.

They're gonna screw you over every chance they get.

So yeah, maybe you've got three or four months

where you make a lot of money.

When happens a month, five or six though, when they got you,

when your guy on site didn't do the right thing

and crossed the T and dot the I and the owner's reps,

like, ah, finally, I get some of my margin dollars back.

I'm gonna bend them over.

I'm gonna throw the book at him.

I'm not paying his change order

because he didn't cross this T on this little bit of piece of paper

and he didn't follow this stuff.

We had one customer one year, swear to you,

couldn't, can't make this up.

We did everything right, everything right.

We followed the letter of the law, we did everything right.

Signed change order, got the owner's sign it.

There was one sentence, one sentence in the contract,

one sentence, it was like literally 12 words

that we missed, our on-site guy missed,

the corporate team, we were, you know, oblivious to it.

And the owner said, you know what?

For that one sentence right there, like, I'm not paying you.

It's $2 million, $2 million that we didn't get

because of one sentence.

And that customer, we have made a ton of money with them.

It is feast and famine with them.

It is diabolical with them.

But they knew we were making ton of money.

They knew they're difficult to work with.

They knew they don't have a plan.

And they knew they had us by the ball hairs.

They were like, oh, wait a second.

We caught Turner.

They missed this one sentence.

They didn't do this change order exactly right.

And so, yeah, we're not gonna pay you.

I don't know, forget I've sit on the call with my guys

and we're sitting there and the guy's like,

oh, show me where you think you are owed this money

and we walk them through it and we give them this.

They're like, well, that sentence says that,

I don't need to pay you.

And I wish I could get into all the details I can't.

But me and it happens and they clawed back.

They clawed back some of those margin dollars.

And so that one customer who was awesome margin

for a long time clawed two million out of the back.

And that's not the slow, stable,

dependable thing that I love.

Now, when it's good, it's good.

When it's fun, it's fun.

When the money falls from the heavens,

it's great to rake it in and stuff it in the bag

and take off with it.

But man, those kind of customers,

those kinds of projects,

those kinds of scope of work that's vague and not clear,

those kinds of contracts that are shoddy

that are four pages when they should be 40 pages

or 400 pages,

you're gonna get got eventually.

You will get got.

And I know this because I have gotten got many of times.

And now I'm at the place where I love the slow, steady,

dependable, I'll take fewer margin percentages.

But more margin dollars because I can scale my business

around dependable customers.

I can scale my business around dependable plans.

We can scale operations around dependable scopes of work.

When things aren't dependable, when things are chaos

and every day something changes, every day something's new,

it's really hard to run a business.

Ask me how I know.

We did it.

We did it that way for a long time.

Didn't know what scope, scope work's gonna change.

We didn't know when or how or why.

We, you know, if they cut the contract short,

we had all these, like we,

I've had several contracts where we came in,

we did our work, the customer's business slowed down.

And so they just cut us off.

And I'm like, well, well, well, well, well, wait a second.

You cut us off middle of the way through the contract.

I've got all of these overhead dollars allocated

to this project that's spread over this volume.

I gave you a price based on a volume.

If you cut me off halfway,

I don't get those overhead dollars

for the rest of the volume I'm supposed to bill you for.

And again, you live and learn.

And the customer's like, oh, sorry, we cut you off.

There's nothing in the contract says we have to keep you.

We don't have to pay you.

There's no buyout fee.

You don't get to charge me overhead dollars

that you didn't make.

And so you're left on a project

that's supposed to be a million bucks in gross profit.

And you do it for free.

You'd make no money because you've got overhead dollars

that you didn't get paid on.

So a lot of these lessons,

you kind of have to learn a hard way.

It's not going to slap very hard listening

to a dude on a podcast.

Talk about it.

But man, if you own a business,

there are a million little things that cause margin fade,

a million little things.

You got to control the controllables.

And I think one of the things that is the most impactful

to margin and one thing that's controllable

is the style of contract you do.

The style of scope of work you execute.

The style of customer,

you are profiling and selling to.

Don't just sell to anyone just because they'll hire you.

Like, if I were going to run a small business today

and I had to deal with the logistics

of scheduling crews every day

and they're going someplace different every day,

I got a buddy that runs a drilling company.

Like he's moving a drill every day

or a couple drills every day.

He's moving crews around every day.

Same thing with a mowing company or a landscape company.

If you have a logistical nightmare to run your business,

you want the long term dependable sticky customers

who you can lock in.

Then once you've established that foundation,

you've got a customer base,

you've got recurring revenue from these customers.

You've locked them into either a subscription model

or a year long contract or whatever,

then you can start to plan the growth of your business.

Then you can start to allocate resources differently.

If all of my contracts were three month contracts,

I wouldn't buy a single machine ever.

Ever, never, never, I would never buy an asset or a liability.

I would never buy a piece of yellow iron.

I wouldn't buy a piece of yellow iron

if my contracts were one year contracts.

If I was on site for one year

and less we got extremely good

at predicting residual values

and basically like predicting

where the equipment market was going,

why would I want $100 million or $200 million

worth of equipment that I'm speculating on,

that I'm trying to sell at the end of a one year contract

and make money on or get my money out of,

get my equity out of.

I want dependable.

I want long term dependable recurring revenue

so that I can plan and strategize on how to scale the business.

It's tough.

But again, taking fewer margin dollars,

structuring commercial deals differently,

structuring contracts differently,

sometimes can afford you that beauty.

Like approaching a customer

who's used to doing work a certain way,

used to doing a scope of work a certain way,

used to just hiring any contract,

like saying, hey, Mr. Customer,

I'll do it 10% cheaper than you've ever had it done before,

but I need a two year agreement.

Like we even do this in staffing

where you buy enough volume

or you buy a long term staffing arrangement,

like what happily make less money?

Happily.

It allows us the ability to plan our growth

and scale our growth and predict our revenue.

Like revenue predictability is worth giving up some margin for.

It just is.

I mean, I can't imagine running a business right now.

And again, we tried it, we did it for a while, it's tough.

You have really good years, you have really bad years.

Like running a business where you're making 20% net margin,

which means you're making 30, 35, 40, 45% gross margin.

Like running a business doing that means a lot of chaos,

a lot of chaos.

And I don't think scaling a company

in the middle of chaos is a sustainable thing.

We, in 2019, you guys heard me talk about 2019 before,

2019 was chaos.

We scaled most of our contracts for three to six months.

We did a lot of overburden stripping.

We were just left right here there.

We had like 20 different crews across the country.

It was chaos.

A lot of the projects were making 40 plus percent margin.

A lot of the projects were making negative 40% margin

because we didn't get paid for a change order

or a crew would walk off.

A guy would tear something up

and we'd have to pay for it out of pocket or whatever.

It's really difficult to live in that chaos.

Now, it affords, in the good years,

it affords some real gross, some real scalability,

you have some profit dollars to play with.

But man, again, having the predictable revenue

where you can predict for the next 24 months,

I know what my revenue is.

That is beautiful.

If you don't know what your revenue is next year,

man, how do you plan to grow?

How do you plan to invest?

A lot of guys, when I talk to them,

the reason they won't invest any money,

the reason they won't hire the legit superintendent

or hire the marketing person or hire the person in HR

is because they don't have any predictability

with their business.

They're looking at next year saying,

man, I don't know if I'm a $5 million business next year

or a $1 million business.

I don't know if we're $10 million or $5 million.

I mean, we could blow up and be $20 million

or we could not win anything and be a $2 million business.

That's a tough place to be, my friend.

And one of the reasons you're there

is because you're chasing the highest margin.

You're not chasing the best fit

when it comes to customer, when it comes to scope.

You're just chasing the highest margin.

What can I go win and make the most money on?

A lot of times that's the wrong question to ask.

Especially when you're trying to grow in scale,

like what you should be asking is,

what can I win that provides the most dependability,

the most stability?

What can I win?

Maybe it's not sexy, maybe it's small, maybe it's simple.

Like there are some construction companies, no offense,

that should get commercial mowing contracts

and make 5% margin,

but it's dependable and you lock some big company

into a three year mowing contract or plowing

or what or landscape, whatever.

Like some of the guys are chasing work

and they'll have a boomer bust year.

If the project, you put all your eggs in one basket,

if this one big project goes really well, man,

we're killing it.

We're gonna make a ton of money.

Do you ever ask the question,

like what if that one big project goes really poorly?

What if the owner's rep is just a total jerk?

What if the engineer of record

or whoever you're dealing with on the customer side

is just gonna stick it to you every day

and cause you headaches and problems

and it's a fight just to get any dollars out of the project?

Like man, that's a tough, that's a tough place to be.

I would go on record and say,

you're never gonna scale a business that way.

You wanna grow from 2 million to five

or from five to 10 or 10 to 20.

You have to have some predictable customers

with predictable scopes of work and predictable margin.

I am where I sit now.

I will take the biggest swings.

I will go do $150 million equipment deals

for the people who are predictable.

I will.

I got a couple customers today

that if they said hey,

we're gonna do this big thing.

It's a $500 million contract,

or it's a billion dollar contract,

but you're gonna have to invest $150 million

in the equipment fleet.

For the right terms, for the right duration,

for the right backlog, for the right predictability,

I would do it almost no margin.

I think I've told the story before,

we had a customer one year.

Big contract was coming up

and I told him point blank,

I was sitting in our office,

there was two of the owners reps over there,

there were the decision makers to the contract award.

I looked them square and I had one of my guys

with me sitting in the corner.

I looked them square in the eyes

and I said, I will do your project for free.

I'll do it at cost.

I don't have to make a dollar off of you.

But I said it because it was predictable.

It was long term.

It was gonna put us on the map.

It was big and splashy and sexy.

I got more juice out of the announcement

and the headline and the reputation

than I was gonna get out of the margin,

the margins, whatever.

Fine, should I make a million bucks or five million bucks

or 10?

It takes a long time to build a reputation.

This would fast track my reputation.

This would fast track us getting put on the map.

And so I told them, I was like, look customer.

If you pick us, I'll do it for free.

I just got to cover my costs.

I can't lose money, obviously.

But I don't need to make a bunch of margin off of you

because the reputation impact to me is worth it.

And we did the project and it was successful partnership

and it made a lot of sense.

And we made some margin.

I didn't do it for free, but we made some margin

but we made a lot more impact to our reputation.

I'm telling you right now, I am able to scale

and grow our business and invest in people,

invest in systems, invest in things.

When I have a predictable backlog,

when I have a predictable customer,

the second I start losing predictable customers

or the second our scope of work starts to become unclear

or the market becomes unclear, I'm not investing anything.

Like, dude, if our market, if gold tanks tomorrow

was back to 2000 bucks, if copper went to three bucks

a pound tomorrow, if Fraxan dried up

and the Ormuz straight is now open

and no one needs US oil and no one needs,

like if no one's buying internal combustion engines anymore,

like, I'm not investing a bunch of money in yellow iron.

No way.

I'm in a hold position.

I'm gonna start renting and see what happens.

I'm gonna put the risk on somebody else.

I'm not gonna invest my dollars.

I'm not hiring any corporate overhead.

I'm not hiring any more engineers.

I'm not hiring any more marketing people.

But man, when the revenue is predictable,

when the margin is predictable,

when I can make 8% guaranteed every single day

for a long time, like I'm talking four or five years,

8% every single day, I can start to map out,

well, I know how much money I'm gonna make.

Like I already know, I already know how much money

I'm gonna make this year.

I know how much money I'm gonna make next year

if we don't win anything.

I know how much money we're gonna make.

And so it gives me a ton of confidence

to go invest in my business.

Where I sit today, I can tell you

the minimum amount of profit we're gonna make in 2028

because of our backlog, because of work under contract,

because of how we've modeled the work.

Now, things could change, right?

Maybe something terrible happens

and the customer has to terminate the contract

or maybe we just don't do the work as well as we should.

But within a few percentage points,

a couple of points here and there,

I know how much money we're gonna make in margin.

And so if I know that, that gives me supreme confidence

in investing in the business.

So now I can hire a CMO.

I can pay someone to go do a role

that doesn't yield me much revenue return for a while.

I think a CMO role is a long-term play, it's a long-term bet.

Now we can go hire equipment trainers

and operations trainers, we can go hire more safety people,

we can go invest in this campaign or that campaign,

like it gives me confidence.

But that is a totally different business strategy

than just chasing the highest margin work.

If I walked in my office tomorrow

and I told all of our guys,

hey, we're only gonna chase the high margin work from now on.

Dude, people would be flipping out left and right

because they know the kind of customers,

the kind of scope of work,

the kind of contracts that it was required

for us to go chase the highest margin.

And some people do it and they do it just fine.

But it's just a different approach.

So I'm not saying one is right or one is wrong.

I'm just telling you what I would prefer

and I prefer long-term stable partnerships

that I consider annuities.

I prefer adding value over three or five

or 10 year contracts where I feel confident

in investing with the owner,

investing into the partnership, investing into the people.

Those are the things I like.

And so, I don't know,

that's a weird way to think about it.

I think you need to consider what it would look like

if you're a business owner.

Consider what it would look like to give up some margin

to get some stability.

Cause usually that's the trade-off, right?

If you're gonna give up margin,

what are you getting in return?

I got my truck beeping at me.

If you're gonna give up margin,

what are you getting in return?

Are you getting reputation?

Like, is it improving your reputation to give up margin

and get the big long-term thing with the right customer?

Are you getting a customer who is maybe more financially stable

and less risk of defaulting on the project?

Are you getting just an easier day-to-day life

where you have fewer headaches

because you're not arguing with the customer?

Like, what do you, what would it look like?

And again, maybe it's not for you.

Maybe it's not your business style.

But like, a lot of guys that are running small businesses,

could and should take fewer margin dollars

and have more dependable revenue,

have a more dependable customer.

So I don't know, something to think about,

something that was, I thought the audio was a good one.

And I thought, man, I bet you,

there's someone who hasn't thought this way.

I bet you, I bet you there's a lot of guys out there

just like, man, I gotta make as much money

off every customer as possible

so I can pay my employees, pay myself

and what they're forgetting is, man,

fewer dollars, fewer profit dollars,

but more dependable profit allows you to invest.

And if it allows you to invest in your company

because you're confident in the profits coming in,

if it allows you to invest,

then the investment should pay off in growth.

And if it allows you to grow,

that means more of those customers that are stable.

That means more operations that are dependable.

That's a peaceful life.

It's a different approach, it's a different thing,

but it's a peaceful life.

It's a peaceful way to think about it.

So I don't know, I don't know if that helped anybody,

I don't know if that's applicable

to where you are at in business.

But for me, for my customers, for our operations,

our operations team, our corporate overhead,

like I love the stability.

And I know that having stable revenue,

having predictable profits doesn't always mean

you're going to be the most profitable company in the class.

Doesn't mean that your competition,

like there are guys I compete against today

that are winning projects,

and I know that I'm watching it in real time.

I'm literally watching a competitor win a project

that is on paper going to be high margin.

But man, I hope they are prepared

for the chaos that will ensue,

because that high margin is only high margin

if everything works out perfectly.

And I've had some of those where they work out perfectly

and you're like man, that frickin' margin was amazing.

I just made 50%,

when a project make 50% on real money,

it's like, is a big number, real money?

Everything went perfectly.

We've had others that were supposed to make 50%

and we're begging at the end of it

to just get out of it because we're bleeding to death

because it doesn't go perfectly.

It's a pain to deal with the customer,

discopes undefined,

and the only way to define it

is by issuing change orders

and the change orders don't get approved,

but the project needs completed,

and the only way to get through it is to litigate it.

Then you go to litigate it and you sit down in mediation

because again, you've got a mediation

and arbitration clause in the contract

and then you get nothing out of it.

You waste your time flying around,

sitting with lawyers, and again,

I only speak on these things because I've lived through them.

But man, I love, love, love,

the peace and serenity of a predictable customer

with a predictable scope, predictable revenue

that translates to predictable margin.

I love it.

It's the thing I am craving,

it's the thing we're chasing,

and it's the thing we're strategizing around.

So anyway, that's what I got.

Hopefully you got a little bit of value out of it.

Hopefully something made sense.

We'll do it again tomorrow.

Peace, love.

Pray for pretty him.