Hey Nick, can you help me with gaining market share?

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Hey Nick, I saw your Facebook post where you offered business coaching if we were to use this platform. I would like to ask you for advice and direction on marketing and specifically in “gaining market share”.

I own a 7 inspector firm in Phoenix, AZ. I just recently hired a marketing person (one of my inspectors wives who has years of marketing experience for big companies like Coke for example). She is great and has some great ideas and is already adding value.

But you see, my company is experiencing a tough growing pain right now… we are no longer a boutique company, which means our expenses are getting higher, but our market share is not growing the way we need it to in order to continue to scale into a larger company.

So my question is this:

With a limited marketing budget, what tool/technique will give me the most bang for my buck when it comes to marketing?

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I’d be glad to help. May I move this thread to Misc? Not Misc Members-Only?

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Yes please. Didn’t mean to put it in the wrong place.

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I can help.

So before we begin to fix the problem, we should ask ourselves what lesson was learned? I understand that when you are busy and can’t accommodate every client wanting your services, it drives you nuts. You naturally want to hire more employees so that you don’t have to turn away business. This is often a mistake because busy times come and go. There is no such thing as a boom without a bust. There is no such thing as being awake without sleep. Uneven demand is part of life.

Knowing that, you never want to have all the employees you need to handle busy times (unless you are an emergency room of a hospital). Instead, for the future when this happens (and it will), try regularly reminding your existing staff that when you get busy, you expect them to all work overtime. Most employees, and even employers, believe a myth. That myth is that it is illegal to force an employee to work past 40 hours a week. This is not true. In all 50 states, you can DEMAND that your employees work overtime, start super early, work late, work weekends, or whatever. And you can fire them if they refuse. I don’t know where this myth that employees are legally entitled to work only 40 hours (if that is all they wish to work) came from… but it is NOT true. So always keep a bit understaffed and have your staff be ready and willing to work like animals during busy times.

I’m in two businesses that are weather dependent (farming and construction). My staff in those businesses know that we make hay when it is sunny… literally. And so there are times when we have to work very long hours. They are accustom to it. Some businesses aren’t banks and the staff doesn’t get to work banker’s hours.

So always be understaffed (intentionally understaffed) with each employee standing ready to work like two. You don’t want “lean”… you want “lean and mean.”

Now let’s move on.

You said you are interested in “gaining market share.” I’m going to use the term “market share” loosely. There are three types of increases:

  1. You can increase the strength of your market share. In other words, go after the home inspections in your area that you aren’t getting. That means stripping them away from your competitors.

  2. You can add to your market share by offering more services. InterNACHI makes that easy, of course.

  3. You can expand your market share geographically. Push further and further out, or attack a nearby town.

Now before we go further, can you chime in? Do you have any questions so far or any thinking you can share? I want to keep these threads interactive.

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Wow, I’m already glad I reached out and see a ton of valuable points you made that I would like to discuss.

Regarding keeping my workforce smaller and demanding more work out of less people:

I would love to do this. I would like to explain a bit about the formation of my company, that may shed light onto why I am now seeing some huge challenges.

I am a professional full time firefighter working 24 hour shifts (I was a FF when I started my home inspection company as well). I started my consonant as a way to make some side money. I didn’t have a business plan, a marketing plan, or really any knowledge of business, just an idea and some previous construction experience.

After starting my company in 2018, I quickly realized I could not handle the workload. I was working 24 hours, then on my 48 hours off, I was doing 2-5 inspections. (1-3 per day). I was using software that didn’t allow me to report on site so my reporting time was lengthened.

As I started hiring people, I based that hiring off of another companies way of doing things which was to hire them as independent contractors who get 65% commission. I cover EandO, general liability, uniforms, software, and marketing. This worked well and I was easily able to hire great people (65% is almost unheard of in AZ for commission splits). I kept getting busier and busier and hiring more and more people. Finally, I realized we needed to get new software to improve efficiency, which would then allow each inspector to inspect more houses per day. We started Spectora and because of the change, lost a few inspectors.

Kept getting busier and had inspectors that could work hard and extra when called upon.

But then… inspector burn out happened. I lost a few other inspectors. (Possibly also due to extreme temps in AZ summer months and huge increases in our numbers of inspections at the same time). So I began hiring younger people out of my InterNACHI partner school, and found some great new inspectors who are hungry and want to be busy. I got them into taking classes and providing new ancillaries like sewer scope, air quality, mold, and more. They were able to keep busy because of the ancillaries. Then… the 2022 slow down. I had not experienced this slow down yet. I began searching for extra money in my budget to market, but there wasn’t any there… I realized that my 35% commission split was not sustainable for the size of company we have become.

Now… I’m not sure what to do? Do I part ways with a few of these inspectors who have really given quite a bit to this company? I have thought of just fed reading their commission split down to 60% and taking that 5% and putting it directly into a marketing person. (the inspectors wife who is already experienced in this).

Also, to your final 3 points:

  1. I am attempting to do that by performing realtor presentations, adding more services, and doing what most inspectors in AZ are unwilling to do.

  2. My vision is to be the main 1-stop-shop inspection company in az. We are working towards providing basically every inspection service that an inspection company can provide.

  3. We already are willing to travel anywhere in AZ.

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OK. I can see one problem and what to do about it.

You are correct that your 35/65 split (with 65% going to the subcontracted inspector) was a mistake. And that mistake might feel hard to unwind. But we have to unwind it and we can do that while hitting a few other birds with one stone. Do this:

Start phasing out these subcontractors (and not just because they are taking 65% of gross). If you want to take a bold step, fire them all tomorrow and hire back half of them as W2 employees. Otherwise, convert your best ones to employees and give them all the highest-fee inspections. Give the low-fee inspections to your subcontractors for now. Hopefully they’ll all quit.

Yes, I know all the advantages of hiring subcontractors over employees. You need not reiterate them all. But all those advantages (added up) are worth less than the advantages of having a smaller team of W2 employees. I won’t go into all the advantages, but I’ll give you three that are particular to your situation:

  1. It immediately unwinds the horrific 35/65 split, where you are currently getting the short end of the stick. That has to end and this ends it.

  2. Paying someone as a full employee isn’t just a more headache-ridden way of compensating an inspector as opposed to the simplicity of paying them a percentage… It’s COMPLETELY DIFFERENT! Yes, I get it, multi-inspector firm owners like hiring sub-contractors on a percent basis because they feel “they can’t lose.” They also can’t win. Stop looking at your subcontractors through your eyes. Look at them through their own eyes: They get paid the same regardless of whether they do a great inspection or a lousy one, regardless of whether they are diligent or complacent, regardless of whether they work to get additional business (from agents or seller, etc) or not, regardless if they screw up or not, regardless if they spend 4 hours on the inspection or 1.5 hours. You’ve financially incentivized those subcontractors to not improve, you’ve incentivized them to give no thought to the helping your company succeed (holistically), and you’ve incentivized them to rush. They get the same percent either way and their percent isn’t based on net, it’s based on gross. A subcontractor who is paid a percent of gross is a walking cancer to your business. Conversely, as an example: an employee is not personally, financially-incentivized to rush.

  3. When you raise your prices, your system results in your subcontractors getting 65% of that pure profit. You built your business and reputation to the point where you command higher fees, but you give most of those excess profits to your subcontractors. They get 2/3rds of your price increases. If you raise your prices three times this year, they got three fat raises. That’s insane. The same is true when you land the occasional really high-paying job. If you land a big estate tomorrow with lots of ancillary inspections and the fee is $2,500, your subcontractors get a huge bonus for the day. Had they been employees, their pay would be fixed and all the extra profits for running a good company that can command higher fees goes to you, not them.

I apologize for not jumping right into “landing more business,” but first we have to fix the systemic problems before we can advance forward. These subcontractors are working inside your company for themselves. They aren’t working for you, you are working for them. Let me ask you a question. At night, when you are laying in bed, do you feel that you are stressing out and working for them?

Please comment on what I’ve suggested so far. I want to keep us on the same page.

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This is a great information. As hard as it is to hear, I want to know more about this. The 65/35 is not sustainable and we have really been looking into how to change it. I started by stepping the new inspectors: 55% until they do 60 inspections with us, 60% for the first year, and then 65% after first year. We have also been talking about decreasing our 65% inspectors down to 60% and taking that 5% and putting it directly into marketing - (something we have never put much money, time, or effort into).

I do believe it being “bold” to fire them and rehire half of them as W2 would be an understatement. These are people who have worked hard and have helped my company grow. And at the end of the day, I do feel like I am working for them, more than them for me… but am willing to continue learning how this idea would actually work.

So, I agree with number 1: it would stop the 65/35 split.

As far as number 2: This is how I have seen things for a long time (not saying I am right by any means) - by paying them a percentage (and a high percentage at that) they are much more motivated to work for me. They don’t have any reason to go start their own company and try to become my competition (using my trade secrets). They don’t have a reason to rush because I only assign them one inspection per day most day. Client complaints stay low, the moral of the inspectors stay high, and the wheels keep turning… they just keep turning without making me a whole lot of profit. So, how do I go about structuring their pay as employees in order to incentivize taking their time and doing a great inspection?

For number 3: In order to make more profit, I started pushing ancillaries and getting the inspectors to have more certs and make our inspections worth much much more. And we did just that. But like you said, it’s the contractor that’s getting the majority of the raise in pay, BUT it’s also the contractor who is doing most the work. The contractor did the NACHI training for mold and IAC2, the contractor purchased the equipment for air quality testing, the contractor purchased the tests and the contractor drove in rush hour traffic to get to the house and spent their time performing the test. Why should I make the higher percentage when they do the majority of the work? Also, when a big job comes in for $2,500 (due to size and complexity), and the inspector(or two) have to spend all day inspecting and reporting in the 110Degree weather, they should get a raise… shouldn’t they?

I am not against this largely bold change… but I need to learn more about how I would actually structure their pay, and then furthermore, what I should then take on as employer expenses (payroll/taxes, benefits, workers comp, vehicles, equipment, etc.)?

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Based on 35 inspections per week.

7 inspectors doing 5 inspections a week @ avg $400 per inspection = 35x$400 = $14,000 week gross
You keep $4,900 week

5 inspectors at salary doing 7 inspections a week
Sales Gross $14,000
Salary cost $5,000
Gross before next line expenses $9,000 per week on the same sales volume.

Exactly. Get your numbers. That should simplify your decision process. But you now have $4k a week to throw at those costs.

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You are the business owner! You are supposed to make more money than they do, even though your staff does the majority of the work. There is no shame in that. I have 112 employees in 14 different companies (everything from a bridge company to a cosmetic company) and I expect every one of them to do the bulk of all the work. And at the end of each day, they are paid in full for their time that they sold me. The people who work for you ARE NOT YOUR PARTNERS in business. Yes, if they were your partners, your thinking would be appropriate. They are not. They didn’t put their own capital at risk. YOU DID. They aren’t on this forum at midnight fretting over how to keep you employed. YOU ARE. Treat them well, but stop thinking of them as business partners. And if you can’t stop that… at least stop treating them financially like business partners.

As for your question…

So, how do I go about structuring their pay as employees in order to incentivize taking their time and doing a great inspection?

Let me pull something from SCALE UP: 100+ Steps to Growing and Systemizing Your Multi-Inspector Firm that I personally used in the inspection business. You’ll note it is a share of net, not gross. That keeps them thinking about the company in the same way you (the owner) should be.

Consider giving out monthly bonuses to your employees based on their individual contributions to net revenues. This has almost the same effect that is enjoyed by employee-owned companies in that employees strive to have the company succeed financially. Your multi-inspector firm’s success becomes their success, and so your employees will strive to do their best. It also causes them to push their co-workers to do better.

Here is my formula for calculating monthly bonuses based on net revenues. You’ll need to gather four numbers every month, and decide on a fifth. They are:

G = Gross revenue for the month. That’s the total of all the money you brought into the company for the month.

E = Expenses for the month. That’s everything you spent, including payroll, marketing costs, rent, etc.

P = Percent of profits you wish to distribute to your employees. This is the only factor that you decide. I would start with 10% and see what sort of bonus checks result from that. Start low, as it is difficult to decrease this percentage later.

T = The total number of hours worked by all employees. Simply add up all the hours that all your employees worked that month. Some employees probably worked about full-time or roughly 160 hours. Others may have worked less, and others more. One of the things that I do is that I include my own hours in this number. I also include office staff (not just inspectors), as the success of the company relies on them just as much as your inspectors… and maybe more.

N = The total number of hours worked by the individual employee. This factor will change for each employee, as each employee works a different number of hours each month.

You’ll have to calculate the bonus for each employee, as each employee’s bonus will be different, depending on how many hours they worked that month. The formula creates proportional results, so if someone worked twice as many hours as their co-worker, their bonus will be exactly twice as big.

The formula for calculating any employee monthly bonus in dollars then becomes:

BONUS = (G-E)(P/100)(N/T)

Run the formula for each employee each month to determine everyone’s bonuses.

Here is an example of this formula in action using made-up numbers for a multi-inspector firm that has one owner (you) and four employees. We’ll call the four employees Tom, Dick, Harry, and Suzie.

• Let’s say you worked 200 hours last month.
• Tom worked 220 hours last month.
• Dick worked 110 hours last month.
• Harry worked 10 hours last month.
• Suzie worked 160 hours last month.

You decide to give bonuses equal to 8% of your net revenues. So, P = percent of profits you wish to distribute to your employees = 8.

G = Gross revenue for the month = $50,000.
E = Expenses for the month = $30,000.
T = The total number of hours worked by all employees = 700.

Using my formula: BONUS = (G-E)(P/100)(N/T)

Your bonus:
= ($50,000-$30,000) x (8/100) x (200/700)
= $20,000 x 0.08 x 0.286
= $457.14

Tom’s bonus:
= (50,000-$30,000) x (8/100) x (220/700)
= $20,000 x 0.08 x 0.314
= $502.86

Dick’s bonus:
= ($50,000-$30,000) x (8/100) x (110/700)
= $20,000 x 0.08 x 0.157
= $251.43

Harry’s bonus:
= ($50,000-$30,000) x (8/100) x (10/700)
= $20,000 x 0.08 x 0.014
= $22.85

Suzie’s bonus:
= ($50,000-$30,000) x (8/100) x (160/700)
= $20,000 x 0.08 x 0.229
= $365.71

When your multi-inspector firm is really busy and you want to encourage your employees to work overtime, you could add a twist to the calculation by announcing that you will count overtime hours as 1.5 x the hours instead of just using the actual number of hours worked by employees. This gives those working overtime an even larger slice of the bonus pie.

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The only problem I see with your math is that the salary cost for five good inspectors is going to be way, way higher than $5000 per week. Let’s say you could find some to work for $40/hr. That alone would add up to $8k on a 40 hr week. And then you still have to add in the cost of benefits and FICA taxes.

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Agreed, that’s why I said this.

Well, if you are going to pay your inspectors $80k a year, then yup…you’re right. Better get more than $400 per inspection :wink:

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I think $80k/yr is definitely appropriate if you want good inspectors. This isn’t an entry level job. You also have to consider a minimum of 3 weeks paid vacation per inspector and some paid sick time. So for five inspectors on salary, that’s 20 weeks per year where they will not be generating revenue for you, but still getting paid.

Sorry, not trying to turn this into a cost breakdown of having employees, lol. Just wanted to point out that $5k for five professionals is pretty low.

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Thank you for the suggested book. I remember starting to read it a few months back and when it started suggesting everything about W2 EMPLOYEES, I set it down. After waking up and seeing your last reply, I read the scale up book this morning. Thank you for the motivation. I also already took action on a couple of the suggestions in the book that I could quickly do before starting my morning routine.

As far as converting my entire company into w2 employees… I don’t see anything quick about that, but I am seeing how it may be worth it the time and effort it will take.

I love the bonus idea for keeping inspectors motivated to take their time and be thorough, as well as putting their own effort into helping grow the company, but what is an industry base pay? And how do I take them from making basically $65 per hour, to less?

(I get 65 per hour by using our average inspection fee of $400 and average time spent on a single inspection of 4 hours). The company gets $100 per hour and pays the inspector 65% of that.

I do have some experienced inspectors on my team that I know are not going to like a decrease in pay… especially with inflation the way it is and the fact the we did have a slow Dec and Jan (things have picked up nicely here around mid January, but we still aren’t doing enough inspections)

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I hope you don’t mind me chiming in on this. The only thing I have to offer is that I was previously one of those w2 inspectors before starting my own company. I think most inspectors at my previous firm were making ~35% of each inspection fee. It felt fair at the beginning. I’m commenting here to tell you that you should be wary of how you structure your pay because it can QUICKLY burn an inspector out. ~35% of each inspection fee (without benefits) meant some of us could be doing 2-3 inspections per day for 4-6 days every week in order to support ourselves and families. This isn’t to say you shouldn’t structure your business this way, but to be prepared for burnout or unhappy inspectors if you don’t do anything else to address that.

That being said, Nick is correct that it is your business and you risked your own capital so why shouldn’t you benefit the most? I think that you should be prepared for the real possibility your contractors will resign if you re-structure everything, but that’s okay

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BTW: Have you checked with your state? Most states, these days, have rules that are more strict than the federal IRS rules for determining if someone who works for you can be classified as a subcontractor instead of an employee. For example: In my state of Colorado, it is outright illegal to hand any human being a check made out to them personally. It’s a crime. There are only two exceptions: Car salesmen and real estate agents. Every other person working in Colorado has to be paid on a W2.

Many multi-inspector firm owners aren’t even aware that their state has their own rules about subcontract classification that differ from the IRS’s.

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Also, I have group health insurance. I’m convinced that nearly all of my employees value their health insurance (that I provide them) as being worth more to them, than what it costs me to provide it. In part, they stick with me because they don’t want to lose their health insurance for fear they won’t be able to get it elsewhere. And perhaps they are right.

I can’t add subcontractors to my group plan.

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I’ve said for a long time that employer-provided health insurance is the biggest detriment to entrepreneurship in this country. I even wrote a thesis on it in college.

It’s time to separate employers from the health insurance picture if you ask me. It would be good for all parties involved.

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I like providing benefits for my employees that they value higher than they cost me. I have a chef make lunch for my construction and welding crews, every day, at 11AM. The lunches are amazing.

Advantages:

  1. When you cook for so many, it only ends up costing me $7/lunch. The employees value the lunches more than what it costs me.
  2. The food is high quality (not fast food). Good food increases productivity.
  3. The chef knows what each person likes to eat and what they can’t eat, etc.
  4. The crews all eat together and so they discuss work and stay in sync regarding the project.
  5. They can eat all they want. Every day is all-you-can-eat day.
  6. The leftovers are free to take home for their families.
  7. I get to eat a good lunch.
  8. I often invite my clients to join us.
  9. No one takes off for lunch and comes back 2 hours later.

Anyway, health insurance and lunch are things that keep employees happy and loyal.

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I could see that. I am a professional Fire Fighter still, mainly for that very reason… if I didn’t get such good benefits from the fire dept, I may have quit a long time ago and probably would have already figured this whole w2/independent contractor challenge out.

To answer your other response, I do know the rules in Arizona. They can be found here for anyone interested: 23-1601 - Declaration of independent business status

So can I ask, how much does that health insurance coverage cost per employee per year?

Also, how would you recommend defining a “base pay” for w2 employees? Hourly? Fee per inspection?

I love the “monthly bonus” idea you shared. I also read it in the Scale up book, but would need to have an idea of where to start with base pay, as well as base benefits, so that I can start calculating the expenses… or am I looking at that backwards?

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I’ve seen your lunch pictures. That is awesome and above and beyond what just about any other employer does for their employees when it comes to lunch.

But health insurance is a whole different matter of course. We need affordable health insurance options for solo entrepreneurs and their families.

Part of the reason for outrageous health care costs in this country is because of corporate-subsidized health insurance.

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