Customer Lifetime Value & How to Create Repeat Buyers (ft. Steve Shinholser)

Logan Shinholser:
Hey everyone, welcome back to the Contractor Growth Network podcast. I’m Logan Shinholser, and today we’re talking about a not-so-sexy topic: Customer Lifetime Value. But it is so important to the business, and I have the perfect person to talk about this-someone near and dear to my heart: my dad, Steve Shinholser. He has an amazing way of taking very complex, sometimes boring things in business and making them very simple. This conversation is about breaking down the super important topic of Lifetime Value into things you can actually implement in your business. So without further ado, let’s jump into the podcast.

Logan Shinholser:
So, Dad, whether you know it or not, you are fantastic at this exact thing, so I’m excited for you to join.

Steve Shinholser:
Well, I’m glad to be here. Everything we’re about to talk about-you said I like to make things easy, that’s exactly right. I designed and built all these companies so they would just reoccur and be easy.

Logan Shinholser:
Give us the backstory on those two companies first, and then we’ll jump into all the nerdy stuff.

Steve Shinholser:
Okay. The first thing, out of college, I started a lifeguard business. As you know, like you, I was a diver and a lifeguard my whole life, and that’s how I supported myself. So, I figured I wanted to have my own business, and that was it. We went from zero to managing 500 swimming pools with 3,000 teenage lifeguards as our workforce. That was a very difficult thing to do, but it made a ton of money, so that part of it was really good. You had to give your life up in exchange for all that money, but that was really good.

Then I sold that one. I had a few other ventures-I had a hair salon one time-and then I opened up a pond company and ran that for 20 years out of my garage. You were there from day one, helping me name it, pick out the logo, the whole thing. I don’t know if you remember us tearing up the business cards we were making and printing them out, tearing them up in little sections, and that was that. Then I ended up selling that. I learned from my first business what I needed to do in my second business to sell it at the end. I didn’t just want to walk away like most contractors, and I didn’t own a fancy building or anything, so I needed to monetize all my hard work. So, I set it up to sell, and we can go into that later. But this Lifetime Customer topic was really the focal point of the entire pond business, and therefore, at the end, I had something actually to sell.

Logan Shinholser:
I guess let’s just go with the overall high-level Customer Lifetime Value. It’s a marketing term, but what does that mean to you in layman’s terms?

Steve Shinholser:
For me, it’s really hard to get a customer, but once you get them, it’s easier to keep them than to go get a new one. So, I thought, how do I keep them? Really, I know from being a consumer, like you-you know, you just bought a house, I just bought a house, we have all these contractors coming in, and I know how I want to be treated. If I’m treated that way, I’m going to hire them for more work. Not in their field, but sometimes I’m like, “Do you know how to fix cars?” because I like you so much, I want you. It’s because you’re nice, and it’s not a pain in the ass. So, I flipped it around and said, “Okay, how can I be that go-to person for them?” When they call me up, I just jump. They say “how high,” and I just did it. I just tried to be the best. I gave them what I wanted. That’s all I did.

Logan Shinholser:
So, in your mind, you’re a bit unique where if you’re buying something expensive-which most people listening to this provide an expensive service-you were able, at least in the latter half of life, to buy your own services without having to think twice, if you will. A lot of people can’t. Before you were able to afford your own stuff, how would you be able to empathize with what the consumer actually wanted?

Steve Shinholser:
That would have had to have been way back in the swimming pool business because it didn’t take me long-probably three or four years-before I was making crazy good money. So, I literally could afford anything my customers could afford and more. You buy like you sell, meaning if you’re a Walmart shopper, but the business you own is a Nordstrom kind of a business, the two just don’t really go well together. Up until about year four or five, I had to fake it-just running around trying to get these swimming pool contracts. You know, I couldn’t afford a $60,000 swimming pool contract back then or a $100,000 swimming pool renovation, but I was a service. I didn’t know any better; I just ran around and worked my ass off. It was one of those jobs-you know the deal-like literally 80 hours a week kind of thing. You live it, even when you go home, you live it.

But you’re right-there is a point where once you start to make it… I used to go to the swimming pool days-I mean the pond days-I always had a few million bucks in the bank because I sold my first company. I remember knocking on the doors of these wealthy people in wealthy neighborhoods, and they would open them up, and they would kind of have an attitude that because they had more money than me, they were better than me. That would have scared me in my first five years of business in the swimming pool world, but by the time I got to the pond world, I realized chances are I had more money than them. Then when I would go into their houses, they’d be beautiful on the outside, but the living room would be empty on the inside. Then I realized just because someone has more money than you doesn’t make them a better person. It was literally something I had to think about and get over because contractors who are struggling go in, and they just start kowtowing and jumping through these hoops unnecessarily because they feel like these people have a higher status in the world than they do because they’re richer.

Logan Shinholser:
Okay, so with that, when you were first getting into the pool business, you couldn’t afford this stuff, but you’re on one side of the aisle, doing whatever they asked you to do. But now, on the flip side, you’ve learned that maybe not everybody is on an equal playing field. When it comes down to it, in your casket, maybe someone’s casket is going to look nicer than yours, but when you leave this planet, everybody’s pretty much back to square one. How would you get over all that, though, in the first three or four years of the pool business? When you say you would just do whatever, what was that?

Steve Shinholser:
Well, first off, the swimming pool world was all commercial. The pond world was residential-homeowners. The swimming pool world was apartments, country clubs, condos, and community pools. Normally, what happens is a property management company would maybe own and operate-or at least operate-25, 30, 40, or 50 different apartment buildings. So, we would go around to the Property Managers Association (PMA). They would have dinners. I would buy a whole table, and I would call up different property managers. It was basically $100 a plate, and they would get a free dinner. They had to go to the meetings anyway, so they could either pay for themselves or sit at a free seat. I would buy a whole table-12 people, 10 people, 8 people, whatever it was-and seven of them would be my guests at the table.

I remember I would have to put a coat and tie on, and I was not a coat and tie guy, but I would sit down and play the game-coat and tie-and just be nice to them all. I treated them all to dinner, I treated them to drinks. We would go to the bar afterward, and I would treat them all to drinks and just be nice. Eventually, one or two of them gave me a contract. They give you one pool. They might operate 25 pools-25 apartment buildings, let’s say. They give you one because they want to test you out. That’s the one I knew I had to shine on, and I just bent over backward to prove to them that I could run that pool better than whoever was running the other 24. Then the next year would come around, and they’d go, “You did great. I had some blowups at these five other pools, so now I’m going to give you five more pools-these five pools that somebody else messed up.” Now I’d be managing six pools for them. I was doing this times 10, 15, or 20 different management companies. I would invite a different management company to the same table with me.

Or, they had expos. We would go to the Capital Centre, where the Caps used to play hockey and the Bullets back when they were called the Bullets, and the entire circumference of the arena would be nothing but vendors who were just catering-just like a home show-but we would cater to commercial property management. So, the condo people would be there, the country club people would be there, all the property managers would be there, and we would have, in every booth, like one year our gimmick-we had all kinds of giveaways-but our gimmick one year was I hired a masseuse and a chair, just like at the airport, and this was before the airports were doing it. So, when you came by my booth, you could just step back inside the booth and get a 10-minute rubdown by this very attractive girl. It doesn’t matter that she was attractive, but she just happened to be. That was different from what everybody else was doing.

We’d give them all our tchotchkes, you know, American Pool Service pens and rulers and whatever else we had, but mostly, we’re just trying to make a good impression and let these people know we’re here. Four or five of these property management dudes would get up from a 15-minute amazing massage, like in a daze, you know. When they’re in a daze like that, they remember you. They remember that experience because they’ll walk out of that building and go, “I just saw 125 booths, but I only remember one because I had that amazing massage in that one booth.” So, they’d give me a pool to try, and then the same thing would happen all over again. The next year, I’d have five pools, and then they’d give me 10, and then sometimes these companies would give me all their stuff. “Steve, you got all 20; you got all my stuff. I don’t want anybody else.” But it was a stepping stone; you just got to get a foot in the door, and that’s how we got that foot in the door.

Logan Shinholser:
It sounds like you would spend big upfront to get them in. Going to a trade show, getting a booth there costs money, hiring a massage therapist costs money. I mean, going and getting these dinners and drinks-that all costs money, especially in the early days when maybe now it’s different, and you have a whole marketing budget for the company. But when you’re first starting out, why would you guys want to put the money upfront and say, “Screw it, let’s make this thing happen,” versus what I think a lot of people inherently do, which is, “Well, I can’t spend any money until I get work in the door, and then I’ll spend some money on marketing,” which is backward because you can’t get work without having some sort of marketing in place upfront. So, why did y’all go against what most new business owners do, which is hoard all their cash and not spend anything to get people through the door, but you all did that?

Steve Shinholser:
The first thing we did that I hadn’t told you about was cold calling. When we opened our doors-October 1984 is when we opened our doors-we started cold calling all the different property management companies and the apartment buildings themselves. “Hey, Ms. Resident Manager, who runs your swimming pool, and how did it go?” “Oh, XYZ runs it, and it sucks.” I’m like, “Would you like to have an unsuck experience?” They’re like, “Sure, how do I do that?” “Well, you got to call my boss.” I’d call the boss and go, “Bob Smith, Ms. Jane at this apartment, XYZ, told me to call you because she said she had a bad year. I’m just wondering if you’d entertain a good year.” Sometimes they would talk to me; sometimes they wouldn’t. But it was a ton of cold calling at first.

Now, how did we decide to spend the money? The game back then-there was no internet, there was nothing back in 1984. So, you had to either beat the bushes down… Now, both my partner and I came from a company where we worked for about three years at a different company before we started our own. So, we knew how the game was played because we got pushed up the ladder so fast in that other company that we were dealing with all the upper-level people in all these management companies. So, it’s not like we quit and started from scratch; we knew people. Now, we had a two-year non-compete, so we could not touch any old clients. But an old client might… we might have run five of his pools, and he owns and runs 25 pools, so the other 20 pools are fair game. So, we would just call them directly, but we knew the game we had to play.

And for me, we didn’t have any money, but back in ’84, there were very high-interest rates-like 20% on credit cards-and they would just send you… I had five credit cards, $10,000 limits each, and I ran every single one of them up. My first year, I spent $50,000 with money I didn’t have, and then we would just pay the minimum, minimum, minimum. But they wanted $1,800 for a booth at that CMA expo at the Cap Center. “Okay, here’s a credit card,” and that’s how we just piecemealed it together. Year one, we didn’t make a hell of a lot of money, but we were profitable. But year two was when we had that “aha” moment at TGI Fridays when we each handed each other $100,000 at the end of the year, and from then on, it was off to the races. We had work, we had money, we had everything.

Logan Shinholser:
One of the things that you brought up was just working with the property managers and essentially saying, “They would give you one pool, and if you do a good job on the one pool, they’ll give you another one, and then more and more and more.” I know now there’s this common theme of clients who come to you and say, for example, “Hey, I’m a real estate agent, I need you to do this one project for me, and if you do a good job, I’ve got a ton of clients that I can refer you to.” What is the difference in your mind between the scenario with the property managers versus nowadays with, say, real estate agents, where they say, “If you do a good job now, I’ve got you covered”?

Steve Shinholser:
One is called the truth, and one is called a lie. That’s the difference. When you’re a property manager and you have, say, five properties, you’re probably 25, 30, 35 years old, running around, and your whole job is to run this property. The biggest pain in the ass in every property is the swimming pool because they’re run by teenagers, and they’d rather stay at the beach and smoke pot than come home and open the pool up that they agreed to. So, they want desperately to have good quality vendors because otherwise, it’s a huge pain in their ass.

That one-off real estate person who sucks you in and says, “Hey, if you give me a good deal now…” If they come in and say, “If you do a good job for me, I’ll refer you,” I’m all in. But if they want a good job and a discounted price, and the discounted price is based on a lie-which it is-and I used to tell those people in the pond world, “I’ll tell you what, the first customer you bring me, I’ll pay your commission on that, or I’ll give you that discount back to you, but I’m not giving it up front,” because they were lying to me, and I knew it. But the property manager, all they wanted was somebody to make that headache at the swimming pool go away, and that’s what I did. So, when they had five pools, four more headaches, and the one I’m running is not a headache, guess who’s running all five pools next year? Me. You got to be able to smell that out. So that’s the biggest difference.

Logan Shinholser:
So essentially, let’s fast forward to when you did Premier Ponds. If you had gone to a property manager who said, “Look, we have 15 different facilities that each have a pond. If you do a good job on this first one, then we most likely will give you the contract for the rest of them,” that would be a scenario where you’re good to go because you know it’s legit, versus someone trying to strong-arm you in a certain sense, just trying to get something for less.

Steve Shinholser:
That’s all they’re trying to do, and I’m not playing that game. If you want me to work hard and you’re going to reward me at the end, great. But if you’re going to lie to me to get me in the door and then you’re going to go away-this is nothing more than ghosting today. You go out, and you have a fantastic experience with someone, and they ghost you because sometimes they were using you for that event, and they had no intention of going further with you. That’s really the intent. The property manager had full intent. If I did a good job, oh my God, that’s all he wanted was a good job, and he’d give me more pools. But the other person is just using you to get what they want. That’s a win-lose situation. I only wanted a win-win situation.

Logan Shinholser:
Now, in both companies, the pool side and the pond side, they were both set up from a business model perspective where, on the pool side, you win a contract. Would you have to fight for the contract every year, or was it pretty much like, as long as you do a good job, unless somebody else crazy comes in and has a much better deal, you are going to get that contract year over year over year? Or was it every year you had to fight for it?

Steve Shinholser:
Almost every year, you had to fight for it because there are two or three factors that went into it. First, you had to do a good job. Great, now it’s money. All these buildings, all these commercial buildings, run on budgets. So, they go out to bid to make sure to keep you honest. If it’s reasonable, then you got the pool again. Okay, so money was a factor because there would be some new kids on the block, like I was once, and they come in with some cheap prices. I might run the pool for, say, $34,000, and the next guy wants to run it for $28,000. My guy would come back and say, “Hey, what do you do with this?” I’m like, “You remember that nightmare that you kicked out and got me in there? Well, that’s what you’re headed for again. So, you got to decide: is that $6,000 worth these people calling you up on Sunday at noon because their pool’s not open? Is that worth six grand for you? Because if it is, hire them.”

So there was that, and then the third thing that would happen is sometimes these properties change management companies. So, the new management company might have their favorite pond guy, right? Or pool guy. So now, all of a sudden, I’m like a fresh kid; I got to rebid everything with them. So only if it was the same property manager, the money was good, and they were happy with the job I was doing, then I almost 90% of the time retained them. 90%. In fact, we used to give bonuses out on retention, and after a few years, my guys came to me and said, “Steve, this is… because two out of three of these factors are out of my control. You’re telling me I’m going to get a big bonus if I retain 90% of my clients? Well, if I do a great job at all of them, there’s still the other two factors that are out of my control. So, I don’t think that’s a good bonus program.” And I said, “You know what? You’re right. You did your job, but because somebody else-the management company or some low bidder-came in, and now we don’t get that back, and you don’t get your bonus, that’s not fair.”

Logan Shinholser:
So what’d you do?

Steve Shinholser:
I changed the structure around. It wasn’t based on just retention. It was based on, for instance, in the days, all of our people had to twice a week inspect these swimming pools and go up to the resident manager with all this checklist and have her sign that piece of paper and write a comment on it. “Hey, yes, for this week, they did great,” or “This week, nope, the pool opened up late four times,” whatever. So, at the end of the year, the bonus was based on the aggregate of all their reports. If they ran 100 pools, two reports-that’s a week-that’s 1,000 reports that we just tabulated and said, “Okay, you know what? 90% of the people said that you did an excellent job this year; now you get your bonus.”

Logan Shinholser:
Let’s talk about that because the whole idea of getting the incentives right… This is, you know, Charlie Munger, the Les Schwabs, the Henry Fords of the industry, where they’re talking about if you get incentives right-I mean, like FedEx overnight shipping-they were having issues where they weren’t getting stuff out on time. So they completely flipped from paying their overnight workers hourly over to a number of packages getting out on time, and that took care of the issues. So you did this in the pool world, where instead of going, “Look, you essentially took a lead metric, which is if you hit your numbers and do all your stuff right, something could happen, like a pool could drop out because they go bankrupt, and that impacts potentially your whole bonus as a whole,” and that was nothing to do with your control. And then I remember in the pond world, you always had if people on the team upsell clients or get clients to move forward with other services, they would get a 10% commission on whatever that was. Can you talk to me a little bit about your mindset around incentives for the team? Because if you get the incentives right, that will increase the overall customer lifetime value, which is how much people are actually spending with you.

Steve Shinholser:
Basically, I just made sure that everything they got paid on was within their control. It just wasn’t fair that things out of their control could remove their bonus from them. So it’s exactly what you talked about with FedEx. A storm may come, and nobody gets any packages out during a storm. Well, in the pool world, I would say, “Okay, we won’t count that storm event because that’s not really… that’s a black swan that happens every so often.” So, we just tried to make up incentive programs strictly based on things within their control. They had to do these inspections. Let’s talk about that. They had to get 100% of them done. Whether they were bad reports or good reports didn’t matter at that point; they just had to get them done. You can’t turn in half your reports all excellent, hide the bad reports, think you’re going to get a bonus.

So, did you get them done? Yes. Okay, now how did they come back? Did they come back bad, good, or excellent? You know, and we pay on excellent-just like any reviews. You know how you go anywhere, and the guy says, “Hey, when you review me, either give me a 10 or don’t even answer the review,” and it’s the same kind of thing. So, we just made sure everything was in their control. Then, as a team, we had team bonuses also, and that required everybody to work together. So, if there was a weak link, the whole ship would go down. You know, if there was a hole in the boat somewhere, and someone didn’t plug it up, the whole ship’s going down. That’s what would happen with these team bonuses. What would happen is the other team members would pick up the slack where someone was failing. It revolved in who was failing all the time, but if the same person was failing consistently, we would find out about that or know about it because we monitored pretty much everything. Then we would have a discussion with that weak link and try to fix that because they consistently were bringing down the team bonuses.

Logan Shinholser:
Interesting.

Steve Shinholser:
It’s just realistic bonuses is all I tried. I wanted to give those bonuses away. I wanted that person to say, “Hey, what do you want to make? I got to make 100 grand, like in that money, I got to make 100 grand.” Great, I’m going to pay you 75 in salary, and I’m going to give you a very doable $25,000. But I look at myself as the owner of this company and go, “What do I want? I want an easy life. I don’t want anybody feeding me. I don’t want any problems. I don’t want any of this kind of stuff.” So, I’m going to base this 25% bonus, this last 25 grand, on all the stuff that makes everything run easy. It was all obtainable. It was very obtainable. You just had to do a good job-maybe a good plus job-but not even an excellent job all the time, but just a good plus job all the time.

Logan Shinholser:
One of the things in the pond world, because the whole idea of incentives… at some point, I want to… that’s a whole… that’s very tough to do in my mind, at least. Like, I’ve tried figuring out the exact approach to do it at CGN, and we’re getting closer and closer on this stuff. But it’s kind of coming back to that idea of, you know, “Hey, if somebody drops off retention-wise and the person doesn’t get their bonus, well, the company didn’t make money, so they didn’t make money. But if somebody drops off but they hit their checkmarks, well, now the company doesn’t make money, and they’re paying out extra money to the people.”

I’ll say that’s something that, for me, I’ve had to, over time, get better and better at-just realizing that that’s just kind of part of the game. There are going to be times when, as a company, it’s not going exactly how you want, but the team is doing what they’re supposed to be doing. There’s stuff out of their control that shouldn’t impact that because then it’s a huge loss of morale right there. So, that would be a side thing that at some point I’d love to talk about.

But back to the lifetime value stuff. You know, incentivizing your team to increase lifetime value from customers. In the pond world, you created this thing called the “Exploratory Drain and Clean,” which nobody knew what it was until Premier Ponds started doing this. So, can you walk through what the “Exploratory Drain and Clean” is and how that all came to be?

Steve Shinholser:
People would call me up all the time and go, “I got a pond. I need it fixed up.” And “fixed up,” in my world, was basically 20-25,000 bucks. That’s really what they need-to fix it up, blow it up, fix it up. Well, not everybody had 20-25,000 dollars, and it was scary over the phone. They call up three different pond guys and go, “What can you do?” I’m throwing the big number out. Now, I’m also the most expensive, so I would go, “You know, instead of me throwing out this 25,000 dollars to you, why don’t we do this? For a thousand dollars-900 bucks, whatever it might be-I’m going to send someone out there. We’re going to drain and clean that pond thoroughly, so you’ll get a regular drain and clean. But while they’re there, I’m going to have them inspect the whole thing. They’re going to write up a report for you, so you know the condition of your skimmer, your plants, your motor, your plumbing, whatever. That way, you can make an informed decision.”

So, I would send the guys out there, and what would happen is, instead of me, who they didn’t know, trying to sell them a 20-25,000 dollar pond over the phone, now, all of a sudden, they watch some guy-or two guys-spend four hours delicately cleaning their pond out. They start bonding, and they start talking. My guys would talk to them about the condition of everything: “What do you like? What don’t you like?” Now, they have two people in their pond-drained and clean, looking beautiful-who they know, like, and trust. Then my guys-or I would show up in the early days, but after a while, I trained them how to just speak and sell-and now they’re going, “Okay, well, if you do this, it’s five grand. If you do this, it’s 10. If you do the whole thing, it’s the 25 Steve was talking about on the phone. So, what do you think you want to do?” That’s how we got in the door.

Almost everybody goes, “Well, let’s do some upgrades-maybe the 5,000, maybe the 10,000. I don’t want to do the 25,000.” And a lot of times, they would go, “You know what? You’re right. I see it all now. Let’s go in there and do it.” Nobody else was doing that-everybody was, including me at first. Because this was like year three-I was in the third year before I started this whole drain and clean maintenance business, all of it. Which turned everything-you’re talking about lifetime customer value-if you can turn it into recurring maintenance year after year… I mean, we clean these ponds in the spring, in the fall, in the summer, winter check… I mean, we just turn this lifetime customer, we turn them from just a one-time 25,000 dollars to 3,000 dollars a year for the next 20 years. What is that? 60,000 dollars. That’s 60 grand coming in. Easy money.

Literally, at that point, once they know, like, and trust you, you just send them paperwork, and they send you money back. It sounds like an infomercial, but that’s what we’re doing. We’re mailing out 500 contracts a year, and you know what? 300 come back with no questions asked, prepaid in full. Every March, we’d have like 150,000 bucks in the bank, and we hadn’t done a lick of work because I sent out the paperwork and said, “Hey, if you want the whole year, we’ll do it all. If you prepay it all, you can pay it along the way-credit cards, whatever you want-but if you pay it all upfront, 10% off.” So, 3,000 dollars, that’s 300 bucks off. And that’s worth it because they already know me. They said, “I’m going to do that service anyway; I might as well get 10% off.” And they would just send me money.

Logan Shinholser:
So, to give everybody a quick backstory if they don’t know what you’re talking about on the maintenance side, you would go out four times a year, clean their pond, and as part of that, you would send out, at the beginning of the year, a prepaid contract that was specific to each person’s pond. This was before CRMs were a thing, but you had a whole Excel spreadsheet, essentially, and it just had everybody’s name, address, and prices for what it cost to do their pond. Those would then get printed out on contracts, which would then go out. This is a big part that I think a lot of people who have tried something like this miss-you would send it out with a contract and a prepaid envelope inside of the envelope that you’re sending out, with a stamp. I remember because we had a client that does irrigation, and irrigation is the same maintenance and installation setup. He was like, “Yeah, I tried something like that before,” and what it was was he would send out a postcard to everybody and said, “Hey, if you want us to come out, we can do it. Just give us a call.” He got a couple of people to do that. The very next year, I showed him all the stuff that you did, and he created his own, and I think he got like 40 people that next year doing it. He even had a checkbox that said, “Hey, are we okay to do an extra 250 dollars worth of work without having to call you? And anything above that, we’ll call you.” And a bunch of people checked that off.

So essentially, he was sending it out, making it easy because he had a prepaid envelope that people could just sign up right there. Then, as Premier Ponds evolved and technology got better, I remember we flipped it over to DocuSign, so people would just get a DocuSign in their email, so it was even easier. But it was all done in such a way that all people had to do was get their contract, check off yes or no if they want it, send it back with a check or fill out their credit card information, and it made it super simple.

In your mind, let’s say that first exploratory drain and clean, someone calls you up, they don’t know who you are, it’s 900 bucks to do it. Without knowing that you can then sell a bunch of work later on, if you could only do the 900 dollars from a marketing perspective, how much would you spend to acquire that lead in your mind?

Steve Shinholser:
I think by the end, I was probably spending four or five hundred bucks. I mean, I did this analysis one time, but it was a lot. So now, three, four, five hundred bucks just to get that one lead.

Logan Shinholser:
So, if you could only make 900 bucks off of that person for their whole lifetime, what would the max amount be that you’d be willing to spend?

Steve Shinholser:
900 bucks. But then I would spend it all to give me a shot. Yes, I would spend-if their maximum lifetime was going to be only that one 900 bucks-I would spend it all just to get them.

Logan Shinholser:
But then they would never spend with you again.

Steve Shinholser:
Yeah, then they… and I broke even. I didn’t lose any money. I just… in fact, well, I lost money because I spent 900 bucks to get them, and then I had to send the crew out to clean their pond, so I probably lost 500 bucks.

Logan Shinholser:
Right, which is not a good tactic. So what I’m asking…

Steve Shinholser:
No, it’s not a good tactic, but let me clarify the question real fast. So what I’m saying is, if they could only ever spend 900 dollars with you, there was no opportunity for anything afterward, what would you be willing to spend to get them in the door?

Steve Shinholser:
Nothing, I wouldn’t want them.

Logan Shinholser:
Okay. Now, knowing what you knew, let’s say a lot of clients come in, and they end up spending 60 grand over a 20-year period. What would you spend to get them in the door if you knew, “Hey, this person is going to spend 60 grand with you over the next 20 years”?

Steve Shinholser:
Well, I like to do everything at a 50% profit margin, so I want to make sure I walk away with 50% of all that. So I want to walk away over a 20-year period with 30,000 bucks. That’s what I want to do. I would acquire them 20 years before, and I didn’t have to spend another penny to keep them. That’s the greatest thing about this lifetime thing-you know, it’s a pain in the ass to get a new customer. That’s a lot of energy. You got to go sell; you got to go tap dance, right? But all you got to do is treat your current person nice, and they come back year after year for free. For free.

Logan Shinholser:
That is a huge part of it-treating them correctly, doing the right stuff. But the other side of this is, again, before CRMs were a thing, you had this whole… I think you called them “chits.” Was that what they were called?

Steve Shinholser:
Yeah, those chits. I got that from… I used to work at the Country Club of Virginia from 14 to 18 as a pool boy, a cleanup boy, and a lifeguard. They would just call them chits. I was also, in college, a diving pro at a country club, and I could go to any country club and sit down in any restaurant and order food because I was a reciprocating pro at another country club. They would come up with a chit, and it’s just a little cardboard piece of paper saying, “I got lunch at Congressional Country Club. Steve, diving pro, Columbia Country Club.” I’d give them that. When I taught private lessons, they would come up with this little cardboard saying, “I’m teaching Susie private diving lessons for 60 bucks an hour,” and the mom would have to sign her name. It’s a chit. The chits get turned in; the country club office bills the person the right amount of money, and that’s the system.

So when it came to the pond company, I would give a chit, which is just nothing more than a blank informational card like the customer’s name, the size of the pond, are we cleaning it. Then on this chit were other things for the boys in the field to fill out. “I cleaned the pond,” like a checklist, “I cleaned the pond.” Okay, what other seeds did you plant? Well, a seed is a future work-you plant a seed to grow a tree in the future. Well, you would go up and go, “Hey, how about that patio that we were talking about? That patio, when we built the pond three years ago. Are you ready for that patio yet?” “Not this year, but next year.” And then next year, “Hey, what about that patio? Well, on the chit, it might even be pre-filled out-“Hey, talk about the patio. They’ve wanted a patio for three years now.” So, we plant the seeds. Also, “What did you upsell on this chit?” “What did you upsell?” “Nothing.” “Yes, 500 bucks worth of stuff,” or whatever it might be. It was just information.

So, I would give the boys the contract to clean the pond and this chit. With that, they would give me back the contract, the chit, and the money they collected. They had to come back and collect the money-either a credit card bill, which they had readers for now at the end, but otherwise, they just bring checks back. So every day, I’d meet these boys and give them, “Okay, here are your ponds, your six ponds you’re going to do today. Give me the chits from the six ponds.” It was a way to transfer information in a handwritten style-this was before Jobber and all that stuff. So, that’s what a chit is.

Logan Shinholser:
So, to tie this all full circle, you would understand what someone on the team… and this is all still lifetime value… but someone you hire, what they want to make. Then you give them a set incentive structure, which at the pond company was 10% of whatever they upsell. Instead of just going, “Whatever you upsell, just figure it out, let me know what that is, and I’ll add it to your paycheck,” you set them up where you give them essentially a cue card that says what to bring up to the customer. They have to fill it out, and then they have to bring it back. So, I’m guessing if they upsell nothing, they have to put a zero on it. Either way, it’s still data. It’s not like you’re manipulating them, but essentially, it’s like… when you’re describing all that to me, I think back to almost like the scene in “Wolf of Wall Street,” and I know this was a negative thing, but it was like, “Hey, I wrote you guys a script. When you start calling people, this is going to be your ammunition to actually get people to buy stuff from you.” This was kind of your ammunition, and all you did was give them a form to fill out, and it just told them everything they needed to know about the client. If they came back with more seeds, they wrote them down. Then just year over year, you would just keep bringing up that one project, and that’s how these construction projects from past customers would end up moving forward.

Steve Shinholser:
I would hand them softballs. You know, when someone goes, “Wow, that was easy,” or “Your comeback was great,” you’re just handing me a softball because it’s easy to hit. That’s what I was giving them. I was giving them a very easy way for them to go out and make more money, not just do the job they’re getting paid to do, but come back with 10% commission. It was easy for them to do that. These guys-two of them-were doing $250,000 a year. Mike and Andrew did half a million bucks between the two of them.

Logan Shinholser:
Talk about the whiteboard because the whiteboard in the workshop-I remember that-talk about that thing.

Steve Shinholser:
Well, that’s just a very low-tech way, which is… everything I do almost is low-tech, of just tracking the company. For instance, we did it in the swimming pool world too. We had these massive walls, but in the pond world, I only had four employees, so I didn’t have a massive wall. But I would have four guys’ names, how many ponds they cleaned, and they would pre-fill it in. “Oh, cleaned three ponds today,” and they would keep the total. Upsells for the day, “Oh, I sold $200 today,” and they would keep their totals. It was a live and running update that these employees filled in themselves.

What that would do is everybody could see how everybody else was doing. If someone’s kicking ass, like, “Holy shit, you sold $250,000, and I only sold $48,000.” I remember the first year I had Andrew; he saw that was the exact number. Mike sold like $250,000, and Andrew sold $48,000. Now, I didn’t have to say anything to Andrew because he could look at the board and go, “Oh my God, Mike is outselling me five to one.” All I did-I brought them up together. I remember this, and it changed everything because Andrew went from $48,000 to like $200,000 the very next year. I was like, “You know, Andrew, I know you see these numbers, so here’s what I have to say about that. Mike, could you just share with Andrew what the hell it is you’re doing for you to sell $250,000?” And I just walked away and let them talk it out. The next year, Andrew did $200,000.

Logan Shinholser:
And Mike was going…

Steve Shinholser:
His answer, because I heard what he said, was, “I just ask everybody all the time. ‘Hey, what about that patio?’” See, Andrew would go in there and go, “They don’t want the patio. I’ve asked them three years in a row. I’m not going to waste my time.” Well, Mike would ask four years in a row, and guess what? They were ready in the fourth year because Mike did not show up with a crystal ball thinking he knew all the answers. He showed up as Columbo-dumb. “Well, Mrs. Smith, what about that patio?” “Haha, well, you know, it’s interesting, Mike, I’ve been thinking about that, and this is the year.” “Oh, great!”

Logan Shinholser:
I mean, now that Audrey and I remodeled or added a bathroom upstairs, it looks great. But now, the rest of the house looks a little bit dated compared to that upstairs bathroom. So, I know in the pond world, it’s a little bit different because you have this ongoing recurring setup where you’re able to keep getting in the person’s world. But from our side of things, it’s like we just remodeled one bathroom. It’s probably only a matter of time until another one is timed for us to remodel or add something else. So, it’s almost like… I mean, we just repainted the outside of our house. We’re updating the whole front walkway and all that stuff. So, we’re doing a ton of projects, and it’s almost like once that first domino fell, it’s just game on.

But the big thing here is just… and we have another client that does this where, on the remodeling side, he’s like, “Logan, at the end of every project, people just add like $30,000 worth of work. Just saying, ‘Hey, while you’re here, could you replace all the windows? Could you just redo this?’ It’s like just different stuff that people just go, ‘Hey, you’re doing a good job. While you’re here, I’ve been wanting to knock this out anyway. How would that look?’” I did this with my painting company here where we painted the outside of our house, and then little by little, I’m like, “Hey, can we redo this? Can we repaint that? Hey, what would it cost to do our fireplace?” It just starts, and it just snowballs from there. But it’s all getting the foot in the door upfront and then making sure that the environment is set up in a way that you can keep bringing it up and just softly asking, “Hey, we did your bathroom. When do you want to talk about that next bathroom? Because I know you brought up that it was no longer the nicest bathroom in the house.”

Steve Shinholser:
It’s funny you’re looking at my background. This is a new house I just bought, and I painted everything. Once I painted it, it looked really great, but all of my electrical plates and switches were that kind of tan, and it looked like shit. So if you look now, they’re all white. The guy comes, and I said, “Look, I want all these to be white.” He goes, “Do you want them to light up at nighttime, so when you walk down the hall…” And I’m like, “Of course, I do!” It was exactly that. So, in addition to painting my house-I think I paid about 15 grand to paint the house-I paid the electrician the same goddamn money to go, “Here, okay, fix all this. What about the chandeliers? What about this light?” I’m like, “Make it all go away.” And it’s never-ending, and that’s exactly what happens. People get excited. You show them quality, and everything else in their homes is not the same quality, so they want to upgrade it. Yeah, it’s fantastic, but you have to have people-you have to have employees. You have to train these people to know how to talk to people, to know how to make them feel good about their decisions. You just can’t send in any labor to do this; they have to have particular skills to do it.

Logan Shinholser:
I guess the last thing on customer lifetime value-when it came to Premier Ponds, of the total revenue, what percentage of the revenue each year typically came from past and current clients?

Steve Shinholser:
Well, let me just answer it like this: a couple of years before I sold that company, we were doing 1.5 million a year. 500,000 of that was just coming in from contracts-just recurring maintenance. So, a third of it was just… I send out paper, they send me money back. A third of it, another half a million, I would have to sell, work my ass off, do the whole sales stuff, the marketing stuff, and all that. But a third of it was the boys in the field, already with existing customers, bringing back upsells. “You know, renovate this, fix that, add some new plants, want new fish, how about the upgrading lights-they’re all LED now.” So basically, it was a third, a third, a third. A third I had to work hard for, and I didn’t like that part because I had to bust my ass. But the other ones, the sending out paper, getting money… Jesus Christ, a monkey could do that. The other one about having the boys upsell… two things: one, I didn’t have to do that, so a third of my money I didn’t have to do. So, a third of any work I don’t have to do, in that book that I read that you gave me, that’s 100% awesome. I get to do that. Not only that, that third-that half a million that they’re selling, 50,000 of it was going back to them in commissions. So this was a win-win-win-win-win situation. It just made for a happy environment. They’re all on that same boat; they see the vision, which is my vision, which is our vision-it’s our company. They don’t look at it like they’re making Steve richer; they look at it like, “This is an awesome job, and I have unlimited potential to make as much money as I want.” In fact, if you went to Mike and Andrew 10 years ago, 10 years ago-which is seven years or six years before they bought the company-they’d say, “What is Steve’s goal for you?” They would both say without a doubt, “Steve is going to make me a millionaire.” And I did.

Logan Shinholser:
Love it. So, any final parting words that you want to speak on when it comes to the whole idea of customer lifetime value?

Steve Shinholser:
I do, yeah. I just want to tell you, I have all these notes, but I really want to tell you about my very first customer-my first one. I wasn’t even in the pond business yet. It was six years after I built the swimming pool thing. I sold the swimming pool thing, and a buddy of mine that stayed with that swimming pool company started to build ponds for them on the side. We were friends, so he kept coming over-you know, Mr. Clark-and he said, “Steve, you got to do this pond thing.” So one day, six years later, I said, “You know what? I’ll try this. The next pond you build, I’ll build it for you. You just put me in the yard, give me the stuff, and tell me what to do.” And we did that. I built that first pond for this woman; her name was Robin Collins. It was a beautiful little pond in the backyard. After that, I took over-I started my own company. That’s actually… I rode home. I finished it the day after the World Trade Centers got knocked down by the airplanes. I came home, and that’s when you and your siblings and I came up with a name and printed all those cards up.

Well, I got to clean her pond every year. What happened three years later? She sells that home. So, what does she do? She moves to a new home, she calls me up and says, “Steve, you’re the guy. I want a pond, I want a big pond.” So now I get to go build a big pond for her. Okay, big-ass pond and do another 20 years of maintenance on her pond. Well, what happens to the pond at the house she sold? Well, the lady moves in with little kids, and she goes, “Oh my God, my kids are going to drown.” So, I go up there and said, “You know what? It’s got a beautiful little stream.” “Oh, I love the stream, but I hate the pond.” I’m like, “Why don’t we just fill the pond in and make it a pondless, so there’s no water at the end-it’s just a stream that disappears into a dry gravel of rock.” So now, all of a sudden, I got more work from that lady and maintenance from that lady. Well, six years later, the other lady, Robin, who bought the big pond and the new house, she says, “Steve, this is awesome. How do we make it better?” I’m like, “Well, long story short, we could throw another 21,000 in it, add another filter, some more lights…” “Yeah, let’s do that.”

So, this woman… I don’t know what she paid me over her lifetime, but she probably paid me 200,000 bucks. Probably 200,000 bucks over 20 years. That doesn’t include the other lady who paid me another 50 grand over X amount of years to convert her pond into pondless and do her maintenance too. All I’m saying is that one thing, besides making me a lot of money, it showed me what is possible. Oh my God, all I got to do is take care of the people already in my fold, already in my reach. If I take care of them, then when I go out and make new customers, I get to add them because I’m not subtracting my existing customers-I am adding to it. Before you know it, now you could turn around and sell your company and go, “You know what? When you buy this company from me, a third of the money is automatic, a third of the money is simple because my guys are doing all the selling, and a third of the money you have to do a little work for. But you get two-thirds of the company and all the money from the company in the most beautiful, easy way possible.” I told you I set all my businesses up to run without me as easily as they could because I didn’t want to kill myself. I killed myself in the first business. So, don’t underestimate every single person that you have. Treat them nice; treat them like you would want to be treated. That’s all you really got to do. If you do that and you’re any good at what you do, you will die a millionaire, guaranteed.

Logan Shinholser:
I love it. All right, I think that’s a good way to end all this. Dad, I appreciate you jumping on and talking about all this. I think that last story really just puts a nice bow on everything.

Steve Shinholser:
Well, you’re welcome. I’m glad to do it. I’m extra glad to do it with you. I’m super proud of you.

Logan Shinholser:
I love you too. Thanks, man, I appreciate it.