The 5 Revenue Drivers and Gross Profit Fixes That Make a Service Business More Profitable
Bruce Beaumont, Owner of Ascendwise and co-founder of Doozy Pet Waste Removal ·Ascendwise
Built Local Podcast with Clay Lawrence · · 24 min episode
The short version
Bruce Beaumont, a former CFO who runs the consulting firm Ascendwise and co-founded Doozy Pet Waste Removal, says most service businesses that ask for more leads actually have a different problem. He breaks revenue into five drivers (new leads, conversion rate, retention, purchase frequency and average ticket) and then looks at gross profit, where he finds the biggest issues. One heating, air and plumbing client that was losing money saw a 20 to 22 percent swing in net profit over about two years.
Key takeaways from Bruce Beaumont
- 1
Before you buy more leads, pull five numbers: new leads, conversion rate, retention rate, purchase frequency and average ticket. The weak one is usually not leads.
- 2
Price every job to cover four things: direct costs, operating expenses, fixed assets such as truck depreciation, and profit.
- 3
Count technician labor and job supplies as direct costs, so your gross profit number is honest.
- 4
Run a reverse brainstorm: list every way you could make gross profit worse, group the answers into themes, and check which ones you are already doing.
- 5
Keep the service area tight and send the right tech to the right job. Long drives and return trips eat margin and revenue capacity.
- 6
Judge a manager by whether the team is getting better because of them. If not, they are only managing tasks.
- 7
Hire for mission and values fit, then tell people what winning looks like so they can make good decisions without a script.
Who is Bruce Beaumont, and what does Ascendwise do?
Bruce Beaumont runs Ascendwise, a consulting firm that helps service businesses, mainly home service companies and marketing agencies, become more profitable and scalable. Before starting it he spent years in high-growth service companies as a CFO at small firms, where he says the role stretched well past finance into marketing, sales and the rest of the business. He describes having been part of growth from zero to $60 million and about a dozen mergers and acquisitions.
He is also an operator. Bruce and a friend started Doozy Pet Waste Removal the year before the interview, after a consulting client who owns a pet waste company kept describing the business at the end of their monthly meetings. He liked the recurring revenue and the simple model, and he wanted to be a user of the tools his clients use so he would hit the same problems they do.
Why do most service businesses not have a lead problem?
Because the real weakness is usually somewhere else in the numbers. “The most common thing I hear: ‘I need more leads,’” Bruce said. “And the majority of time that’s not their biggest problem.”
When Ascendwise starts with a company, it takes the profit and loss statement, the balance sheet and some basic marketing data and drops them into a scoreboard. Owners, he said, tend to drown in data. The point is to look at the right data. Often it shows a company that does not retain customers, does not get repeat purchases, converts poorly or charges too little.
What are the five revenue drivers?
Five numbers explain how any business got to its revenue:
- New leads, counted from new prospects only. Depending on the business this might be called a lead, an estimate or a quote.
- Conversion rate of those leads into customers.
- Retention rate. For a recurring service, the percentage of customers retained from the prior month. For a one-off service such as power washing, the percentage of clients who came back from the prior year.
- Purchase frequency. This matters little for a monthly recurring service and a lot for something like HVAC maintenance, where a customer ideally buys twice a year.
- Average invoice value, or average ticket.
“Revenue is an outcome. We don’t know how we got there,” he said of the top line on a P&L. The five drivers are the levers. To go from $100,000 to $120,000, a company sets a target for each one, sees where it is already optimized and where it is not, and builds a plan around the gap.
Why is gross profit the bigger problem, and how do you fix it?
Gross profit is the biggest issue Bruce sees in service companies, and he treats it as the sixth number. “Revenue doesn’t pay bills, gross profit does.”
He defines it as revenue minus direct costs, and he includes the labor of the technicians on the job along with the supplies they use. The usual causes of a weak number are operational: routes that send crews too far, too much warranty work, undertrained teams that take longer or break things, and prices copied from competitors.
On pricing, he says every price has to cover four things:
- direct costs
- operating expenses
- fixed assets
- profit
Fixed assets are the one owners forget. A $50,000 truck that is worth $20,000 after five years cost $30,000 to use, and that has to be recovered in the price. He often sees companies running 5% to 7% net profit that barely cover the payments on their fleet.
To find the leaks quickly he uses reverse brainstorming. Ask the team for every way they could make gross profit worse. People find it easy to rattle off 30 answers. Group them into themes, then ask which ones are happening now.
What happened when a heating, air and plumbing company did this?
Its net profit swung by about 20 to 22 percent over roughly two years, starting from a loss. Bruce said the problem was gross profit, and the reverse brainstorm surfaced the causes: technicians driving too far outside the service area, the wrong tech being sent to a job (which meant return trips, upset customers and extra cost), pricing that was off, and no process for watching costs and passing increases into prices.
The second piece was leadership. The company had managers in place, and Ascendwise worked on moving them from assigning tasks to improving the people under them. His test is simple: is the team getting better because of that person? A better team makes fewer mistakes and needs fewer people, which shows up in profit.
How is he applying it at Doozy Pet Waste Removal?
By building the team and the foundation first. Bruce said Doozy reached six figures in about six months. He credits a group hired for fit with the company’s mission and values. Employees see the numbers in meetings and get training similar to what his consulting clients receive, partly because the mission is to develop people who may want to run a business themselves.
He borrows the idea of commander’s intent: if an employee forgot the process one morning, they would still know what winning looks like. At Doozy that is the Doozy Promise, four commitments to customers. “Think of it as when you go out for the day, you and your truck, you’re in business.”
The measure he uses for scalability is whether the company could double or quadruple tomorrow and, apart from hiring, not break.
In Bruce's words
“The most common thing I hear: 'I need more leads. I don't have enough leads.' And the majority of time that's not their biggest problem.”
“Revenue is an outcome. We don't know how we got there.”
“Revenue doesn't pay bills, gross profit does.”
“Think of it as when you go out for the day, you and your truck, you're in business.”
Review Harvest Client
What Ascendwise says about Review Harvest
Bruce uses Review Harvest at Doozy Pet Waste Removal, which Clay recalls had about one review when it signed up. At a team kickoff in late January the company was sitting at 29 reviews and messaged a few customers directly to try to reach 30 for the meeting, without success. In roughly the 60 days before the interview it climbed to 70-something, with reviews arriving in batches as new customers come on.
“We didn't get it done, but here in the last pretty much 60 days, we've gone up to 70 something.”
Bruce Beaumont on working with Review Harvest: “How This Business Went From 29 to 70+ Google Reviews in 60 Days”
Questions this episode answers
What are the five revenue drivers of a service business?
Bruce Beaumont of Ascendwise lists them as new leads from new prospects, the conversion rate of those leads, retention rate, purchase frequency and average invoice value (average ticket). For a recurring business, retention is the share of customers kept from the prior month; for a one-off service such as power washing, it is the share of clients who came back from the prior year. He says those five numbers explain exactly how a company arrived at its revenue, and every business has them.
Why is getting more leads usually not the answer?
Bruce Beaumont says "I need more leads" is the most common thing he hears from owners, and most of the time it is not their biggest problem. When Ascendwise puts a company's numbers into its scoreboard, the weak point is often conversion, retention, repeat purchases or pricing. Fixing the lever that is actually broken moves revenue more than adding leads to a business that does not convert or keep them.
What is gross profit in a home service business?
Gross profit is revenue minus the direct cost of doing the job. Bruce Beaumont of Ascendwise includes the technicians' labor for the time on the job and the direct materials or supplies used, such as chemicals for a power washing company or bags for a pet waste company. He says gross profit is the biggest problem he sees in service companies, and gives 25% to 30% for a heating and air or plumbing company as too low to survive.
What should the price of a service job cover?
According to Bruce Beaumont, pricing has to cover four things: direct costs, operating expenses, fixed assets and profit. Owners often leave out fixed assets. His example is a $50,000 truck worth $20,000 after five years: the $30,000 difference has to be recovered in pricing, because there is nowhere else to recover it. He often sees companies at 5% to 7% net profit that barely cover their truck payments for this reason.
What is reverse brainstorming for profit?
It is an exercise Ascendwise runs with clients, which Bruce Beaumont says his firm did not invent. Instead of asking how to improve gross profit, the team lists every way it could make gross profit worse, such as driving three hours to a job or lowering prices. They group the answers into themes and check which ones the company is actually doing, which shows where to build a plan.
How fast did Doozy Pet Waste Removal grow?
Bruce Beaumont says Doozy Pet Waste Removal, which he started with a friend, reached six figures in about six months. He credits the team: the company hires for fit with its mission and values, shares its numbers openly in meetings, and trains employees in how a business runs. Each scooper is told to think of their truck as their own business and to deliver on what the company calls the Doozy Promise.
Want to work with Ascendwise? Visit Ascendwise at ascendwise.io.
