How To Start a Junk Removal Company: Part 2

Should You Start a Junk Removal Business?

In the junk removal industry, there are basically two types of owners. The first type makes up over 75% of the estimated 7,000 junk removal businesses in North America. That is the guy who has a pickup truck and trailer and goes around on his own picking up junk and hauling it away. He could eventually build up a good income and a fairly decent lifestyle… until he gets injured or too old or burnt out (so this is really just a temporary job). The second individual is who we want to encourage you to be and who we will primarily be talking to in this series. That’s the person who evolves beyond just working on the truck. He wants to build up a bigger business that gives him a terrific income and becomes an asset he can sell or even pass down to his kids.

 

Understanding the Potential of Junk Removal

What can a successful junk removal business look like? Let’s take the junk removal company I founded, Junk Doctors, as an example. Within five years, Junk Doctors was grossing over a million dollars a year. In its seventh year, we will come close to hitting the $3 Million mark. Six years in, I was able to shift my attention away from Junk Doctors to start Junk Removal Authority (JRA), a marketing company that serves business owners across the junk removal industry.

I work an average of about five hours a week on Junk Doctors. After paying all expenses, including the salary of its managers, Junk Doctors’ profit margins are around 15-20%. With revenue of almost $3 Million a year with those profit margins… do the math. If I wanted, I could semi-retire and live a better than average lifestyle while working about 20 hours a month. You, too, can achieve the same level of independence.

What To Ask Yourself Before Creating a Junk Removal Business

If you’re considering starting a junk removal business, you’ve come to the right place. I’m Lee Godbold and I’ll be explaining how to start your junk removal business.

Before you start buying trucks, designing logos, or posting ads, what you need to decide is whether you should start a junk removal company in the first place. What are the Pros and Cons of the industry? … Are you the right person? … Is it the right time for you? … And are you in a location that has the potential for you to grow a business large enough for you to accomplish your financial goals? And if you are broke like I was back when I got started, then you can start even cheaper than we are going to present here. You can do the cheap advertising, save your money, and level up the business within a few years. But for those of you who are ready to roll right now, here are the questions you need to be asking.

  1. Are you the Right Person? The junk removal business is full of ups and downs. Busy times with large, profitable jobs will be followed by stagnant weeks and truck repairs. You will hire quality employees and get excited about them, only to have them leave for bigger and better things. Owning a business is a major mental challenge. It will be an emotional roller coaster and you’ll need to maintain an even temperament during both the good times and the bad. Junk removal is physically demanding, too. Are you prepared to work in dirty environments, performing hard labor in all weather? If you’re not sure, consider taking a temporary job with another junk removal company, or even get a pickup truck and post an ad on Craigslist just to make sure this is right for you.
  1. Is it the Right Time for you? Having a decent amount of money saved up will vastly increase your chance of success and decrease the time it takes you to reach it. We’d like to see you have at least $40,000 in cash available to you. You’ll also need to be prepared to reinvest as much money as possible back into the business in the first few years (so profit taking will be minimal). If you can’t handle that kind of scenario and you already have a decent paying job then decrease your expenses to a minimum, work extra or get a second job, and get that money saved up. Then start your new business venture with a few reliable helpers while you continue working your current job. To be successful in most new businesses they need to take priority in your life for a minimum of two years. If you recently had a child or are considering it in the next two years then you might want to adjust your timelines. Typical childcare costs average $12,500 plus much of your time. If you are getting married soon and your spouse is still in school you might want to wait until your spouse is out of school with a job before starting. Starting a business is a major undertaking. If you are going to do it you will need ample time and dedication.
  1. Are you in the Right Location? Look at Google Trends interest reports to determine if people are searching for junk removal in the area in which you’re planning to start your business. Areas with at least 250,000 people can only have a few successful full service junk removal companies. However, a market with only 250,000 people might not be able to reach $1 Million in sales if that’s your goal. What’s your competition like? If it’s mainly established franchises and a few established local companies, you probably have a good chance of success. What are their prices? If you’ve had three or four new guys flooding the market all at once you might wanna cool your heels for a bit. Six months from now, many of those guys will be gone and you can get started. A great junk removal market will be one that sees people with discretionary spending available and one where people relocate often. Areas of stagnation generally won’t be great areas for junk removal as 70 percent of junk removal customers are in some phase of transition… moving, downsizing, etc.

Considering the Downsides of your Junk Removal Business

Now. Let’s go over the negatives of owning a junk removal company.

  1. People Dependent – The first downside to starting a junk removal business is that it depends entirely on people. If you don’t like managing people and interacting with customers, this isn’t for you (unless you hire a manager from day one). Junk removal is a very physical job and you’ll be working with young people. You will have many people working for you who are new to the job. They will make mistakes and damage equipment and property from time to time. Turnover rate is high, with an expected employee lifespan of about 10 months, so you’ll need to be comfortable hiring and firing to be successful.
  2. Equipment Breakdowns – The second downside is that your equipment will be damaged, will break down, and will need repairing. You can help offset some of these costs by charging rates high enough to allow for the replacement of vehicles approximately every four years. However, some issues will still occur due to abuse by employees and the extreme environments in which they operate. You would be wise to prepare for regular issues with your equipment and vehicles.
  3. Ongoing Marketing – The third drawback of a junk removal business is the lack of long term contracts. You need to constantly and aggressively market and advertise to get new customers. Unlike a business such as landscaping or regular garbage collection, you don’t have a subscription service with predictable monthly revenue. However, you will get many customers who use your service a few times a year or every few years. By year four, around 50 percent of your business will be from repeat customers. When it comes time to sell your business, it will generally be worth less than a monthly subscription-based business of similar size that has a more secure guarantee of income. Those businesses are simply perceived as being more stable and having a more reliable and predictable stream of income.
  4. Competition – The fourth negative point can also be a positive. Low barriers to entry means a low cost to start and minimal technical skills. You generally don’t have to be licensed like an electrician or plumber (unless you are in New Jersey, which has additional licensing requirements). It’s nice when you are starting out, but others can easily enter your market and take some of your business (or drive up the cost of advertising). Generally, established companies – such as our junk removal company – will do well when new companies come in. However, the more new businesses start at once, the more difficult it is for any one of them to succeed. Grow as quickly as you can – the sooner you get large, the less likely it is for new competition to have an effect on your business.
  5. Reinvestments Needed – Fifth is the significant re-investment you will need to make into the company as you grow. This isn’t uncommon in businesses experiencing a high rate of growth. Much of your profit will be reinvested back into equipment as you grow. If you so choose, you can begin taking profits out of the business and slow your reinvestment once you scale to a three-truck operation, because at that point your income will have enough previous customers to scale back some of your re-investment. You could raise prices, fill up those schedules, and accept that possibly you’ll miss out on some same or next day appointments, but you will have a profitable business at that point.
  6. Answering Phones – This sixth negative one could be completely eliminated if you use the JRA call center, but since this video isn’t about why you should use JRA, this bears mentioning. You will be a slave to your phone until you take control of your life and have someone answer it for you. If you do not answer, you will miss jobs. This means you not only miss out on the immediate income of that job, but the income that can result from every future job this prospect books with you, every person this prospect might have referred, or every job that might have resulted from this prospect’s potential online review. We estimate that every single customer who schedules a job is worth about $2,085 over a ten year period between repeat jobs, referrals, and reviews. You must answer that phone at all times or pay someone else to do it for you.
  7. Seasonality/Fluctuating Demand – The seventh negative factor is the seasonality and fluctuation of demand. Some weeks, you’ll be so busy you can’t keep up. Other weeks, your guys have very little to do. While things get more stable the longer you’ve been open, business will be especially volatile for your first two or three years. If you need a predictable monthly income from the outset, this isn’t the business for you. However, if you can deal with fluctuating monthly income, your yearly cycles will be relatively consistent. Junk removal typically does extremely well March through the end of November. There could be a bit of a lull for a week or so in July for what we like to call “Sneaker Week”. This is the period before school begins where people are spending time buying school supplies and taking last minute vacations. December is very much weather dependent and can be a bit inconsistent. But you generally will have revenues by about 30 percent in December compared to June. Revenues in January and February will typically be down by about 50 percent from June as well. Your schedule of booked jobs can also change rapidly. Customers who schedule an appointment within 48 hours of contacting you will close at a 90 percent or greater rate. Customers who schedule a week out will typically only follow through 50 percent of the time. It can be difficult to predict demand for any given week. That instability can be a bit of a shock to someone who doesn’t like to adapt on the fly.
  8. Dirty / Stinky / Tough Job – The eighth and final negative point about our industry is that truck team members work in hot, cold, and dirty environments nearly every day. You walk around in literal trash piles at landfills and transfer stations. Some jobs have bees and fleas. Some have bed bugs. Some have snakes. In hoarding jobs, you’ll encounter smells you’ve never experienced before. You’ll clean out refrigerators that aren’t working with meat that’s been rotting for days. You’ll come across crazy people. We’ve been run off a property by naked people – yes, that’s plural – who smelled like they hadn’t showered in weeks. Once you are off the truck, you won’t have direct exposure to these hardships. Yet no matter how hard our marketing teams try to spin it, junk removal is not a sexy business.

Your ability to handle stress, creativity, the number of hours you work, the money you have to invest into your company, and your mental endurance should all heavily influence your decision to start – or not start – a junk removal business. If you start on the truck, you must be able to transition off smoothly and quickly. Many owners have experienced physical exhaustion and burnout because they can’t keep up with the many tasks required for rapid growth.

So those are all reasons NOT to get in the junk removal business. What are the positives?

Positive Factors to Consider When Starting a Junk Removal Business

  1. Cash Requirements – Number one … Junk Removal has relatively low start up costs in relation to potential income. For as little as $25,000, you could place a down payment on a new truck, purchase tools, pay for insurance, start your initial advertising, and launch your business. Plus you could even get training from JRA included in that amount! You should have an extra $15,000 – $30,000 in cash available to make up for losses (and investments) that may occur over the first three to six months. This means you need between $40,000 and $55,000 to be fully prepared to launch your business.
  1. Strong Demand – Relatively Recession Proof – Number two – The demand for junk removal is only increasing. The typical American moves about once every five years, and most people have junk to get rid of each time. Baby Boomers, who continue to age, downsize and pass away, contributing heavily to increasing demand for junk removal. Though junk removal revenues will drop by about 25% during a recession, the demand still remains. Your jobs will decrease with homeowners as they begin to do the work on their own and keep stuff longer. But foreclosures go up which almost always includes junk removal needs. These are all events that typically require the hiring of a junk removal company.
  1. Low Technical Skills Needed – A third upside of a junk removal business is the minimal technical skill required of yourself or your employees. Unlike trades such as HVAC, plumbing, and electrical work, all of which require extensive training, licensing, and permits, all that’s required for junk removal is strength, a good attitude, and a propensity for hard work. These low technical barriers make hiring and managing employees simpler and easier than hiring for skilled trade fields.
  1. Scalability – Number four – junk removal is easy to scale – you simply add trucks and people as you grow. With an aggressive marketing plan, it’s not uncommon to see 50 to 100% growth during your first three years or so in operation. This means it’s entirely possible to scale to $1 million in annual revenue by your third year in business. Scaling other service businesses often requires the hiring of a variety of technical experts and the purchase of expensive pieces of specialty equipment. To scale a junk removal business, however, you simply need more team members and trucks.
  2. Easy to Learn The Business – The fifth positive is that information you need to get started in junk removal is readily available online. Facebook groups, Youtube videos, and written content from JRA and others give you a plethora of info that wasn’t available just three years ago. However, be careful with what you choose to consume. There are several different ways to successfully run a junk removal business. Pick one way and run with it. Trying to mix JRA’s “go big” approach with somebody else’s “stay small” approach is a recipe for failure.
  3. Can Run Independent of Owner – The sixth reason to start a junk removal business is that after a few years it can run relatively independent of its owner. Get to about a four truck operation, get a supervisor in place, make sure prices are high enough to ensure profitability, and then you can vastly cut back your hours. It is still recommended that you check in to make sure standards are being met, equipment being taken care of, and you aren’t being stolen from. But you can enjoy a couple hundred thousand a year income with minimal time. Obviously, much of this depends on your ability and the area you are in.

In our next lesson, we’ll take a deeper dive into financial projections and the activities that should occur during the first few years of running your business. If you partner with JRA, we’ll provide you with the start up information and training, marketing, and call center services to keep you on track to achieving financial independence. What an amazing possibility!

So be sure to stay on the lookout for our next topic on the financial projections and activities for your first three years in business.