10x Your EBITDA – A True Story

Ron Holt was in for a surprise when he attended the 2003 Las Vegas franchise conference. He had started his business, Two Maids & a Mop, with big ambitions and dreams of franchising it across the country.

What he hadn’t expected was the chat he had with Subway founder Fred DeLuca, who had more than 40,000 locations worldwide at the time.

Holt was eager to hear what DeLuca had to say. But instead of advice on scaling up his cleaning business quickly and cost-effectively, DeLuca gave him a warning: “Most of the time, employees bring you ideas to make their life easier, not to make you more money. Every time you make your employees’ lives easier, it comes at a cost.”

A cost that could well show itself in the gross margin.

But what exactly is gross margin? In simple terms, the difference between what something costs to produce and what you sell it for. As a rule of thumb, the higher your gross margin compared to your industry peers, the more successful your business is likely to be.

Gross Margin is a key metric because the trends can tell you a lot.

If your margins begin to get squeezed you will be asked if that is because of increased supplier costs (too dependent upon a key supplier) or perhaps you are stuck in a price war (You are not able to stand out in the market place and seen as a commodity).

On the other hand, if your margins are healthy or expanding than you’re probably on the right path when it comes to your sales, pricing, marketing and services.

Now Holt was operating in an industry, cleaning and maid services, that was largely commoditised.

His competitors were all in the same mud pit of discounts and trying to squeeze margins on falling prices.

And yet, with DeLuca’s advice still ringing in his ears, he was able to increase his gross margin, expand Two Maids & a Mop from 12 locations to 91, and drive up revenues to over $40 million.

He did by focusing on standing out from his competition. With differentiation, he could charge premium prices that his customers paid to buy solutions that they found unique and superior.

The strategy worked wonders and in 2021 Holt sold Two Maids & a Mop for over 10x EBITDA.

For small businesses who feel like they have to compete on price, Ron Holt’s story serves as an inspiring example of how learning to stand out and adding value can ensure long-term success.

2023 – No More Price War

 

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