While Uncle Paul is away, Fat Pat and BroSeth tackle subscription billing and collection exceptions. How long should companies should stick to service once a customer gets behind?
Customer communication is a tricky wicket. Who gets price hikes and how do you communicate them?
While Seth is fielding all the questions this week, let’s get his take on artificial intelligence. But this isn’t an A.I. convo you’ve heard before.
Audio Mixing and Editing by www.verbell.ltd
Seth Garber: Is this a customer or is this no longer a customer? The faster we determine that, the more efficient we're going to be as a company.
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Patrick Baldwin: What's up, Seth?
Seth Garber: What's going on, Fat Pat?
Patrick Baldwin: Look at me. No-Shave November is over. This is me packing on the pounds and getting ready for the Christmas season. I got to fatten up.
Seth Garber: I haven't seen you in a little while. You are looking more of a Skinny Pat right now versus a Fat Pat.
Patrick Baldwin: Seth, you're never this nice to me. What happened to you?
Seth Garber: I don't know. I woke up on the wrong side of the bed, I guess.
Patrick Baldwin: Get back to bed. Our friend, Uncle Paul, is out traveling and said, “Seth's got to come villain help out.” Bro Seth, welcome back to The Boardroom.
Seth Garber: We are not starting with Bro Seth or anything but here we go. We'll see how this goes.
Patrick Baldwin: That's the Mexican's nickname for you, your Mexican lover.
Seth Garber: It's a good thing with that mustache that he's got going on right now. It's good that we keep his face off the internet and off social media right now.
Patrick Baldwin: Is it you that calls him El Chapo?
Seth Garber: It is me that calls him El Chapo right now.
Patrick Baldwin: Cool. Seth, when we get you on, I can ask questions and disguise them as listener questions. These are real listener questions. I know your expertise and operations and you're an expert in a lot. I'm not going to boost up your ego too early here but I do have some listener questions and I hope you're ready.
Seth Garber: I'm 100% ready. I can't get over that mustache the Mex has right now. I honestly am not sure how Paul walks in his office every day and looks at that. I can't get over it.
Patrick Baldwin: It's why Paul is traveling right now, just to get away.
Seth Garber: It's a good idea.
Patrick Baldwin: I did spend a few days with the Mex. I survived the Mex. I want the t-shirt. It's special. He's an acquired taste. We had a great time. We did the NJPMA. They had a business round table. Carmen, from Anchor, invited me and, for some reason, invited the Mex up there and talked about key performance indicators. We had a great time and a great group. New Jersey is a great group of people. In terms of FRAXN killing it for some of our clients in New Jersey, they're loving it, and I got to see them too. It was awesome. It was a great time.
Seth Garber: That's awesome. I'm glad you had a good time up there. I liked the markets up there. We've got great clients across all of the companies up there. One of the things that I've always liked about consolidation is that it has been so heavy up there that it's the companies that are really focused on growth and stay focused. We see it in the FRAXN numbers, they're crushing it.
Patrick Baldwin: Now I know how to pronounce Skidaway. I'm glad I checked the forecast because it was a little chilly to be up there. They told me this isn't even winter so I know they're just getting started. Without further ado, let me ask, Mr. Bro Seth, some listener questions here. Are you ready? This is deep.
Seth Garber: I'm ready. These are just blind. We're just going to fire off questions and I'm just going to answer them.
Patrick Baldwin: This is how we roll. This is The Boardroom Buzz. Welcome to The Boardroom Buzz.
Seth Garber: Let's do it.
Patrick Baldwin: Seth, this is a multi-part question. This is question number one so hang with me here. Everyone, stay with me here. We're talking about monthly billing. For customers on monthly billing, are most companies leaving the billing active, whether a customer skips service or not? That's question one. “Are companies adjusting their invoices to match the number of services they have received? For example, if a customer is serviced on a bi-monthly schedule and skips one service, are companies removing two invoices from their billing cycle? Is it like Netflix, customers pay for it even if they don't use it?
Seth Garber: This is something we deal with a lot. Historically, in our industry, we always think about billing a customer when it's time of service. We always have thought about that. Most companies have been trained that way, especially if we've been in the industry a long time. The reality is that if we're thinking about billing per service, what's the purpose of having a subscription to begin with? We face this a lot when we're going through discovery calls with potential clients or we're talking to clients about changing models, it always comes up.
The way that I explain it is that it feels good and it feels like we're doing right by the customer if we're saying, “You don't do a service. We're not going to bill you.” That feels good because that's the way we've always come up. Inherently, as people, we tend to be conflict-adverse most of the time. We don't want to bill the customer and then we don't come out to the service because we're afraid they might call or the customer calls in and the customer says, “Money is tight right now. I want to skip this month.”
My perspective on this is simple. When we execute this at scale, it works. A customer calls in and say, “I'm going to skip service,” but they're on subscription billing, and we bill them anyway. We always bill them, that's the purpose of it. When we go through and we train CSRs who may be taking these calls or, for that matter, maybe owners are saying, “How do I handle this?” It's simple, “No problem, Mr. Customer. We won't be out this month. If you need anything, we're here for you. Your service is guaranteed in between visits.” That's it.
Sometimes we get phone calls from people saying, “Will you build my credit card?” “We did.” We'll address them on a time-by-time basis. The way that I look at it and the way that we train companies on this is that this is an FAQ for a CSR to learn how to handle that question. If the CSR can handle that question, great. From time to time, when the rubber meets the road, do we sometimes not do that? Of course.
The majority of the time, the customers are saying, “I don't want service right now.” What we find is that our communication process to the customer is too extensive, which is forcing them to cancel the service or to push the service. We're in contact with them too many times ahead of time and it lets them think too much and things like that. If I had a client sitting on the other side of the table right now, my perspective is simple.
If somebody signs up with a subscription, we bill them no matter what, we do not put that account on hold, and that's that. If we can't educate them, we've done a bad job either in the sales process or along the way from sales handing off to the service operations or our CSRs have allowed this to happen in the past and we've created this to be an acceptable function in our business that we have to change. You guys have heard us talk about on The Buzz before that we dropped that into what we call exceptions. That's my perspective on the first part of that question, Patrick.
Patrick Baldwin: I love it. I understand setting the expectation with new sales and new customers, “Going forward, this is how we present it.” It's on the existing customers that are already there. In this case, one, coming back from New Jersey in December, I still feel a little chilly in the air here. What about the weather when it gets into a colder season, they've got bi-monthly service, and now the customer is calling to schedule service. They're like, “I'm not going to see any bugs for a couple months, can you come back to me in February or March?”
Seth Garber: Let's be honest, the markets we deal with are the Northern and Midwest markets. We handle it the same way. Frankly, do you see a little bit of an increase in cancellation? Sometimes. The companies that are good go through a cycle. You'll go through a year where you struggle a little bit with cancellation, really coming into this time of year. It's been a little bit warmer up there so maybe the beginning of November is when this starts.
To me, it's always been training for the CSRs. The CSR, when that call comes in, they've got to explain how the programs work. There's a variety of ways to do it. Some companies explain the fact of how they handle billing, the ease of billing, spread it out over the year, and that's fine and a lot of consumers understand that.
The one where I see the biggest challenge, frankly, is if you're in a winter market and you historically had done, let's say, quarterly or bi-monthly fee for service so bill after service and you've converted your customers to subscription billing. Historically, these customers are used to paying per service and we switch them over to subscription billing. That's when we usually see the spike. For companies that have good training programs as it relates to their inbound sales or they're inbound sales over their CSR training, it's not as prevalent as you would think it is.
Patrick Baldwin: This question came from Nevada. It's going to get cold in the winter but for a typically hot climate, they've got this bi-monthly service. I know the materials don't last as long in the sun and all this stuff. Would you even bend your service frequency? I hear this sometimes, it's like, “We do five services a year, the beginning of the season, more frequent through the season, and then we intentionally are going to take an extra month or two of a buffer during the winter season.”
Seth Garber: 100%. It's funny that question came in from Nevada because I dealt with this exact same question in Nevada. From my perspective, Nevada, as a whole, is a completely different market, especially if it's the Vegas area. It's an anomaly market in the US. People will disagree with me until they're blue in the face. The reality is you have a transient market and you have a high hospitality-driven market. It's a different market compared to anywhere else in the country, at least in the data that I see, which is a lot.
In Nevada, we address this the exact same way I described it. This 2023, we had a little bit of a spike in cancellation and there are probably quite a few reasons around that outside of this one thing. That's an interesting market. To answer your second component of this about service frequency, every company makes a business decision on the frequency if they're going to service their customer. Some companies make that based on a margin and how much money they're going to make. Other companies make it based on their technical knowledge of products. Other companies will extend the time between services because they want to push the limits of their product in order to generate more profitability.
Look at certain markets like the super cold markets like Montana and look at Wisconsin, these are frozen markets a lot of times the year. You'll see tri-annual services. You'll see it five times a year. You'll see all kinds of ones or you'll see other services where specific insects are covered at certain times of the year and certain rodents are covered at different times of the year. What it boils down to is what's the impact on the P&L and what's the right service that your company is going to offer?
We're pretty technical people, even on the pest side, but I tend not to advise on service protocols. If I do, I want everyone to go quarterly monthly billing or tri-annual monthly billing because I know we can drive the highest value per service. That's the way I think about it but there are a lot of highly technical people that want to do every other month's service or, for that matter, an expensive monthly service.
Patrick Baldwin: Let me ask you this because this sits in the back of my brain somewhere when I think about excess initials charging extra to get started. I think about making things hard to cancel. When you call Charter or Spectrum, you want to cancel your internet, your cable, and you've got to sit on the phone for 30 minutes, at least, or an hour to cancel your plan. They put their best salespeople and all this stuff. We've talked about cancellations in the past. Do you use an excess initial and think, “That’s fine. When you decide to come back, just to let you know, it's going to be $199.” The clients used to pay $40 or $45 bucks a month.
Seth Garber: We've seen these models and I never was a huge fan of it personally. All of a sudden, one of our clients did it. One of our clients did it and they focused on it. The impact was incredibly measurable. They used it as an FAQ for the CSR. It would come into the inside sales and the inside sales sold. I don't remember the exact numbers but our typical initial is $199 and then it's X amount of dollars a month after that. As long as you stay on the program, you're all set. It would help as part of the sales process.
If you decide to leave before the end of the year and you decide to come back, we're going to charge you the full initial price. I wasn't a believer. I've seen it executed at scale now and cancellations are down. Cancellations are down and customers are staying. What I would say is in this specific scenario, what this company also did is that they eliminated cancellation fees and leveraged the initial as their cancellation, which was unique, and it's working. Fundamentally, when we first built it, I thought it was going to take too much training to get this to execute well but they did it and they did a good job. We wrote the playbook around it and it's been incredibly effective.
Patrick Baldwin: I've seen that on the doors, “Here's our typical initial and it's jacked up high but, today, we're going to discount this down $300 bucks,” or something that we know is a lot in the industry. If you do cancel within twelve months, you're going to end up paying the full initial.
Seth Garber: When I had my business years ago, we had some models that we had done like that and some worked. We were very black and white as it related to fulfillment of contract back in ‘08, ‘09, and ‘10. One of the methods that we utilize is that we would do an initial free. However, if they canceled, they would owe us back all the money.
We were $295, $395, or something like that is what our waved feed was. We were pretty relentless. If people canceled, we would go after our money and we were pretty relentless with it. It kept customers. Did it support the customers and write us ugly reviews? We got some of that stuff. Overall, there's a lot there but it comes back to the business decision and what the owner thinks is the best for their company.
Patrick Baldwin: I've had discussions with someone that does a similar model for Sentricon and he's killing it. If you were to install Sentricon today, it'd be $750 or $800. Instead, it's going to be $200 or $300 to get it in the ground. If you cancel in the first year, you're going to end up paying for this install. Someone's not just going to take it and leave and it's working.
Seth Garber: We talked about it a few months back. We all determined that we could do a Sentricon-only business and it's going to be effectively the most successful company in pest control.
Patrick Baldwin: It's already killing it.
Seth Garber: Paul even said he would come and invest in on that deal.
Patrick Baldwin: He said he's going to knock doors, it’s what I heard.
Seth Garber: I was going to be the investor and Paul was going to knock doors.
Patrick Baldwin: That's right. It hurts to think about it. This is a follow up question. I know that was a long question already about monthly billing. I'm going to keep on this because it's similar. For customers who set up a monthly billing that are past due and their credit cards have expired, at what point are most companies holding off on services until the customer pays or updates on a pay?
Seth Garber: I've got a pretty strong perspective here. I am in the camp where people need to pay their bills. You know me well, Patrick. I'm not overly understanding when it comes to certain things and this is one of them that I'm not overly understanding about. I'm a huge believer that if you agree to something, you pay your bill. I'm not overly understanding because people put a lot of work in and there's a lot of time. I know the expenses of collections are high. A lot of companies don't realize how much it costs them to collect money.
For me, the way that I like to look at this is simple. If that customer has not paid by their next scheduled service, we don't service them. Based on your accounts receivable process, I tend to push people into collections, especially residential once they get 120 days. There are lots of good services out there that do collections. If that customer decides to pay their bill and get back on track, it's totally fine. The only place where I have a little bit of feeling around this where my emotional part of Seth comes out is sometimes people's credit cards get declined.
If your company has a good Dunning process in place, they tend to get their credit cards back on file. The fact is I'm not a big fan of someone saying, “I'm going to pay my bill,” then they don't do it. We call them next week, they still haven’t paid their bill, and they have seventeen reasons why they forgot. Especially when you start dealing with service dollars and residential, it's low dollars. People need to pay their bills or they don't need to have service. That's always been my perspective.
It probably comes off pretty harsh and brash when I talk about it this way but that's the way I think about it. I will pay my vendors. You've heard me talk about it before. I don't negotiate with my vendors and I pay them what I think is a fair rate. We should operate companies that way too, it's always been my core belief, especially as we've progressed, built companies, sold companies, and different things. You and I have even talked about this belief system around pricing.
Patrick Baldwin: I believe it. Did you say Dunning process?
Seth Garber: A Dunning process, a lot of us utilize this but we don't even realize we do it because a lot of our credit card processors do it for us. The Dunning process is the methodology in which we capture expired credit cards or credit cards that got canceled. Most companies have this in some capacity. I can't speak to all the CRM companies and how they handle their payment processing. For the companies that have Stripe, Dunning is built into it, you just have to turn it on and set it up.
Within our organizations, for my companies, we use another company called Stunning and it gives us the customization capabilities to collect money for expired and canceled credit cards. It works well. I'll speak to Pest Daily for a second. Pest Daily has a low-cancellation rate, incredibly low. We show some of our technology partners in the country what it is and they can't believe it. Our number one reason why people get canceled is because of credit cards expiring or insufficient funds. We rebuilt that entire process and ever since then, it's been incredible. Utilizing Stunning is low now compared to what it was before.
Patrick Baldwin: Stunning for Dunning. You can build a custom process. What's the method behind it?
Seth Garber: There are a bunch of steps to it. I want to be careful here because I don't want to get overly technical but it’s the communication structure. This is going to be something for the people reading this episode should dive into. In the new world of credit card processing, when a customer's card expires, it notifies them and then offers up another credit card that they might have tied to something else on their device or whatever else. It allows them to opt-in and put that credit card on file in your system. It's pretty amazing.
Patrick Baldwin: You can see my eyebrows, they're big but went up.
Seth Garber: This isn't something brand. This has been around a long time. For a lot of people who have Androids or iPhones, you save all your credit card information, or you've transacted in some other way on the internet, and that's saved as long as you've opted into that. These systems offer it up. Our system today, if you have a credit card saved somewhere else and your credit card gets declined inside of Pest Daily, it's going to come to you. If you have a card saved, it's going to say, “Would you like to use this card instead?” People were like, “Of course, I'd rather use this card,” if they like our products or services and then they do it.
The gap that we've faced out of transparency is that people come back and go, “We never put that credit card on file with you.” The good news is underneath the User Licenses Agreements, we're protected by that because we're not the ones that are executing, a third party is. That's been a little bit of a gap but it tends to be people who would have five credit cards declined.
We've chased them down over months and months and now they're saying, “I didn't do that,” but they did. That's what we've seen. With this technology, people are using it in the pest control industry and it helps out a lot. If you have Stripe as a processor and it's available, my assumption is that the CRM processors probably do the same. They probably have the same kind of capability if we ask for it.
Patrick Baldwin: To clarify what you talked about the gap in the process, “If this card gets declined, would you like to use this card?” They are manually saying yes. It's not automatically pulling another credit card in.
Seth Garber: Correct. When we first put this in place, I understood the process. Somebody had reached out and said, “I want to talk to Seth,” and I was like, “What do they want to talk to me about?” It was like, “I want to talk about my credit card.” I jumped on the call and he goes, “I never gave it to you.” I said, “No. This is the way it works.”
It's hard for people to understand because a lot of us work in a pretty sophisticated world but a lot of people don't. A concept like that throws people off a little bit. However, if I took a look at the 12% of credit cards that had been canceled or declined that we faced over the last year on the Past Daily side, we've recovered about 9% of those through this process with no issue. I'm calling out the anomalies of 1 or 2 problems but the reality is that it's been incredibly impactful for our business. The pest industry can be exactly the same.
Patrick Baldwin: That's awesome. Hopefully, the CRMs, I don't know which ones, maybe they already do but it makes sense to do it. This is a follow up CRM question that I'm coming at you with. Going back to Power Conference, this is where I'm coming from, you talked about over communicating with the client. That could be calling ahead or the day before, gates unlocked, dogs, inside outside service, or whatever reason, and then there's invoicing.
If you over communicate with your clients, you'll see a greater attrition because of it. Don't communicate too much. The question in my head from this is if the CRM is automatically charging a card, I don't know if you necessarily send an invoice every month. Netflix does not send me an email, “We charged your card again for $13 or $15.” I don't even know how much Netflix is. In terms of pest control, we get the credit card on file, and they're charging the card. I don't even think about it, except if I look through my statement. That's the model I would say that we should promote or that's probably the best practice for the CRM, charge their card once a month.
If the credit card is declined, to me, if the CRM doesn't do it, you're manually sending an invoice. With that invoice, it's saying, “You now are on the hook for $30, $35, or $40.” There's an invoice. If you do come back and pay, there's going to be some catch up, “You didn't pay for your service the first of last month and now you also owe this month as well.” Seth, would you then use the CRM to invoice the client when their credit card declines so that they know they're on the hook for it?
Seth Garber: Yeah. This is a good question and it lines up with what I was talking about. We're talking about two separate items and one is our invoicing system, which is saying, “We need to send essentially a bill to a customer.” The second is what I referred to earlier, which is our Dunning process, which is the way that we're getting the payment. My perspective is the less communication to a customer in the pest industry, the better. We've proven this out. The only exception that I ever would make is locked gates. There are a handful of them, there are 5 or 6 of them.
The reality is as soon as that customer no longer pays and owes us money, my entire perspective changes. As soon as that customer owes us money, to me, it's like lighting a fire. It wouldn't be too hard-pressed for me to build a process where we're contacting that customer every single day with an invoice in a way to update their customer and a phone call probably 3 out of 5 days. My mind shifts there because. What we need to determine quickly is that is this a customer or is this no longer a customer? The faster we determine that, the more efficient we're going to be as a company. What do you think about that one?
Patrick Baldwin: I love it. I know your approach in terms of collecting money and the philosophy behind it. I do think they need to be notified. I can't just let them go. It's more than just, “Your credit card is expired.” It’s like, “Here's an invoice. You are on the hook for this invoice.”
Seth Garber: I hope I don't sound like a greedy and money-hungry guy because I'm not at all. If somebody owes us money, all of a sudden, it triggers something. I'll use Pest Daily as an example. We use Stunning. We also use the Dunning process in Stripe. We also have an entire automation built into HubSpot enterprise, which we use. If a customer owes us money, they are “accidentally” going to get 2 or 3 messages from 2 or 3 systems pretty much daily for the next 7 to 10 days.
Patrick Baldwin: Accidentally, that’s nice.
Seth Garber: Frankly, people say to us, “That seems excessive.” Is it excessive or am I doing right by providing a world-class technology that we have heavy levels of investment in that they still have access to and they can still use? I have a right to get paid for that.
Patrick Baldwin: For pest control, a few days in the month already, I could say, “We've already provided the service. This was on autopay. You owe us for this month's warranty.” I wonder, in terms of technology, if you cut off their Pest Daily access as soon as their credit card declines.
Seth Garber: For us, we wouldn't do that. In the pest control industry, it's the same concept. If we're selling pest control correctly, we're selling pest control as an insurance policy. The insurance policy says, “If you have a problem, we're going to come back out.” Whatever your company’s operating procedures are around how fast you come up, that's up to you.
That person is covered until we stop trying to collect money and we move into collections or we no longer make them a customer. You've heard my perspective on this before. A customer is someone who has a future invoice coming from your business, that's a customer. As long as we're choosing to continuously send them future invoices, they are still a customer. We need to provide the right level of service to them at that point.
Patrick Baldwin: I got another question, Seth. When doing a price increase, what is the best way to inform customers? Special email, letter, or add a small paragraph in normal service invoice emails?
Seth Garber: I want to break this into a couple of subsets before I answer it about price increases. The reason I want to do that is I want to look at what I would call a conventional residential. Whatever service frequencies you have doesn't matter. I'd like to then break it into small commercials and then I'd like to move it from there into contracted commercials. I'm going to have a different approach for each of these.
In the residential world, everyone, get ready to write your emails because some of you are going to love this and some of you guys are thinking I'm crazy. I don't like to communicate a price increase at all. We've proven this method now. If I'm going to raise prices on a residential customer, I'm going to raise them. I'm going to change them on their invoice and we're just going to invoice that customer, that's what we're going to do. If you rewinded this back years ago, I probably would have had a different communication strategy.
What I realized over time was the fact that the bigger a deal we make about a price increase, the bigger deal it becomes for our customer. Let's not make a big deal about it at all and let's just raise prices whenever we want to. If you went back, Paul and I had a discussion around where to put pricing pressure and I do think that that should be the case. I'm saying whenever and whatever. The fact is once you determine how you're going to raise prices, just raise them. I'm not a fan of over notifying a customer at all, especially on the residential side.
It works. Out of the dozens and dozens of these that we built over the last couple of years and sent them out, we only had one market in the entire country that got pushed back out of 80 markets or whatever that number is. Every single time that this happened and we didn't notify the customer, it was the exact same result. The CEO says, “I was super nervous. I've been waiting for a long time to do that. By the way, I'm happy that we did that because we have hardly gotten any calls on it.” The exact same response, market after market, price increase rationale, after price increase rationale, and it's worked great. That's residential.
Let's go to a small commercial. When I think about small commercial, I'm thinking about non-RFP, non-third-party contracting commercial. This would be your general commercial account, your small mom-and-pop stuff, and maybe 1 or 2 buildings here and there that are not a major corporate entity that's making you sign their contract.
For these, frankly, I feel exactly the same way. The only thing I would tell you here is that if you've got a top twenty customers and you do a lot of commercial work, you want to be a little bit careful if you have commercial customers that are maybe your number one customer and represent too much of your revenue than they should. Sometimes you can irritate some people like this. On the small commercial, I would do it exactly the same way.
I want to put one more into place here. Let's take one step up. Let's say multifamily. We tend not to like doing tons of multifamily but we do participate with a lot of it. In the multifamily, for the majority of the large ones, you've got to give them a notification and you have to fight for those couple percentage points because the way that most property managers are compensated ties directly to profit on their P&L. If you raise their prices without notifying them and without approval, they tend to go find the next cheapest multifamily.
Let's go all the way up. Let's go to the big companies, which is the stuff that we greatly enjoy selling. Massive commercial real estate companies, massive healthcare companies, maybe multi state entities, or whatever it may be, with these companies, I have seen people go in incredibly weak and not maintain the contract. What I mean by that is they go in, they're meeting with senior property managers or asset managers, they're begging for price increases, they're trying to get approvals, and things like that.
On these contracts, to effectively raise prices, you have to go back to the original agreement. In most cases, these original agreements are on their paper and not yours. Whatever the rules of that engagement are, you have to follow them to a tee because that creates the defensibility to raise your price. If you're looking at a 100-location industrial portfolio, let's say, and you've signed their contract, their contract says, “You may not raise prices for two years. Please do not raise prices.” You will lose that agreement incredibly quickly.
On the other side, I'll tell you how we effectively raise those prices. What we would do is let's say a company had a 30-day out by either party, which they all typically do, and we needed to get a price increase. What we would do is that we would go meet with the leadership team and we would have a discussion around the price increases.
If they agreed to it as almost in a sales capacity, we would then execute our 30-day out after the discussion and then we would recontract it at our new price. We would work hard to try to get a price increase built into the contract. That's how we did it. It was effective and people were incredibly grateful on the large accounts when we did that. That was a pretty long answer but I wanted to be pretty thorough here because this can get pretty squirrely when you start raising prices on people.
Patrick Baldwin: On the last scenario, on these larger accounts, when you have that price increase conversation with the leadership team and they say no, how do you handle that?
Seth Garber: It's a business decision and it's sometimes an ego decision. We tend to go in with the wrong reasons. We tend to go in with the reasons of, “Things are getting more expensive. We have to raise your price.” Those reasons are fine but, honestly, the person on their side don't want to hear a poor-me story. Remember that the same thing is happening to them. We can't make our world so important that it's the number one thing they have to focus on. We have to position it.
If they say no, you have to make a business decision on, “Is this still the right customer?” Frankly, let's all be honest here, the margins, if we're running a pretty good business, if we don't raise it, does it grossly affect our business? Probably not. We reduce our costs a little bit as it relates to that account or we create deeper market density and it doesn't affect us. That's where ego comes into play a lot. I do see a lot of people that are like, “We want to raise this customer's price and they won't go for it. Do you know what? Screw them then.”
In my mind, I'm going, “That's a $7,000 a month account. The chance of another one of those popping up in your market to replace that is tough.” Your average value per residential account might be $700 a year and this is an $80,000 account. Depending on the company size, if that represents too much of our revenue, I'm probably going to tuck my tail between my legs and I'm probably going to go send them a cake or something. I'm kidding. I’ll go and send them a pie and tell them, “Thanks a lot. Maybe next year we can talk about this again or something.” Let's be honest.
Patrick Baldwin: I was wondering if they call your bluff. You walk out of the meeting and you're like, “I'll get back with you.” You're like, “Dang it, we can't lose this account.”
Seth Garber: I listened to lots of different podcasts and there are all these perfect scenarios. When the rubber meets the road, we've got to talk in real life. Real life says that if you're a $1 million account and one of your accounts equals $84,000 of your revenue, you're probably going to tuck your tail between the legs and walk out.
Alternatively, you're going to sit there for two years and think about it. You're probably going to send a message into our office, the FRAXN office, the Potomac office, and go, “What do you think we should do?” We're all going to go, “It's 8% of your revenue,” or whatever the numbers are. “You probably should go sell more business right now and not focus on this.” That's probably what I'm going to tell him.
Patrick Baldwin: I love, in FRAXN, the goal seek tool in the gross profit margin percentage and then you pick the key performance indicator gross profit margin and you're able to either increase pricing or decrease variable cost of service. You said, “Here's what your gross profit margin currently is. Here's what you want your goal to be. Here are the two levers that you can pull to affect that change.” I think about that when it comes to increasing pricing.
Using that tool, I would still start on the lower end accounts, your low residential, your older pricing, and your lower pricing, start there and segment your customer base as you talked about. We didn't talk about this beforehand but starting with your lower residential, give them the highest until there's pain there, go with your next group of residential pain there, and move upstream in terms of that. That tool helps figure out what you need to do in terms of savings, the direct cost, and as well as increasing pricing.
Seth Garber: I would agree with you. I love that tool. I don't even know if I've ever even shared this with you but for the clients that we have on FRAXN, I get in there and screw around with that stuff all the time. I hope it doesn't throw the team off when I'm doing that. No, well,
Patrick Baldwin: I'll make sure we get you kicked out of there. I love hearing that. Seth, you're a man of controversy. You've already rattled my cage talking about price increases, auto pay, billing, and collections. I know you always have an opinion so I'm going to throw one at you. I got an email from Morning Brew talking about Google's coming out with their new AI. We've been around ChatGPT. When it comes to AI, tell me what your thoughts are. I know it's going to be controversial.
Seth Garber: I may stay a little bit uncontroversial here but I may throw a little bit of controversy in here. Most people don't know this but I spent some time working for a company called Core.AI. I learned a tremendous amount about these years and years ago when it was all script-based AI, which is a lot of what you're still seeing today. AI is the hot topic right now. I was fortunate to have a discussion with a close friend of mine who is a deep learner in this space. Something's happening right now that most people don't realize is happening and we're getting fooled.
Let me explain this a little further. Let's think about our industry and we think about all these “AI tools” and a lot of them are still script-based. A lot of them aren't learning a ton but they're okay. You've got people who have products that answer your calls for you in AI. Somebody answers a telephone call, it's an AI agent, and we all say the same thing. What do we say when you hear that AI, Patrick? What do you say when you hear AI talk on the phone?
Patrick Baldwin: It sounds like a robot.
Seth Garber: It sounds okay, maybe we'd buy from it, maybe we wouldn't, but it sounds like a robot. We could tell it's AI for the most case and that's fine. Let's take a step forward and we think about all these tools. They're scripted bots but let's think about the guys that are taking ChatGPT, they're embedding it into their website, and it’s answering questions for us. That exists too. As a consumer, we put something into a bot, it spits out, and answers to us in ten seconds. We know for sure that that's completely disconnected from a human being. We already know that. Would you agree?
Patrick Baldwin: Yeah.
Seth Garber: In our world right now, people are using this stuff. They're testing in our industry. I'm on the fence about it. We've tested a bunch of them and honestly, the results are average or below average, which is fine. I used to be negative about it but let me tell you what's happening here. There's a reason why it's crap right now. There's a reason why they sound like robots. There's a reason why we get these images that look all silly and don't look absolutely perfect and we're like, “They're getting better.” We say that, “The images are getting better. It's starting to sound a little bit more.”
The facts are this, every real AI producer out there, not the stuff that's being resold, are already a hundred miles down the road from what's being shown to us today. We're a hundred miles down the road. What's happening is we're being conditioned to learn from AI and rely on AI. By design, we're getting things that sound like robots and soon they're going to sound a little bit better and then they're going to sound a little bit better than that. We think that's development. That's designed to train us as consumers to rely on AI. It's already there.
The tech already exists to be better and better to sound like you and I and talk like me and sound like you. We're being systematically programmed in order to adopt artificial intelligence for the future. People don't realize that. It's a crazy thing. The people that are forward-thinking who are involved in this type of stuff are already massively invested into the future AI, which is not readily available to the public and it won't be for a long time, which is interesting. The easiest way I can relate to it is that you think about an Apple iPhone. An Apple iPhone, you have an iteration that comes out every single year. Every single year, what do we all do?
Patrick Baldwin: Buy a new iPhone.
Seth Garber: Do you think when Tim Cook gets up there and does his annual review of his products and says, “Here's what we're coming out with this year.” Do you think Apple doesn't have 100 more products already completely developed ready for us?
Patrick Baldwin: Plus all the ones I've scrapped.
Seth Garber: They already know what the future is going to look like. They already have it figured out on an iPhone but they also know that the consumers are willing to buy the new and best all the time. We've been programmed in order to do that every two years. That's it. AI is the exact same way. AI that exists out there right now is sophisticated. I would argue that if we put Patrick Baldwin AI and Seth Garber AI on The Boardroom Buzz, the most sophisticated ones are out there, and people probably wouldn't even know it wasn't us anymore.
Patrick Baldwin: Mine would not take a lot of programming. It would be Self-deprecating Texas Gunslinger that doesn't know anything.
Seth Garber: That likes cookies?
Patrick Baldwin: Yes.
Seth Garber: You would be Self-deprecating Texas Gunslinger that likes cookies. What would I be?
Patrick Baldwin: By the way, thanks for the Christmas gift, bro.
Seth Garber: You're welcome, man.
Patrick Baldwin: A cookie subscription.
Seth Garber: I wonder what my AI description would be. You got me thinking about this now.
Patrick Baldwin: You know what? I'll ask the Mexican for what it would be. We'll get something real fun out of that.
Seth Garber: If the Mexican was here right now, who knows what he would talk about.
Patrick Baldwin: I know because he's not afraid to offend you and I.
Seth Garber: That's hilarious.
Patrick Baldwin: Do you know where it is now? Talking about programming, what they're making available, you can't even talk about it. It's a secret.
Seth Garber: I'm not anyone special. We know the people who are deeply involved in this stuff.
Patrick Baldwin: You’re special, Seth.
Seth Garber: I'm special in some ways, I guess. Think about what we're all talking about. We're all talking about it. One of the parts that I do hate about it is probably 5% to 10% of the time that we spend today is talking about evaluation of AI. Does it make it easier, faster, and better? If I'm an individual operator out there running in my truck and I've got an AI that can answer a phone that sounds like crap or a robot, is that how I want my company to be projected? I'm not sure.
If I'm a multinational company and I can put some AI in with some overflow but I also have the money to invest in the top-tier products, is that going to make a big difference? It probably does. I don't know if I'm going to be out growing a business today and I'm a sub-million-dollar company. I don't know if I want AI risking the revenue and the future of my company on a script-based AI system. I don't know if I want that to be the case but that's just for me. I'd rather invest in people until we get a little further down this continuum.
Patrick Baldwin: Interesting. I was not expecting that.
Seth Garber: It's the complete other way you would expect me to answer that question, isn't it?
Patrick Baldwin: Yeah. Bottom line, AI could do a lot, maybe not everything. It might get you to 70% and 80%. You and I talked about AIR in terms of the voice model that it has. When you said, “What does it sound like?” That's what I'm thinking about a couple months ago looking at AIR. It does feel that way. There's some inauthenticity that comes across. I don't want to put that model into something where that feels fake but if I can get something that feels real and maybe it gets to 70% of the way, then a human comes in and intervenes and closes the sale or makes an upsell or whatever. AI could do a lot of work to replace employees.
Seth Garber: It could. I don't know if you've seen it but it was released. OpenAI and ChatGPT released publicly the ability to build your complete own ChatGPT off their platform for you. The barrier to entry starts between $2 million to $3 million to build it for you. These are sophisticated technologies. They're opening it up right now. If you think about a company that is willing to go to the enterprise and say, “For $2 million to $3 million, we're going to give you your own ChatGPT.” That's not their enterprise product, that's their top tier make-it-for-you your own learning world. You'll find that what I'm saying is right. If people find that the enterprises are willing to spend $2 million to $3 million to build this thing, they're selling something that already exists. What I'm saying is accurate here.
Patrick Baldwin: That's nothing for a lot of corporations.
Seth Garber: It would be hard for my organization to go pay $2 million or $3 million to build my own ChatGPT. If you're Verizon or some of these multinationals, you probably take a chance at this. Your R&D department probably takes a chance at this. I'd be curious to hear Cassie's perspective if she would want to go build her own entire AI instance for Terminix-Rentokil to identify bugs and give her perspective on different things. That'd be an interesting discussion.
Patrick Baldwin: There we go.
Seth Garber: We could see her in February 2024.
Patrick Baldwin: Cassie will be at Energy. Seth, I'm opening up here. Open mic time if you have any questions for me. I can see it on your face.
Seth Garber: I'm going to hit you out of left field on this one. Are you ready? You might as well have a little fun. You don't have any hair on your head, Patrick. You're a deacon in your church. If you had to make one decision where you could either grow your hair back but you had to become Jewish or just become Jewish, what would it be?
Patrick Baldwin: Those are my two options. Either way, I end up Jewish. I do want to wish you a happy Hanukkah, Seth. This is the first day of Hanukkah. Happy Hanukkah.
Seth Garber: Thanks, man.
Patrick Baldwin: After spending time with the Mexican, I thought you were going to have me sell my soul in this question here.
Seth Garber: I'm not going to do that to you. I'm just giving you a hard time. You don't have to answer it. I've got another question for you. Scrabble or monopoly?
Patrick Baldwin: Monopoly. What about you?
Seth Garber: Obviously, Monopoly.
Patrick Baldwin: Now, with AI, I don't have to spell Jack.
Seth Garber: Termidor or Taurus?
Patrick Baldwin: Termidor.
Seth Garber: That could be controversial.
Patrick Baldwin: Really?
Seth Garber: Possibly. Liquid or bait stations?
Patrick Baldwin: Yes. We went both ways. When it comes to termites, I’d go with both. I do prefer baiting.
Seth Garber: German roaches included or not included with regular service?
Patrick Baldwin: We charge extra on the initial. After that, they're warrantied.
Seth Garber: A hoarder's house service or cancel?
Patrick Baldwin: Service.
Seth Garber: I'd probably cancel that one.
Patrick Baldwin: Really? Outside-only.
Seth Garber: A restaurant that pays $1,000 a month or ten industrial buildings that pay $500 a month?
Patrick Baldwin: Ten industrial buildings that pay $500 a month. Was that the right answer?
Seth Garber: It's your answer.
Patrick Baldwin: Then it's right.
Seth Garber: Yellow pages or billboards?
Patrick Baldwin: In Waco, Texas, yellow pages because they still use them, they still put them out, and they still work.
Seth Garber: They still use them?
Patrick Baldwin: They still put out yellow pages. We kept advertising in the yellow pages. It was awesome because everyone else pulled out and we'd still get yellow page calls to pay for it.
Seth Garber: Yellow pages are awesome.
Patrick Baldwin: You heard it here first. If you're in a little outside market, a tertiary market like Waco, Texas, you should consider the yellow pages.
Seth Garber: I can't believe I asked you all these questions off the cuff.
Patrick Baldwin: You've been saving them up for a while. Awesome. Seth, thanks for stepping in today. I enjoyed it. We covered a few topics here.
Seth Garber: It's been fun.
Patrick Baldwin: I love it. Thanks, man. I appreciate all you do.
Seth Garber: 100%. I appreciate everything you do too. I hope this episode comes together great for all the readers. If anything was too controversial, feel free to email us, blow us up in social media, or whatever you guys want to do. I’m happy to answer any questions.
Patrick Baldwin: Bro Seth, see you, man.
Seth Garber: See you, man.
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Dylan Seals: Thank you so much as always for supporting us at The Boardroom Buzz. We know your time is valuable and the fact that you spend 45 minutes or an hour with us means the world. All the media that we put out from Potomac is meant to honor and celebrate you, the service industry owner. As Paul would say, “Yee who toil in the pest control vineyards.”
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