Being the Cheapest in your Market
Starting Cheap
When Christian and I first started Junk Doctors, the idea was that our big selling point would be price. 1-800-Got-Junk was charging about $450 for a full truckload back then, and we thought that was crazy expensive. Keep in mind that at the time, I was 20 years old and working at a skating rink making about $15,000 a year. My take-home pay wasn’t much more than $450 for two weeks of work. Of course $450 wasn’t worth it to me – I’d do my own junk removal. Besides, I didn’t have a whole lot of stuff to haul off.
I figured if it wasn’t worth it to me, $450 for a truckload of junk removal couldn’t be worth it to someone else. Forget the fact that Got Junk was already bringing in over $100 Million a year in revenue and had close to 200 locations at that point. I just figured there was no way anyone really wanted to spend that much money on junk removal. They were the main game in town, and Christian and I figured we could slip right in there and corner the market just by being cheap.
So we started placing ads on Craigslist. Keep in mind that Craigslist was a lot better back then than it is now. It was much more widely used, for one thing – and free. The calls started rolling in and we thought we were making money hand over fist by charging $200 for a pickup truck and trailer load. However, Craigslist customers were a pain to deal with. The jobs were difficult and the customers were so freaking cheap. Some of them were good, but most of them were rough and cheap. Also, though we were making good money, it still wasn’t enough to field another crew full time. I was making great money when I was on the truck, but once I got off the returns were much lower. And work wasn’t consistent enough to have a full time crew; jobs were much too sporadic. I needed a better way to get more jobs consistently.
Price Bumps
At that point I got in touch with a former junk removal company operator who had sold his business. He helped me get set up on what was then called Google AdWords. That’s when our business really took off. AdWords was simple at the time, and much cheaper. However, with our pricing so low, we weren’t making as much money on AdWords jobs, even though the work was easier and the sales were higher. But we had that AdWords expense. We needed to raise our prices. But we were scared to do it.
So we were faced with a decision: stop doing AdWords or raise our prices. We raised our prices and… the calls kept coming! We raised prices again and… the calls kept coming! Before we knew it, we were making more money and not working nearly as hard. A win-win!
We were wrong in thinking that the main thing everyone was looking for was price. Yes, some people were looking for price. But many people simply wanted the service to get done and get done fast. Even back then we promised same/next day service. They liked the fact that we were locally owned. We were spending enough on AdWords that we were the first company they found, so people called us. And we were great on the phone so we locked the appointments down.
Is there a time you should be the cheapest company in your market? Yes, there are a couple of instances wherein this can be beneficial. First, you might want to be the cheapest service if you don’t have the most professional image. You have an older truck, your site isn’t flashy, and you are very new with few reviews. However, you must give your customers a legitimate reason as to why you are so cheap (otherwise they might not trust you). What’s a good reason? “We are the most affordable of the professional junk haulers in this area because the owner is on all the jobs. We are a new company, though our owner, John Doe, has been working for a moving company for years and knows hauling better than anyone. Since he is on the truck, we have much lower overhead than our competitors, who have a much larger company hierarchy to support. That’s why our prices are the best.” Give them a reason, or they’ll come up with their own: you don’t offer a high quality of service.
Another good reason to be the cheapest is if you are so large and sophisticated that you are able to open a store that sells the stuff you get from your junk removal jobs. Note that you often won’t just be able to sell items immediately. Many of the things you pick up will need to be refurbished, reupholstered, or refinished before they can be sold. You also can take advantage of economies of scale and make great money by separating your metals and recycling as much as possible (this isn’t worthwhile if you are a small-scale operation). This way, you generate income on the back end as well as the front. Because of this, you are able to charge customers less because you will make up the difference when you re-sell or recycle the items you pick up. Be up front and honest about this. Market the hell out of it on your website. This is a major competitive advantage.
The first scenario is temporary; your prices should increase as your business becomes larger and more professional. For the second scenario to work, you must have a huge volume of jobs and the resources to open a store the right way. Otherwise, you will never sell enough to make it worth your while. You’ll need to be doing at least $1.5 million in annual junk removal sales before you think about starting to sell stuff.
Why You Shouldn’t Be (or Stay) the Cheapest
There are many pitfalls of being the cheapest junk removal business in your market. If you’re not brining in money to spend on effective advertising, you have no way to reach a huge segment of your potential customers. You could have the cheapest and best junk removal business on the planet, but if nobody knows about you then what’s the point? When you have minuscule margins (by keeping your prices so low), you can’t afford to do AdWords, SEO, Customer Acquisition Management (CAM), or other advertising services to get the word out.
Another issue with going cheap is the fact that customers who hire services simply because they are the cheapest are generally not good repeat business. It’s hard to build a thriving business when you are constantly having to find new customers. Customers who hire you because you can get to them quickly or because you are the most professional are much more likely to review, refer, and re-use you. These are the people you want to go after.
It’s tough for you to pay someone else to work on the truck. If you’re the cheapest in your market, you’re not going to be able to both pay a crew and generate any significant profits. That means you’re going to be on the truck, which means you’ll struggle to answer the phone, which means you’ll miss appointments. If you want to take off work, you likely won’t be able to run another truck. Do this long term and it will be a huge strain on your life and your relationships.
You Are a Businessman/woman
You are not a garbage man/woman. As a businessperson, your primary goal should be creating a business that runs without you. Without the revenue generated by appropriate prices, you simply won’t be able to do this. You will find yourself unable to hire people to answer your phones (or the JRA call center), to manage your books, to dispatch your crews, etc. You will never be able to sell your business for a huge payout. You won’t have a valuable business to pass on to your children, if that’s what you desire. You, at that point, have created a job for yourself – a job with no benefits and no paid time off. You are a slave to your own work. If you are going to do that, you’re better off working for someone else.
Charge enough to make a healthy profit on almost every job you do. You’ll generate enough revenue to pay for effective advertising, bring in new business, and create a large pool of repeat customers. Before you know it, you will have people working for you in all departments of your business. You will then have the freedom to do what you want when you want to do it. At that point, you’ve life wherein you can fully focus on excelling with your business, with your relationships, your physical body, your spirituality, and any other aspects of your life that are important to you. You will have flexibility and freedom. That should be one of your primary reasons for getting in business, but to achieve it you must charge enough for your services.
At JRA, we are here to help you achieve total freedom with your junk removal business. We built Junk Doctors into a $2 million a year business by year 5, and we are ready to help you get to that same level. If you’re willing to do it right, junk removal is a great business to get into. If you’re not willing to do it the right way, you’ll enjoy junk removal for a while before you simply burn out. Let JRA show you the way. We’ll manage your sales and marketing, calls and bookings, website, and more. Or you can purchase the complete business package for support from idea through opening day and beyond. Simply call us at 919-617-1975 or visit junkremovalauthority.com.
-Lee Godbold
919-617-1975