Alright guys! Welcome to another episode of Junk Removal Made Simple, brought to you by Junk Removal Authority. You can check us out at junkremovalauthority.com or junkra.com. Call us at 919-617-1975. I got great deals and complete business packages for those of you that are ready to get in business. You want to get in business? You want to do it right? You want to commit. You want to blow up? We have full business packages that keep you from having to pay an on-going royalty to a franchise for long-term. We would get you up and running. You would have the same great support, knowledge, and structure in a business package without having to handcuff yourself to that long-term franchise. Of course, we also bring you that one of a kind, never before done Pay Per Job Program. It is not Pay Per Lead but Pay Per Job. It appears on your calendar, you go and do the work.
Today, I want to further expand on what we were talking about in our previous video we did on gross margins versus net margins. We’re going to talk about gross expense percentage today. A lot of people, when they heard us talking about Junk Doctors which is our junk removal company. It made 15% and they were thinking gross margins. I’m talking about net margins. Net margins are after everything’s paid. It is after my vehicles has been paid. After Christian’s vehicles has been paid. We have nice vehicles, it’s a high payment. We’ve got an airplane that it’s paid for. We have call center representative and they’re paid. Most importantly our salary, everybody has already been paid. All expenses are paid. It’s about a 15% margin, but actually we’re at almost 45% gross margin.
So, what are our gross expenses? Gross expenses are, again just to recap this past video. Any expense directly related to the cost of bringing a service or completing a junk removal service. So, let’s get into and talk about what those expenses normally are. We’re talking about gross expenses, which is a pretty relevant name for expenses. All expenses are gross but you got to do it to be in business. Fuel, obviously to get to a job you’re going have fuel expense. Typically, that is 5% – 7% of the cost of the job. If you look at your profit and loss statement at the end of the month, you’re generally going to see the fuel percentage to be somewhere between 5% – 7%.
Labor, even if you were on the truck I’m counting paying you in this figure. So, if you were to on the truck, you should be paying yourself at least an hourly rate for the work you do on the truck. A junk removal company can generally afford it, especially after you’ve been in business a month or two. This is going to be about 20% of your job income. For example, let’s say you do a $300 job. You’re going to have somewhere around $60 in labor costs for that $300 job and this is on average. You base this on your average job costs because if you go and you do a $150 job, as you can see that’s just completely not the same. If you go out and do a $150 dollar, you’re probably going to have about $30 in labor. That includes drive time to the job. Drive time leaving the job to go to the landfill, nation center, recycling center, and whatever. That also includes the time it actually takes you to unload that stuff. You’re about 20% right there. Anybody that tells you they are making 95% margins in junk removal is unbelievable. It’s impossible because right there he’s not counting paying himself, it’s 20%. If he goes off and does it on his own, it’s still what matter; He’s at minimum 10%. So, anybody telling you they’re making 95% knows absolutely nothing about what they’re talking about. If you’re smart, you would quit listening to what they have to say. Labor, so we’re at the 20% there. This is just the on the truck. This is not a call center representative or any other people that you need. You need somebody answering the phone obviously to book the job, but it does not include that. This is just completing that surface.
Disposal fees, this can vary a little bit by location. Some areas are more expensive. What really kills you in junk removal is areas where you have minimum charges. One of our partners is in Denver. Denver has a minimum charge of like $82 or something like that, so he has to do a lot better job. It’s $82 a ton and he have a one ton minimum. He’s got to do a lot better job of recycling, donating and getting as full truck load as possible than somebody that has lower fees. The other thing he’s done that we’ve recommended is to go with a larger truck size. We have smaller trucks and we had it work for us and all of the markets that we’re in. But when you have a really big minimum, you need a larger sized truck. Disposal fees are generally going to be 8% – 11% of your gross income of your job cost.
Automobile expense is a gross expense. Some people will leave this out. If that truck is rolling down the road, you’ve got wear and tear in the transmission that’s happening. You’ve got brake repairs and tires that are going to need to be replaced. You’ve got some issues that are happening on that truck. Every mile you roll, you’re one mile closer to having an automobile repair. You must always account for this when you’re setting your prices. If you’re looking at your profit and loss statement and you have a full quarter without having to do an automobile repair. It’s coming all down the line. You need to make sure that you always factor in your auto expense. It’s typically going to be about 3% of your gross income. We found this to be pretty constant if you have a brand-new truck. You’re going to have $900 to a $1000-month payment per vehicle on automobile expense for a vehicle that’s used. If it’s getting up in mileage, you’re going to be averaging over the course of time about that amount. If you have a vehicle that drives in the middle, say that 150,000-mile range and you’re no longer making payments on it. You’re going to get away with a little bit better than this, but eventually it’s going to average out to about 3%. A $5,000 transmission or $7,000 engine repair is just around the corner.
Credit card fees are going to be about 2%. That is not individual transaction fees. If you run somebody’s credit card, most likely you’re going to be above 2%. Sometimes in an individual transaction you might be below which a lot of times there’s going to be fees you pay that off-set that as far as a monthly fee or whatever the brings it up above 2%. So, 1.5% to 2%, I went ahead and rounded it up to a 2%. You’re going accept checks and cash and that’s going to drive your overall percentage lower. Even if you’re paying your higher fees, your cash and checks are going to dilute that figure down to closer to 2%. You might be below 2%, but around 2%.
These are your gross expenses off of every job. There’s one expense we’re going to get to here in a bit that this does not list. It’s debatable as if it’s a gross expense or not. It is with junk removal, it’s definitely a gross expense. It’s something you have to factor in when setting your prices, but we’re going to touch on that item in just a bit. So, let’s look at this direct cost right here. Once you get a job, this is what it’s going cost you to do. If you add all of that together. But before that we’re going to average some of these first. Somebody says 5 or 7 we’ll do it at 6, 8 to 11, we’ll do it at 9 and so forth. It’s going to come to 41% gross expense percentage. So that means that when your average job is about $350, then 0.41 multiplied by 350 is $143.50. You have $143 gross expense per job. That’s going to put your average gross profit per job at $206.50. That is gross profit not net profit, gross profit per job. If you look at that figure, that’s pretty good. That’s going to be grossing 59%, almost 60 % gross profit margins. This is the one expense that most people leave off of their gross expense percentages in junk removal. It’s 100% incorrect and I can tell you, as counting this one number and making sure our prices were high enough to accommodate this one number has been vital to the success of establishing Junk Doctors as the premier provider of junk removal in North Carolina. Our sales are higher than anybody else throughout the state. This is one of the main things we did.
We always kept up with the cost of advertising and we were willing to outspend just about everybody else. One of the things that I always talk about is with advertising, when you first start this business, you can go in very aggressively. You can go in and try to gain market share, try to get business. If you can put off your current profits, then you’re going to set yourself up for a lot more success later on. We’d like to see your gross expense in year one on advertising to average around 25%. That’s throughout the course of the year. When you first get started, the first few months, it’s probably going to be closer to 30% and as you get some repeat customers that will drive your cost down a bit. So, your first year will average somewhere around 25% and is what we would like to see your advertising be at. Minimum of 15% or 20% in year one but I’d love to see a 25% because that’s going set you up for a lot better future. Year two, junk removal advertising expense percentage to be about 20%. Then year three, about 15%. So why does this come down? No, we don’t recommend that you decrease your advertising spending if anything increase it. You’re making more money, spend more on advertising. It’s a lot easier to spend money on advertising when you got business than when you haven’t. You’ve neglected spending on advertising and you’ve been taking those short-term profits. You haven’t been getting customers that leads to repeat business, referral business and reviews. You just go with the status quo to get it up to a certain point and keep riding along. You keep bringing out as much money as possible. Before you know it, you have a downturn. You no longer have the money to spend on advertising and you’re in a in a huge pickle. Spin advertising throughout when times are good. That’s when you need to be spending money on advertising and getting as many customers as you can because when times go bad, that money might not be there to spend on that advertising.
Your gross expense percentages on year one, if you had 41% and a 25% you’re at 66%. This is expense percentages. If you had 41% to 20%, you’re at 61%. If you had 41% to 15%, you’re at 56% expense percentages. That is going to put your profits for those years at 34%, 39% and 44% gross profit. Junk Doctors had stabilized our advertising expenses around 13%, 14%, and 15% of how much money we bring in. We’re at the bottom end of what we’d recommend. I very seldom do want to drop below 15%. We’ve had a lot of great repeat customers that are bringing us thousands of dollars every month that has brought that percentage down. So, we’re about 13%, 14%, and 15%. Our average gross profits are around 45%, which puts your net profit for all three of these years. Year one, you’re profiting about $119 per job. Year two, $136 per job and then year three, $154 per job. That’s what I’m talking about. When somebody gets on there and they say they’re making 15% profits. They’re only making $50 in a $350. Somebody that says that is counting gross, not counting net. Our gross profit percentage is about 45%, so that’s still a lot which is a very healthy profit percentage. Anything above that, you’re probably not advertising as much. With advertising or something like our Pay Per Job program or any other method of advertising. Door hangers, flyers, whatever you found to be effective; include your Craigslist ads. With advertising you are putting off today for tomorrow.
Those of you that are being selfish in your junk removal business by not being patient. You are really hindering your future ability to make a great living and to have some freedom in your life. If you remember this last video I talked about. If I wanted to work 70 or 80 hours a week which a lot of weeks I work 70, 80 hours plus a week, but I can vary. If I want to leave, I can. If I wanted to commit myself to 70 or 80 hours every single week. No vacations at all. I wanted to do dispatch. I wanted to manage all the truck crews and be directly responsible for everything that occurs. Not be on the truck but directly responsible for everything that occurs. The total amount of money that could be made, let’s say I didn’t have a business partner either, would be $586,000 off of the $2,000,000 that we do currently. That’s a great chunk of change and you can if you want to go that route, great. The route I went because I’d rather decrease that by a few hundred thousand dollars and be able to have freedom and the ability to go where I want. Do what I wanted to do and start another business-like Junk Removal Authority where I’m trying to help everybody achieve this same level of success. Maybe this level of money or greater and that’s what we’re able to do with JRA.
Hopefully, we will follow this up with net expenses. What are the expenses that we have in terms of percentages that bring a 45% gross profit down 30% to a 15% net profit? What expenses lead down to that? We’re going to cover that and some of them you could get rid of but you remove redundancy in your business. Right now, we could have somebody call out sick. In this case, we have three people that are out injured. We could have Christian get sick. Luke could get sick and Anthony said we’ve got a list of people. These people could get sick and we’ve got other people that can step in their place and take phone calls, book jobs and cover dispatch. You lose redundancy when you go after this and you make a ton of money. This figure right here is a little funky too, especially when you’re growing because in our case we were adding a truck or two a year. We were paying cash for those vehicles too, for the dump trucks we pay cash on. We figured a $30,000 expense each truck, we bought two trucks at $60,000 and maybe we get a trailer and all that. Those are the expenses that bring this down. That would be your profit before taxes, depreciation and all that kind of stuff. The potential you could earn between salary and profit. You need to make sure you are paying attention not only to gross, but to net.
As soon as your business is profitable, you need to figure out everything you do. As far as on the truck and the management task, you do whatever and figure out what is my fair salary? If I was to go out and hire somebody, what am I worth? If I was going out and hire somebody, what would I have to pay them to get somebody that could come in and do the job I do? To full time manage a junk removal company with million dollars a year in sales. You’re going to have to pay somebody probably, depending on your area of the country, anywhere from $60,000 to $90,000 per year to get a good job done. That means on a $1,000,000 a year company, you’re probably worth somewhere between $60,000 to $90,000. On a $500,000 company, ideally, you’re still probably worth somewhere around that $60,000 but you’re probably lower on the scale. You must always pay yourself the same time your employees get paid every week, every two weeks or every month, whatever it is. You need to have a paycheck and that’s going to tell you when you think of your profit percentage and how much profit you’re making. You don’t count your salary; your salary doesn’t count. What counts is the profit that’s leftover. If you go into selling your business, your junk removal business, junk hauling business, whatever business you’re in. The value of your business is going to be a multiplier of your profit. If your profit is generally at 3% to 5% plus whatever the value of the assets you have. Let’s say you had a profit of $100,000 a year to keep this simple. You have a business worth somewhere between $300,000 to $500,000 plus assets. Keep going right down the list. If you have a $300,000 profit, you’ve got a business to score somewhere between $900,000 to $1,500,000 plus assets. Always build your business to sell and you’re going to have a lot of great success.
Hey guys! Give us a call at 919-617-1975. Visit us online at junkremovalauthority.com or junkra.com for those of you that don’t want to spell out that long word. We’re here for you. Give us a call. Hope this video was helpful to you and we’ll be back before you know it with another episode of Junk Removal Made Simple.