3 April 2019
Why the MOST Important Part of Junk Removal is also the Most Expensive
You may be thinking Disposal, right? It’s a really good guess and in terms of a percentage of sales, it is likely the #2 expense for the Cost of Goods Sold (COGS) for an overwhelming majority of junk removal and hauling businesses. The concept of the service is simple.
We take things that customers no longer want and get rid of them. Rather than dumping everything, which is not environmentally friendly, we do our best to recycle and donate items. Here, we simply transport the items to the recycling professionals and unload the items that are easily recyclable without us having to own a licensed recycling/sorting facility. With donations, it’s similar. We take items to organizations that will accept items for donation and then they resell or donate said items to those in need.
Sometimes, we at Fire Dawgs Junk Removal are able to “Upcycle” items through our newly formed Fire Dawgs Foundation. Here, we take items that someone may not want, but are in good enough condition that we can donate them to a family that has recently been displaced by a fire. Whatever is left, which is your typical trash, is taken to a disposal facility. At this facility, they charge us a fee based on volume and tonnage. That expense makes up our “Disposal. However, this expense is not the #1 expense for a legitimate junk removal and hauling business.
If not disposal, then you may be thinking Fuel?
Another good guess and this also is a chunky part of the COGS. Think about it, we drive large mini dump trucks that are designed specifically for junk removal. Newer models can get 10-12mpg, but many on average are closer to the 8-12mpg range. A lot of our fellow haulers also use the truck and trailer model where mpg is still not stellar due to the strained load. Take that MPG and think about the travel involved with just 1 appointment. Our team drives to the location of the appointment from their meeting point or office, loads up and then takes the item to a series of stops. First, they drive to the recycling facility or staging point.
Next, they go to a charitable organization. Last, they go to a disposal facility. You may be thinking that they do that after every appointment and you’d be right, but we do incur the travel wrapped up in that one appointment regardless once you reach a full load, and we pull full loads often so there are many times when that is exactly how it plays out. All that to say, we spend a lot of money in Fuel. After reading that, you may think that Auto & Maintenance for the vehicles is a chunk category. You’d be right, but likely not more than fuel unless you just had everything that could go wrong, go wrong that year with regards to your equipment.
Without further adieu, the most expensive part of junk removal is Direct Labor.
It is also 100% the MOST IMPORTANT part of performing Junk Removal and Hauling services. I say this because since 2011, the one variable that can make or break your profitability, is the same one that can make or break your company getting a referral from a customer or a recommendation on NextDoor, and that is the quality of your team. Your overall team may include an Office Manager, Customer Service Reps, Sales and Business Development, etc., but that would be classified in Admin Payroll or overhead, and not a direct part of Direct Labor.
We’ll discuss the difference in another article and how both impact the customer experience. For this article on Direct Labor, think simply about the team that is physically doing the work and out there meeting your customer in the field. If your team has an upbeat attitude, is able to treat customers the way you would want your family to be treated and enjoys the honest work of using their hands and manual labor, then you are truly onto something great.
Customers will be able to see that in the smiles of your team and in the way they perform the work. You’ll be able to see it in the genuine thoughts from your customers in the reviews they leave for your company. No ivory tower here, we all make mistakes and we are all a work in progress. It’s the willingness to fail and learn, complemented by the effort of continuously improving, that will shine through..
Now, the Trade Off
There is a trade off here. Customers want the best service possible and are willing to pay a reasonable price to have what they need taken care of; however, they rightfully expect to receive extraordinary service. As a consumer myself, that is what I look for as well. It’s our job to continuously be looking for ways to impress our customers and make them feel good about hiring our company. In return, we believe our customers are willing to pay for Quality and Service, rather than simply the Cheapest option. When it comes to Cheap, Quality and Service, there is a cliche that you get to Pick 2, nobody can be all 3. We choose Quality and Service because that’s where we feel that we can excel as a company, but where we also feel that we can have the revenue to support the best team in our market.
Build the Best Team? Easier said than done right?
In my experience, one of the best ways to take care of your team, and ensure that you are not only hiring, but also retaining good, talented team members is to pay them a top tier wage for the industry. You don’t have to do this, there is certainly an argument to be made for culture, equipment, leadership and much more. I would agree with all those points as well; it is definitely the parts that get you the sum. Paying your team well alone will not be enough, but think of it as the foundation to building a rock solid home. Paying your team well does not mean the cost is simply passed to the customer. As Owners, and Leaders, we have to be budget disciplined and fiscally responsible to ensure the business turns a profit and if we commit to a higher percentage on Direct Labor, then we may have to pull back in other categories, or put sweat equity in elsewhere like Sales and Marketing.
Now, let’s approach this from a negative side. If your team is unmotivated and simply filling a seat on your truck, then you will see the effects from this on the gross profit percentage of your services. The production per hour will be low, the gross profit will be less than you are targeting because your Direct Labor will be up and your overall payroll as a percentage of sales for the month or year will start inching over your target one percentage point at a time. That’s simply from a profitability perspective.
The Customer’s Perspective
From a customer facing perspective, you will see a drop in the number of reviews and/or your inbox will experience an uptick in customer complaints. Remember, this is GOOD too because your customers are letting you know that you have a problem and problems can be fixed! Be grateful that you have customers willing to let you know where you can do better! That said, you have to be willing to take the problems head on and find out how to get your team and direct labor back on track so that you can start taking better care of your customers. One way, among many, is to TAKE CARE OF YOUR TEAM. Do that, and they will take care of your customers.
Direct Labor is both the Most Important and Most Expensive part of performing Junk Removal and Hauling services
In conclusion, it’s easy to write or talk about building a good team. It’s complicated to go out and do it. This article alone does not provide the answers and within this article are probably dozes or more articles where we could dig deeper and unpack a lot more value on the providing junk removal and hauling services, as well as building a team. We simply set out to constructively talk about how Direct Labor specifically is both the Most Important and Most Expensive part of performing Junk Removal and Hauling services. Hopefully this article has been helpful for both our customers, as well as our brothers and sisters in the industry building their own teams!