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Getting Your Remodeling Business Ready to Produce More Work

Posted by Shawn McCadden on Sun, Apr 01,2018 @ 05:15 AM

Getting Your Remodeling Business Ready to Produce More Work

Remodeler estimating systemGrowth in consumer spending on remodeling during 2018, and beyond, is expected to skyrocket.  This means that remodelers will have the opportunity to grow their businesses, and if done well; will make a lot of money.   But is your business ready for the work?  If you are already working too hard for too many hours will increasing volume just end up with you in divorce court and or on blood pressure medicine?   Below I offer a vision, and some suggestions, for what you can do to be ready.  If you already allowed yourself to get in too deep, then perhaps my suggestions can help you create a plan to get things running better than you had ever imagined.

It all starts with estimating.

Estimating might as well be the center of the universe for remodeling contractors.  Using a defined process and key information, your production team can conquer that universe.  If you grow your business without an advanced estimating system you risk dropping into a financial black hole. Your estimating should not only help provide a profitable selling price, it should also create, document, and organize the information your production team needs to build independently, without constantly bothering you or your salespeople.  Done well, it should also help you predict your cash flow needs, and therefore your payment schedules. This way every job finances itself using your clients' money to pay bills on time, not yours.  Successful estimating will also help your production team identify and schedule all the resources needed to complete the project weeks, or even months, before they are actually needed at the job site.

A real estimating system includes job costing.

First, an estimate is not Remodler job costingwhat you give to a prospective client. That is called a price.  The estimate is really the contractor's best guess on what the project will cost their business to complete before overhead and profit are added.   That's right, it’s just a guess.  To continuously improve the accuracy of that guess, particularly as your business is exposed to new products and construction methods, or brings on new untested employees, job costing will be the only way to reduce the risks of estimating.  Imagine going six months or a whole year before realizing you were using inaccurate information.  Imagine the benefits of offering profit sharing if your team brings jobs in on budget.  But, what if your budgets are never adequate and there are no profits to share, and when your employees ask why you can't tell them?

This all requires a well set up financial system.

Remodeler financial systemEven if you are a good estimator and you never miss any of the sticks and bricks, if you do not know which labor rate and markup to use you may be buying jobs instead of selling them. Without a well thought out list of estimating and matching time card work categories (sometimes referred to as phases), you will never know how well your team did compared to your estimated labor assumptions in specific areas.  Also, without the right time card categories, how will you know and or confirm how many non-billable hours of pay you will need to add to, and cover, inside the burden labor rate you assume and charge for their billable hours?  

There are plenty of things to work on as you grow a remodeling business.  However, if you don't get the estimating of your jobs right growing your business will just help you lose money faster.

 

Don't Underestimate Your Estimating System Workshop LEARN MORE

If you would like to learn more about improving estimating at your remodeling business consider attending one of our estimating workshops typically offered in Massachusetts.   You can even get MA CSL Credits by attending.  Shawn McCadden can also come to your group, company, remodeler education conference, or remodeler trade association to conduct the workshop.  For more information contact Shawn today.   

 

 

 

Topics: Business Financials, Job Costing Considerations, Profit Sharing, Estimating, Business Growth, Financial Related Topics, Estimating Considerations, Breaking $1Million

What Happened When I Stopped Providing Free Estimates

Posted by Shawn McCadden on Sun, Jun 28,2015 @ 07:00 AM

Guest Blog: What Happened When I Stopped Providing Free Estimates

Mouse_trap_free_bait-wrIf you are still running free estimates and playing a numbers game of leads to appointments to sales then I have something valuable to share. In the past I believed that if I did not actively pursue new clients, and provide free estimates, I would have no income. It was a numbers game; 5 leads - 3 appointments  -1 sale. Sound familiar? In this article I share my lesson in letting go; finding the faith to trust a system to qualify prospects, and the positive impact it can make for your business as well as your cash flow.

 

How I discovered the solution that worked for me

For me, it was getting increasingly difficult to find and schedule client meetings with my increasing responsibilities of being a Mom with a terminal illness. Running from lead to lead was taking up the time I needed to run my business and finish the contracts that we already had in the pipeline. Holding on to how I always did things was holding us back. I needed a temporary solution to what was a temporary situation.

Then, one late fall morning while catching up with reading emails and industry updates, I came upon an article about a remodeling business joining with another remodeling business to create a winning partnership.

Inspired by that article I decided that if I could temporarily give up running the leads to create the sales opportunity I would then be able to concentrate on design, closing the deal and project execution.   Doing so would be the temporary solution I needed to solve my current challenges. It worked. I found a design firm with a great front end sales system and at the same time was struggling with project management and finding responsive sub contractors. And, fortunately there would be no conflict, as they only needed to temporarily fill this need as they were relocating out of the area in six months, one year max. It was a good fit, they were looking to hire a per contract designer/project manager. The fact that I already had a top notch construction team in place sealed the deal.

 

The results

How contractors can stop giving free estimatesAs a result of that temporary relationship I learned how to create a trained support staff at my own business and secured steady work for my team. By learning how to use and sell paid consultations our leads turned into project development retainers which then turned into profitable construction contracts. That temporary relationship was also a big success for the partnering firm; they had a record earning year and made a lot of money.

When I stepped out of my business and worked within a sales process for another firm it forced me to stop chasing down those leads that after too much investment of my time proved to be unqualified. As an owner, I would not have had the faith that charging for estimates would actually provide a constant flow of better customers. I was too invested in my previous training and experience as a sales person. I was dead wrong.

 

The change was an emotional one; here is how I did it

First I had to stop thinking of my role as being an in-home salesperson. Second, I had to better and fully understand why our clients were actually hiring us.  Finally, I had to set up a marketing and sales system that could drive value and was not contingent upon my making it through the prospect’s front door to get the “opportunity to do an estimate".

 

Here are the steps I took and worked for me:

Step 1. I optimize my online profiles to convey value; value to my target prospects.
Step 2. We made it easy to see reviews and then contact us.
Step 3. The first phone call replaced the in-home appointment.
Step 4. We added “homework" for the prospect to do and the use of a “paid consultation"
Step 5. We offered prospects a retainer to act as their very own personal consultant and helped them develop “their project”.

 

The result of adopting this system has been life changing

How to stop giving free estimatesI no longer run around from appointment to appointment. I now have the time to focus on creating more ways to provide paying prospects with value early in the process. Our business is running with more consistency and cash flow has increased. For every consultation I go on now we have a 70% close rate to a full construction contract, a 20% conversion to a design/material contract and about 10% of our prospects don’t move forward.  

Since returning to concentrate in full on my business and my new sales role gross sales have increased over the last twelve months by more than 75%. This is because we now focus on our ideal client. We actively seek clients that have budgets that match our business model and refer the other prospects to contractors that are better suited for them. Cash flow problems have all but disappeared.

It starts with faith. It took trusting a system, knowing who our client is, and having the time to create opportunities to provide value.

 

Cynthia MurphyGuest Blogger: Cynthia Murphy, CKBR, is a Certified Kitchen and Bath Remodeler and co-owner of Murphy’s Design, LLC. She operates a Design Studio in Fairfax Virginia. She will be launching her blog called “Home Design Labs” in June and hosting an industry specific interview podcast called “The Social Home Pro” this summer on iTunes and Stitcher radio. If you would like to connect with Cynthia you can contact her via her website, blog or you can email her at cynthia@murphysdesignllc.com.


Topics: Business Management, Estimating, Differentiating your Business, Earning More Money, Lead Generation, Guest Blogs, Prequalifying, Opinions from Contractors, Estimating Considerations, Customer Relations

How to Keep Bubba From Bidding On Your Plans and Specification

Posted by Shawn McCadden on Thu, Apr 02,2015 @ 08:33 AM

How to Keep Bubba From Bidding On Your Plans and Specification

Protecting plans and specificationsDon’t you just hate it when a prospect you expected to do business with gives your detailed plans and or specifications to another contractor?   That’s bad enough, but isn’t even worse when they give the job to the other contractor and that guy would never have been able to offer the work or price the job without your specs?

Here’s a quick look at the simple process I share with my coaching clients to help them remove themselves from that frustrating way of selling.

 

Consideration #1: Do they already have them or do they need them?

If you have a good sales process and approach you can find out if your prospect has or even needs plans and or specifications. Simple projects may not require elaborate specifications to price them.   If your prospect’s project needs specifications to properly price it, and or if your prospect needs specs in order to make a buying decision, you will have to decide whether you will leave the specs if they do not buy from you or you will take them with you when you leave.

 

Consideration #2: Do they see a value in your expertise?

The next time your prospect needs plans and or specs to make a decisions try asking them something like this:

Remodeling sales advice“Will you need help discussing and specifying the details and products to be used in your project in order to make good decisions about your project and how much money to invest in it?”

 

Assuming they say yes, you could respond with something like:

“That makes sense. If I were to help you do that could we set up a time for me to come back and review what I put together for you and get a decision from you about working with my company or not?”

Again, assuming they say yes, you can now let them know the information will remain your company’s property if they choose not to work with your company.

If you choose to not leave your proposal with prospects unless they commit to your company, it is imperative this policy be discussed with your prospects during the initial sales call. Your policy should not become a surprise to them when you come back to present your proposal. Surprising them will likely erase any trust or confidence they have in you and your process.

 

You are presenting, not emailing proposals, right?

 

Confirm your policy inside your proposal

Construction proposal adviceHere is some sample language you can consider using inside the remodeling proposals you create for prospects. This information is for your reference only. Be sure you have it reviewed by your own legal council before using it.

 

Sample text:

This proposal and any related plans and specifications shall be for the exclusive use of; and will remain the property of “Construction Company” until a Construction Contract agreement for the proposed work is reached between both parties. The acceptance of this agreement will require the owners’ signature(s) and payment in full of the specified deposit.   If this proposal is not accepted at the time of presentation, owner(s) are welcome to view all plans and specifications at the contractor’s office at a mutually agreeable time.

 

This language is best used at the beginning of your proposal so you can remind your prospect about your policy very early during the proposal presentation meeting. If they have a problem with your policy, the one they should have already agreed to, you can discuss their concerns and both of you can decide whether it makes sense to continue presenting and discussing the rest of the proposal.

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Need a new sales process and or a sales coach for yourself or your sales staff?  

Send me an email now. I’d be happy to set up a time to discuss what you are looking for and let you know if I can help.

 

 

Topics: Contracts, Sales Considerations, Estimating Considerations, Plans and Specifications, Creating Referrals

Why Building a Backlog of Work Could Cost Some Contractors a Lot of Money

Posted by Shawn McCadden on Tue, Feb 10,2015 @ 08:44 AM

Why Building a Backlog of Work Could Cost Some Contractors a Lot of Money

Why contractors lose moneyBuilders, remodelers and lumber dealers often get in trouble with lumber framing packages by overlooking the obvious…the volatile lumber market. Most contractors and lumber dealers do not have the luxury of pricing a job today, signing it tomorrow and buying the required materials the next day. By the time a job is priced, signed and the lumber gets delivered to the jobsite 30, 60 or even 90 or more days may have passed and lumber prices may have changed as much as 20%. At the Estimating Workshops I offer this concern comes up quite often and attendees often share how their profits are affected as a result.

 

An educated guess is much better than a Wild Ass Guess!

Matt Layman is the publisher of The Layman’s Lumber Guide. I met Matt through LinkedIn. His expertise is forecasting “when” lumber market pricing will change. Having and using the information he assembles through his research can help contractors and lumber dealers price future jobs involving framing materials with precision.

 

According to Matt lumber prices are reported twice weekly.

Framing_lumber-wrHe says some weeks do not change at all. However he also points out that 70% of the time they do change by an average 2.5% each week or 10% per month.   Based on those realities a contractor who estimates a framing package using today’s lumber costs at $10,000 may end actually paying over $13,000 for that same package 90 days later. For those of you who understand how margins and markups work, not only will the contractor have lost the $3300 due to price increases, but also the gross profit margin on that difference. At a 50% markup that’s another $1650 of gross profit that could have been included in the sell price to help cover overhead and profit.

If as a contractor you buy a lot of framing materials you may want to consider subscribing to Matt’s monthly publication called the Lumber Market Blueprint. I also think lumber dealers serving contractors could share this information with their customers on a regular basis. Doing so would be a great service that could help differentiate them in the marketplace.

 

Lumber Market Blueprint

The image above is an excerpt from the February issue of Matt’s Lumber Market Blueprint. Notice that the information not only includes his predictions for the next 30, 60 and 90 days, he also offers some insight as to why he makes his predictions. I suggest by knowing the why’s behind his predictions you can consider your own pricing adjustments if for any reason conditions change dramatically during the month.

 

I appreciate Matt allowing me to share this information with you.

If you are a contractor do any of your lumber dealers share this kind of info with you?   If so, it would be great if you shared the name of the dealer with us as well as an example about how the information has helped you.

 

Topics: Job Costing Considerations, LBM Related Topics, LBM Dealer Topics, Estimating, Cash Flow, Production Considerations, Estimating Considerations, Keeping More Money, Business Planning, Plans and Specifications

Financial System Considerations for Remodelers Looking To Break $1Million

Posted by Shawn McCadden on Mon, Jan 19,2015 @ 06:00 AM

Financial System Considerations for Remodelers Looking To Break $1Million

Financial reports for contractorsGrowing a remodeling business past $1Million a year of installed sales comes with new costs and expenses as the number of employees and overhead related activities naturally increase.   Just like estimating the cost of a remodeling project, the business owner will need a practical plan for growing the business and an accurate estimate of the costs related to growing it.   Then just like a remodeling project the business needs a way to measure how well things are actually going against the plan and budget.  

Without the ability to measure as the business grows the owner will experience a lot of financial anxiety.

Here is a list of several important financial system related items the business should put in place before growing past that $1million threshold.  Remember, this is supposed to be what I refer to in the second article in this series of articles as the Take-Off Stage.  Either the business properly prepares to take off and grow profitably or it risks disorganized chaos and lots of frustration attending the Lumberyard School of Hard Knocks.

 

Create a Financial System Strategy:

Identify what the business needs to measure and how it will be measured.  This is important because the business must have apples to apples ability for comparing estimated job costs and overhead expenses to actual cost and expenses.   Without a well thought out and accurate chart of accounts in place job cost reports will be misleading and estimated gross profit margins for sold jobs will not be comparable to the profit and loss reports the system creates.  I bet most of you don't job cost your actual labor costs for each employee using the same burdened labor cost strategy employed when estimating those labor costs.

Find or create a fast and accurate Estimating System:  

Yellow pad estimatingAs the business grows and more employees are added to share the workload the owner must be able to delegate tasks he or she probably did them self as they grew the business.  These delegated activities might include things like product selection, product procurement, production management, and even the responsibility for doing the estimating.   The yellow pad estimating method will not be adequate anymore.  A more advanced estimating system using spreadsheets and or industry specific estimating software will be needed and employees will need to be properly trained to use it.  The right system will speed up the estimating process and provide the information the entire team needs to build projects on their own without the need for constant micromanagement by the estimator, salesperson production manager and or the business owner.    

Create and document an Accounting and Bookkeeping System:

To support the financial system that was designed to best serve the business as it grows, a software system to support it must be setup and put in place.  Keep in mind that financial software like QuickBooks is not a financial system, but rather the tool that will be used to support that system.  Software like QuickBooks can be setup in many different ways.   Setting it up correctly is probably a task far more involved and time consuming than most business owners, bookkeepers and even most accountants are skilled to tackle.  Make sure you use a qualified expert to help you in this area.  Also, the business will need to create and document an administrative system for how financial information will be collected, coded, entered into the system, filed and verified.  This is needed so trained employees can follow the system and the business owner can be confident about the accuracy and timeliness of information when reviewing financial reports.

Growing your business should be profitable and should not be left to luck or chance.  

Financial system for remodelersWithout an accurate financial system in place your business will, unfortunately, be like the majority of other remodeling businesses in our industry.  Over 80% of remodelers have no idea of the true cost of being in business.  These businesses use what is referred to as the WAG method, or "Wild Ass Guess Method” for estimating direct cost and even the markup percentage to use on estimated costs when pricing the jobs they sell.  If that describes you and your business put the things I describe here in this article in place at your business before you seek to take-off past $1Million in remodeling.  Growing your business should be rewarding and profitable.  Entering the unknown without being properly prepared can be costly and may even lead to the demise of your remodeling business.

 

(Note: This is the sixth article in a series of articles written specifically for remodelers who want to successfully break past doing $1M/year in installed sales. Click here to see a list of all the articles in the series that have been published.)

 

 

 

Topics: Business Financials, Estimating, Business Growth, Financial Related Topics, Estimating Considerations, Business Planning, Software Related, Breaking $1Million

Yellow Pad Estimating For Contractors: The Good and the Bad

Posted by Shawn McCadden on Tue, Apr 22,2014 @ 06:00 AM

Yellow Pad Estimating For Contractors: The Good and the Bad

Yellow Pad Estimating

 

Many contractors start out estimating and learning how to estimate using what I refer to as the “Yellow Pad Method”.    Using paper and a pencil they can create estimates any time and on the fly.   However as the business grows, particularly when others take over the management and building of projects sold, the typical yellow pad estimate may not give the build team the information they need to build the project on their own.  Also, the information within the yellow pad estimate may not be in an intuitive and organized format, making it hard to find the information they need. 

I came to this realization as I built my company and eventually formalized my estimating method and started using a better tool to get it done.   I learned at lot by attending training seminars, reading articles and plenty of trial and error.  In this blog post I’ll share a little about what I learned during the evolution in hopes it will help your estimating evolve.  

I’ll even offer you a free copy of my recently updated Excel Estimating Spreadsheet Template.

 

The Good

Actually I think yellow pad estimating is the best way to learn how to estimate.   I say this because every time you do a new estimate you start out with a blank canvas.   This allows you to be creative and try new ways to estimate and organize your info each time you do one.  Using the yellow pad I learned how to do estimates in a variety of formats.   For example the information in the estimate could be listed in critical path order, the same order I promised my client and therefore wanted my production team to build it.  For another client I assembled the information room by room so they could decide what to do at a later date if the total cost came in higher than their current budget.

Using the yellow pad I could also do quick estimates for small projects on the fly.   This often allowed me to sell the job at the first visit as long as I could also easily write up my proposal ready for a signature.   That was back in the good old days when work was plenty and hand written proposals were the norm.

 

The Bad

Eventually I became frustrated with many of the limitations of using the yellow pad to estimate.  Here is a brief list of what I ran into that motivated me to make the switch to using Excel spreadsheets instead.

  • Yellow pad estimate methodI had to add up all the numbers with a calculator multiple times before having enough confidence to give it to my prospects because I didn’t always get the same number!
  • Cutting and pasting to insert missed tasks was literally cutting and pasting using scissors and tape.
  • If a prospect who several months back had said no to my price called back to go ahead, making updates to the estimate was not possible, I had to do it all over again.
  • If the customer wanted to make product substitutions or wanted suggestions to value engineer the project, to be confident about the price differences I had to do the estimate all over again for each option.
  • After hand writing the estimate and proposal me or my staff then had to also hand write out the sub contractor agreements and the materials lists.
  • When I had to do another estimate for a similar project trying to reuse an old estimate wasn’t as simple as copying and pasting or changing the quantities like it could be using a computer to do so.

 

Then I started using Excel to Estimate

McCadden's new estimate templateEventually, after a lot of experimenting using the yellow pad I eventually incorporated what I had learned into an Excel Estimating spreadsheet I created on my own.   Doing so definitely improved the speed and accuracy of my estimating methods.  The end result also provided the majority of information the production team needed so they could build the job without me around, leaving me time to sell more work.

For more on how I advanced my estimating methods and how I used the Excel estimating template check out this previous blog post titled Don’t Underestimate Your Estimating System’s Potential”.

Click on the button below to get my NEW UPDATED Estimating Template now!

free excel estimating template

 

 

Looking for help to improve your estimating?    

Check out these half-day hands on estimating workshops and dates:

Don't Underestimate Your Estimating System Workshop LEARN MORE

 

Topics: Remodeler Education, Estimating, Earning More Money, Production Considerations, Estimating Considerations

Including General Production Costs in Your Estimates

Posted by Shawn McCadden on Thu, Jan 30,2014 @ 06:00 AM

Melanie Hodgdon, Business Systems Management

 

 

Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the co-author of A Simple Guide to Turning a Profit as a Contractor.  Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

 

Understanding and Including General Production Costs in Your Estimates

Estimators are pretty good about including costs for permits, materials, subs, and equipment rental in their estimates. And the really topnotch ones are also adept at estimating the amount of labor time based on knowledge of what their crew(s) can produce. But there is another element that often eludes even the most careful of estimators: the cost of those “necessaries” that will be used on a job but not easily assigned to specific jobs.

 

These include things like:

  • Miscellaneous Construction SuppliesBits
  • Blades
  • Rags and other cleaning supplies
  • Sanding disks and sand paper
  • Trash bags
  • Small tools
  • Dust masks
  • Assorted fasteners
  • Caulking and adhesives
  • Pencils, markers and chalk


Here are some more candidates:

  • General Production SuppliesCost to repair and maintain tools and equipment
  • Cost to maintain a jobsite trailer
  • Propane for the space heater
  • HEPA filters
  • Bungies, ropes and tie downs
  • Trash barrels or bins

 

These can be considered General Production Costs and you should have a method to allow for them in the job price.

 

Two ways to price your work

Basically, pricing consists of identifying the actual cost of X and then adding a markup. The purpose of the markup is to allow the selling price to cover not just what X costs, but also it’s fair share of the company overhead, with enough left over to contribute to company profit.

 

Option A: Include in the estimate

General Production Costs Option A

 

 

 

When you include an allowance for General Production Costs in your estimate, you increase the predicted cost of the job. When you apply a markup to the cost, you will also be marking up the predicted General Production Costs. Because you are charging your customer for the cost (income account), the matching cost should be considered Cost of Goods Sold.

For many contractors, including an allowance for these costs in the estimate will increase the likelihood that the costs will be covered.

 


Option B: Include in the markup

General Production Costs Option B

 

 

 

If you consider General Production Costs as being part of the cost of doing business (overhead), then you will account for them by increasing your markup on the job.

Ideally, both methods will result in the same selling price. However, in my experience, far too many contractors decide on a markup based not on the financial requirements of their company, but rather on a figure they found in an article, or what scuttlebutt tells them their competition is using. This WAG (wild ass guess) approach decreases the likelihood of capturing these costs in the markup.

 

Why I typically recommend Option A

Also, as companies have diversified with changes in the economy, the type of work they do has also changed in many cases. Burying these costs in overhead can make the changes less obvious than placing them in Cost of Goods Sold where significant changes are more likely to be spotted. For example, companies performing lots of RRP work might see a significant increase in these costs due to the requirement for filters, respirators, contractor bags, signage, duct tape, Tyvek suits, etc. The effect on the gross margin (when these costs reside in Cost of Goods Sold) might be noticed more quickly and reliably than remembering to deliberately dig into the overhead accounts to find and monitor them.

 

Estimating vs. job costing considerations

Estimating and Job Costing

Once your General Production Costs are part of Cost of Goods Sold, an allowance for the inevitable cost can be included in the estimate. This means that you will charge for them as part of your pricing strategy. However, because of their very nature, you won’t be able to attribute them to individual jobs, so when you look at job cost reports, you will not see an “actual cost” for these items, making the jobs appear slightly more profitable than they probably are. The achieved margins of all the jobs will look higher than the overall achieved margin from the Profit and Loss Statement since the Profit and Loss Statement will contain the dollars spent on General Production Costs and the individual job reports won’t.

 

How to calculate General Production Costs for estimating purposes

The simplest way is by comparing General Production Costs with Materials costs. Express the relationship as a ratio or percentage. For example, if in the last twelve months you spent $500,000 on materials and $8,000 on General Production Costs, you will need to add 1.6% ($8,000 ÷ $500,000) to your estimate to cover them. When estimating, this figure can be added as a line item as shown in the sample estimate template below.

 

Excel Estimating Template

 Screen shot from Shawn's new estimating Template

 

Final thoughts

Each job has enough surprises in it. Why not at least plan your sell price to include an allowance for the costs you know you can count on?

 

 Contractor coaching

Need help with General Production Costs?

Call or  Email Shawn today. 

 

Do it now so you can be confident you are pricing your spring and summer projects correctly!

 

 

Topics: Business Financials, Financial Related Topics, Guest Blogs, Estimating Considerations, Keeping More Money

MA Workers Comp Rates For Contractors May Go Up, Retroactively!

Posted by Shawn McCadden on Sun, Jan 26,2014 @ 09:00 AM

MA Workers Comp Rates For Contractors May Go Up, Retroactively!

Workers compensation rates in MA

 

 

The Workers Compensation Rates and Inspection Bureau of Massachusetts (WCRIBMA) submitted a rate filing on December 27, 2013 to the Division of Insurance on behalf of its members recommending a 7.7% increase in average rates for industrial classes. Workers compensation rates for construction workers fall under the industrial classes. 

So if the rate hike is approved contractors can expect their workers compensation premiums to increase. Using some quick math that means for classification code #5403, Carpentry- not otherwise classified, the rate for a carpenter being paid $25.00/hr will increase by about $.74/hr, or a total increase of about $1539.00 for the full year (2080 hours). 

That should help motivate contractors to add employees and help stimulate the economy...  Ready for more good news?

 

If you build anything they will come wr

Paying more is one thing, how about having to pay retroactively!

The proposed effective date of the rate filing is January 1, 2014. That means if the rate hike is approved as submitted insurance companies will be able to retroactively charge contractors the new rate all the way back to the first of the year.  Again, using some quick math, if for example the rate hike is approved as of March 1st, 2014, that means for a $25/hr carpenter under classification code #5403 the retroactive premium for January and February would be just under $255.00

Workers Compensation Rates and Inspection Bureau of Massachusetts

WC Code #5403 current rate: 9.61/$100 of payroll

WC Code #5403 proposed new rate: 10.35/$100 of payroll

 

Here’s the message the WCRIB is suggesting insurance carriers send out with all new and renewal policies:

“A filing is being considered by the Massachusetts Division of Insurance which may result in premiums different from those shown on the policy.   If it does, we will issue an endorsement to show the new premiums and their effective date.”

 

If you don’t like it you can speak your mind

WCRIBMA Hearing about workers comp ratesA Hearing on the Rate Filing will be held at 10:00AM on Thursday, January 30, 2014 at the Division of Insurance, 1000 Washington Street, Boston, MA.  For more information you can refer to Circular Letter #2230 and Circular Letter #2231 for details.

If you go, can you please ask if they will also write into the changes that contractors can retroactively bill their customers for the increase as well, and that all customers must pay the increase within 30 days of receiving the invoice from their contractor….?

 

If you plan to attend the hearing

Any person who wishes to participate as an interested party in this hearing must comply with the procedures set forth in 211 CMR 110.05 (3).  Persons who wish to present unsworn oral or written statements at the January 30, 2014 hearing are asked to submit a notice of intent to comment no later than January 28, 2014. All other persons who wish to speak will be heard after those who notify the Division in advance.

 

It pays to be a NARI Member

EM NARI MemberI want to thank fellow EMNARI Member Tom Messier of Mason and Mason Insurance for making me aware of this so I could share it with you.  I have known Tom for over 15 years. One reason I continue to do business with him is because he proactively shares this kind of important information with me and the other contractors he works with.  Tom also shared with me that the state has not seen rate increases since 2001.  Maybe that makes us lucky.  They did try to increase the rates by 14% two years ago, but the increase was denied.  He also shared that in the past the rate increases typically have taken place on September 1st of the year they were approved. 

 

 

 

Topics: Production Considerations, Estimating Considerations, Insurance Considerations, Workers Compensation

Who's Paying For Your Carpenter's Non Productive Time?

Posted by Shawn McCadden on Thu, Jan 16,2014 @ 06:00 AM

Melanie Hodgdon, Business Systems Management

 

 

Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the author of A Simple Guide to Turning a Profit as a Contractor Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

 

Who's Paying For Your Carpenter's Non Productive Time?

Non Productive Time for CarpentersI was discussing the cost of labor the other day with a client, and he told me he really had a handle on what his costs were. “No kidding? That’s great,” I said. I then quizzed him on what factors he’d included, and was impressed that he’d gotten so many: wages; company-paid payroll taxes; Worker’s Comp; liability insurance; vehicles, cell phones, and small tools used by production workers; health insurance; retirement. “And what about non-productive time?” I asked. Puzzled, he asked me what I meant.

The fact is that while it’s relatively simple to calculate what it costs to pay a production worker for an hour of time, you have to remember that he’s not going to be available to perform the work that you estimated for 100% of that time.

 

Hours for carpenterLet’s do the math.

Assuming no overtime, a worker is typically paid for 8 hours/day, 5 days/week, 52 weeks/year. This adds up to 2,080 hours. So you’re paying him for 2,080 hours a year.

But for how many hours will he actually be available to you to perform the work you’ve included in your estimate for labor?  Subtracting for some common events, we see the number of hours available for producing the estimated work starts to evaporate.

Productive hours for a carpenter

Nonproductive time for carpenter

 

 

What else cuts into that productive time? How about those weekly production meetings? OSHA safety meetings? Meetings about the new health insurance or retirement options? What about training and education? How about the requirement that they clean out the vans every Friday afternoon? Do they help clean up the shop? Maintain tools? Are they paid for commuting time?

 

How might this affect estimating the cost of labor for a job?

Let’s say that you pay Will $20/hr. After adding all the burdens to that hourly rate, you discover that his total annual cost is $63,500.

You can look at this annual total in two ways: how much does Will cost you per paid hour, and how much does Will cost you per productive hour: the hours that he’s actually available to perform those labor tasks you included in the estimate when calculating the job’s sale price?

Labo burden for a carpenter

 

From the chart, you can see it costs over $5/hour more for Will’s time when you base the cost on his productive time.

 

So what does this mean in terms of pricing jobs?

Using the wrong labor cost can be devastating, particularly in jobs where there is a high proportion of labor.

Let’s see how it would play out in jobs with varying amount of labor.

For a 100 hour job, based on the burdened cost per paid hour, the estimated cost would be $3,053.

Those same 100 hours, based on the burdened cost per productive hour, costs $3,553. So the cost difference between using the paid vs. productive hr cost figure would be $500. For a 1,000 hour job, the cost difference would be $5,000.

The cost of non productive time

 

Now let’s look at the selling price of the job, assuming a 50% markup.

For a 100 hour job, the difference in selling price would be $750.

For a 1,000 hour job, you’d be underpricing by $7,500!

Pricing a remodeling project

 

Pay rates for carpenters

 

So next time you estimate work, be sure you’re working from realistic costs. Labor is tricky to estimate anyway; getting a handle on what it really costs for that hour of nail banging will bring you closer to costing and pricing your jobs accurately.

 

 

 

Need help with figuring out your labor costs?

Call or Email Shawn today. 

 

Do it now so you can be confident you are pricing your spring and summer projects correctly!

 

 

Topics: Business Financials, Labor Costs, Financial Related Topics, Earning More Money, Guest Blogs, Estimating Considerations

Close More Free Estimates: Be There for the "Which Builder" Decision

Posted by Shawn McCadden on Fri, Dec 27,2013 @ 06:00 AM

Graeme Owen

 

 

Guest Blogger: Graeme Owen, based in Auckland NZ, is the builders' business coach.  Since 2006, he has helped builders get off the tools, make decent money, and free up time for family time, going fishing, and enjoying sports.  Get his free ebook: 3 Reasons Builders Lose Money and How to Fix Them for High Profits at TheSuccessfulBuilder.com

 

To Close More Free Estimates Be There for the "Which Builder?" Decision!

Close free estimates

 

Are you wasting time preparing building estimates for jobs you don’t get? Frustrating!  And costly!  Maybe you are like so many builders making one of the most common estimating mistakes: Not being with the client when they are deciding which estimate to accept!

There is no doubt that the builder who is with the client when they are deciding on which estimate to accept is highly likely to get the job.  Wouldn’t it be great if you could be that builder? The thing is...you can.

 

Here are three keys to being present when the client is deciding "which builder" to hire,

1. Discuss Other Estimates

In your first meeting with your client make sure that you discuss with them how many other estimates they are planning to get. Even though they may like you and tell you you are the only one, it is highly likely that they will consult another builder - if only to check that you are not “ripping them off.”  Also, if they are borrowing money for the build, they may be required to get multiple estimates.

2. Set the Estimate Close-off Date

Having broached the subject, discuss the close-off date for accepting estimates.   Make sure that you give yourself enough time to get your estimate together and enough time for your client to talk to other builders.

3.Remodeling sales meeting Position Being There

Finally, in your first meeting ask permission to be with them when they are making their final decision. Set the date and time for that meeting on your first visit.


Here is an example

You say, “Will you be getting other estimates?”

They say, "Yes."

Accept this graciously with something like. “That’s great.” Then say,

“When do you think is a good date for us to have all the estimates together?”

“What we request is that when you have all the other estimates together we meet and go over them with you. This way you can be certain that you are comparing apples with apples. Now I know that you are probably quite capable of doing this yourself, but we have had cases where people have accepted estimates they have later regretted. They did not fully appreciate exactly what was covered and ended up paying more than they had expected. So it’s our company’s policy to do this. Is that OK?”

“When would be a good time for us to meet?”

 

No More Free Estimates

 

Summary

Follow this simple procedure and you will increase the number of times that you are able to be with your client at the strategic time when they are making their decision on which builder to use.   Some will not agree.  But if you don’t ask, none will agree!


 

Post and share your comments below.

Would you try the scenario described above?

So, how many of the last 5 estimates did you close?

What have you found to be the best key to turning estimates into sales?


Topics: Sales Considerations, Differentiating your Business, Guest Blogs, Estimating Considerations, Customer Relations