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How to Raise Your Markup: The Short 7 Step No BS Answer

Posted by Shawn McCadden on Wed, Feb 17,2016 @ 11:21 AM

How to Raise Your Markup: The Short 7 Step No BS Answer

How to raise your contractor markupOK, I’m sick and tired of the foo-foo fluffy BS answers some magazines and bloggers put out there to answer how contractors can raise their markup.  All the BS answers I see offered by others never call these contractors out on their ignorance. Without knowing what markup they actually need to use how would a contractor who is “slowly raising” his markup know when he has finally hit the right markup? It drives me crazy!   If you are ready for the no BS answers read on…

I have observed that the most common reason contractors can’t or won’t raise their markups is because they have no idea what markup they actually need to use. Yes, the hard truth is they are ignorant to how profits are built into their pricing and how to determine what markup they actually need to use. Due to their ignorance they have to guess and therefore completely lack any confidence in the prices they quote to consumers.

 

OK, no more BS.

If you want to make a predictable profit as a contractor here is the short and sweet no-BS plan.  

  1. Recognize you have no clue what to charge to be profitable and make a commitment to stop using the WAG Method (Wild Ass Guess)
  2. Learn how the financial game works so you will know what needs to be considered and how to figure out what to charge. If you have never been able to do this on your own, consider the definition of insanity and take a different route.
  3. Do the work and due diligence required to calculate the markup you need to use to be profitable, to live the life style you deserve, and to be able to retire some day (before your body gives out or you die). Knowing this number will be business and life changing.
  4. Accurately estimate your direct costs to build projects and then use the markup you calculated to establish the profitable price you need to sell at.
  5. Tell prospects your price and stick to it with confidence.
  6. If you don’t know how to sell, other than by dropping your price, get real sales training. Remember, profits are earned during the sales process and protected during production. If you are trying to make money in production it’s probably because you’re not a business manager, you’re a carpenter.
  7. If the people in your current market won’t pay what it takes for you to run a real business find a new market to work in.

Done! No more BS.

how contractors can raise their markup

She took control of the bull.  But, will you do it?

 

Need help? Here are a few options:

Option #3, Take a class: Attend this full day class in Auburn MA on April 14th, 2016 (Note: sign up for just day 1 unless you also need your MA CSL Credits)
Option #4, Ignore and or deny your ignorance....

 

 

Topics: Business Financials, Margin and Markup, Financial Related Topics, Earning More Money, Keeping More Money

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

How Long Does It Take Before A New Construction Business Sees A Profit?

Posted by Shawn McCadden on Thu, Jan 29,2015 @ 06:00 AM

How Long Does It Take Before A New Construction Business Sees A Profit?

Creating a profitable construction companyI came across a great question asked by a group member while participating on LinkedIn. I replied to the question on LinkedIn, but also thought it would make for great info to share with other contractors who might be asking the same question.

 

Here is the question:

I'm sure we all have heard, "It takes a business 3 to 5 years before it profits." Does this apply for our industry? How long should it take when you start your own business before you start to see a profit?

 

Here is my expanded answer

Great question. Thanks for asking it. The answer depends on how you define profit.   Many factors can be considered.   Let me offer a few here.

 

What you charge will be a significant factor

Being profitable does have a lot to do with knowing what you need to charge so you can and will earn a profit. If a business is guessing at their rates earning a profit is a guess as well. Probably more like a HUGE RISK!

Also, consider that investments you make in your business for the tools, equipment and other larger and long term use stuff are just that; investments.   The cost of those items, at least for tax purposes, is not typically assumed to be cost covered in one year of doing business, but rather the cost is typically spread out over several years. The idea is that these items are "invested in" using profits so they will eventually help provide more income and profits than they originally cost.

To summarize, the more you charge the more profits you can earn and therefore the faster you can pay off your investments and show a profit.

 

Profit is not measured only by how much you have left in the bank at the end of the year

How can I have earned a profit if I have no moneyAlso consider, as a business owner you may personally be measuring your profitability including the costs of any investments for a one year period. As a result may not see a profit in the bank at the end of the year.  However the money spent on those investments is still considered profit for business and tax purposes. This is the case because when filing your taxes the government sees these investment type purchases as assets paid for with profits.  To get tax deductions for these assets you are allowed to depreciate the assets over time to reduce their value and take tax deductions for them over several years or more. Essentially, for tax purposes, the government measures your profit by combining the money you earned and still have; along with the assets you bought using any profits, as your total taxable net profit. Also, any money your business paid out to you the owner as profit distributions over the year will be considered part of your business’ total taxable net income.

These are a few reasons why a lot of business owners have to report profits earned but may not have any money left in the bank to cover the taxes on those profits. When this happens a lot of contractors view their businesses as not having earned any profit. I suggest as the business owner you can view it any way you want, but the government will still be taxing you and or your business.

 

Make sure you give enough attention to these important tax considerations

tax_pie_chart-wrAgain, great question to ask. I hope this article helps.   Being a business owner means you have to understand how to manage and protect the profits you earn, but at the same time manage how you will be taxed on that same money.   By not knowing or ignoring these considerations you can be working hard to make money while profits that could have stayed with you are going out the door to the government as taxes. That said there are a lot of great reasons to have a proactive accountant helping you and your business instead of a historian type accountant who only files your taxes for you when everything is already said and done for the year.

Now, go on out there and generate some profits so you have to pay even more taxes next year!

But, don’t pay any more than you have to!

 

Contracor tax savings considerationsNeed more help with understanding business financial considerations?

If you are in the Massachusetts or Southern New Hampshire areas consider joining our Peer Group Program scheduled to begin in March 2015.

Otherwise contact Shawn to discuss how his one-on-one coaching and mentoring can help you make and keep more money.

Topics: Business Financials, Starting a Business, Business Growth, Financial Related Topics, Keeping More Money

Massachusetts Building Code Updates Contractors Might Want To Know About

Posted by Shawn McCadden on Tue, Jan 27,2015 @ 09:52 AM

Massachusetts Building Code Updates Contractors Might Want To Know About

MA Building Code UpdatesAs a provider of MA CSL Continuing Education Classes I am on the MA Board of Building Regulations and Standards’ newsletter email list. Recently I got the information below regarding some building code amendments and new requirements. I am sharing them here as a way to help keep Massachusetts contractors informed.

I hope you find them helpful to know. Maybe you can consider them a late Christmas present from me that will save you some money and or some heartaches in the New Year!

Sign up to join our mailing list For more timely information like this be sure to subscribe to my mailing list.

 

Recent MA Building Code Amendments and New Requirements

Masonry Amendment:

The BBRS approved Masonry Reinforcing which adds provisions on what masonry elements should be considered as part of the lateral load resisting system for buildings (to resist wind and earthquakes for example) and revised the steel reinforcing requirements for masonry walls based on recent research and testing that reduces the number of bond beams required by substituting ladder type course reinforcement which is easier to construct.   These changes add clarity, construction flexibility and are expected to reduce construction cost. This amendment became effective on December 5, 2014.

 

Radon Amendment:

The BBRS approved an amendment and figure to proactively address potential radon contamination in new one- and two-family dwellings and townhouses of three stories or less. Radon levels often can't be determined until dwellings are completed and enclosed. This amendment requires installing a simple relatively inexpensive passive radon control collection system with common materials during construction of new dwellings only in radon Zone 1 (which is Essex, Middlesex and Worcester counties), the zone with the highest risk of having elevated radon levels. If dangerous levels of radon are detected after construction, this system can then be voluntarily upgraded to an active (fan powered) radon mitigation system for much less cost than retrofitting.   This official amendment to the Massachusetts Residential Code is expected to become effective on January 2, 2015. Additional Information
 

IECC 2012 in Effect:

The 2012 edition of the International Energy Conservation Code (IECC) is now in effect. The BBRS has amended it to include among other things: a Home Energy Rating System (HERS) option and specific requirements for mechanical ventilation of residential occupancies. The Amendments to IECC 2012 Residential and Amendments to IECC 2012 Commercial are noted in sidebar in the right margin. Also note that the IECC applies where the Stretch Code does not and guidance can be found here Stretch Code and IECC 2012 Application.

 

Air Flow Testing:

With the adoption of the IECC 2012 individuals testing duct leakage, whole house leakage (blower door), and mechanical ventilation must be certified (see Amendments to IECC 2012 Residential). However, because of the potential high demand for this service for residential building projects, individuals who are not certified but have demonstrated experience doing this work may continue to practice. The policy that the BBRS approved is copied here: An "approved third party" is "an individual who, in a notarized letter of verification, swears in writing under the penalties of perjury that he/she has demonstrated competence and at least two (2) years of experience in the field of blower door, and/or duct blasting and/or, mechanical ventilation testing" and that the building official shall accept said letter as part of the permit application, and that this policy shall expire on the date that the 9th edition of 780 CMR is in effect.

 

B. Floor fire protection:

An amendment to the Residential Code for floor fire protection went into effect on July 1, 2014. This amendment applies for permit applications received on or after July 1 but does not apply retroactively for permit applications received on or before June 30, 2014. The MA amendment is copied below:
R501.3 Fire protection of floors. Floor assemblies not using dimension lumber or structural composite lumber equal to or greater than 2-inch nominal dimension, shall be provided with a ½ inch gypsum wallboard membrane, 5/8 inch wood structural panel membrane, or equivalent on the underside of the floor framing member unless required elsewhere in this code to be fire resistance rated.
Exceptions:
1. Other approved floor assemblies demonstrating equivalent fire performance.
2. Floor assemblies located directly over a space protected by an automatic sprinkler system in accordance with Section P2904, NFPA13D, or other approved equivalent sprinkler system.
3. Floor assemblies located directly over a crawl space not intended for storage or fuel-fired appliances.
4. One room or alcove per story not exceeding 80 square feet, when supported between structural walls.
 
To provide direction on Exception 1 an Official Interpretation was issued. In addition, the BBRS has required that submissions for equivalent fire performance be considered only if actual fire test data are submitted and reviewed by the BBRS. At this point in time only two I-Joist manufacturers, Weyerhaeuser and Boise Cascade have received approvals via Exception 1. More specifically:
  1. I-Joists produced by Boise Cascade only and installed in accordance with ICC-Evaluation Service Report ESR-1144 or ESR-1336 meet the floor fire protection requirements of R501.3 Exception 1: "Other approved floor assemblies demonstrating equivalent fire performance". The building official at time of permit application should receive plans that indicate AJS or BCI Joists with the specified fire protection system's figure number from the respective evaluation report.
  2. I-Joists produced by Weyerhaeuser with Flak Jacket Protection meet the floor fire protection requirements of R501.3 Exception 1: "Other approved floor assemblies demonstrating equivalent fire performance".  The building official at time of permit application should receive plans that indicate TJI Joists with Flak Jacket Protection.

Please note that the APA System Report SR-405 has not been approved by the BBRS. And until further notice and review by the BBRS no I-Joists produced by other manufacturers meet the BBRS requirement of R501.3 Exception 1: "Other approved floor assemblies demonstrating equivalent fire performance". BBRS is working with technical experts and manufacturers on this issue and will provide more information when it becomes available.

 

Mass Building Code Updates 2015I hope you found this information helpful.

According to the email I received if you have questions on any of these please contact mike.guigli@state.ma.us

If you would like to subscribe to the MA Board of Building Regulations and Standards’ newsletter send a request email to kimberly.spencer@state.ma.us

.

Sign up to join our mailing list  

Topics: Keeping More Money, Plans and Specifications, Building Code

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

Three Options For Getting Paid to Do Estimates

Posted by Shawn McCadden on Sun, Jan 19,2014 @ 11:00 AM

Three Options For Getting Paid to Do Estimates

How a contractor can get paid to do estimates

 

The debate about charging for estimates will probably go on forever within the residential construction industry.  Contractors and consumers both have strong opinions about the subject. Back in December I posted a blog about ballpark pricing and charging for estimates here at the Design/Builders Blog.  I also posted it on several LinkedIn groups in the discussion area at each group.   Well, the comments began to fly.   Many commenters defended their position of not charging for estimates.  Many others scoffed at them for being willing to work for free.

 

If you want to do estimating for free, go for it.  You can stop reading this now.

On the other hand, for those who want to charge for estimates, I decided to post this blog to help you out.  If you are using a different method than the ones I share here please feel free to share it with the rest of us by using the comments area below.

 

Here are a few ways a contractor gets paid to do estimates:

 

  1. The contractor charges a fee to do the estimate, separate of the project’s contract price. 
    • The fee is paid by the customer even if they do not contract for the work.
    • Some contractors credit the fee towards the job if the customer goes forward with the work.
    • If the contractor doesn’t somehow have the cost of doing the estimate in the sell price of the job, crediting the fee against the price of the job means the contractor did the estimate for free.

 

  1. How can a contractor get paid to do estimatesThe contractor includes the time/cost to do the estimate inside the estimate as a line item.
    • Contractor does not get paid to do the estimate unless the customer signs a contract to do the work.

 

  1. The contractor considers doing estimating an overhead expense and the cost of estimating is therefore covered in the markup applied to the estimated cost of each project to determine the sell price of each project. 
    • Requires that the contractor knows how to figure out what markup to use.
    • The only way the contractor recoups the cost of estimating is by selling jobs. 
    • To cover the full cost of estimating the contractor must achieve the installed sales volume and produced gross profit margin (GPM) assumed when he/she figured out what markup to use.
    • In this scenario, because not all projects go to contract, customers who sign a contract for work end up paying the costs of doing estimates for the prospects who do not choose to do business with the contractor.

 

I hope you found this information helpful.  

I encourage all contractors to charge for their estimating efforts.  As a professional I believe you deserve to get paid for your time and your knowledge.

 

Should a contractor charge for estimates

Now, let the debate begin.  About which method makes the most sense.

 For the contractor, as well as for the customer!

 

 

Need help with estimating? 

Checkout this Estimating Workshop for Contractors

 

Don't Underestimate Your Estimating System Workshop LEARN MORE

Topics: Estimating, Keeping More Money

Reducing And Controlling The Effects Of Construction Allowances

Posted by Shawn McCadden on Fri, Sep 27,2013 @ 10:31 AM

Tips For Reducing And Controlling The Effects Of Construction Allowances

Managing construction allowances

 

 

If you are building custom homes or doing high end remodeling it is your responsibility to help prospects and clients understand what their project will really cost. Don’t give or let your customers use inadequate budget allowances.

 

Isn’t it easier for a customer to accept a credit rather than an additional cost?  

Think about it. If a prospect or client has selected a granite counter, how often will that same client choose a $5.00/ft tile backsplash? Why not set the allowances for items not yet selected to a cost consistent with what other clients have spent in the past on similar projects? Applying this strategy will help protect your margin, and could actually increase your margin, assuming that you only credit back any difference in your direct cost.

 

One sure way to protect your mark-up is to eliminate allowances. However, depending upon the project or client, eliminating all allowances may not always be possible. But, reducing the number of allowances may be.  

Here are some ways contractors can improve results when working with allowances

  • Construction allowance managementTry to get your clients to make their selections during the design phase.
  • Identify what selections must be made and provide the clients with a list. 
  • To help them complete the list make showroom and or vendor suggestions. 
  • To motivate them to get the list done establish the date(s) by which they must complete the list and advise you of their choices.

 

To start or not to start, that is the question…

Persuade the client that it is in their best interest that you not schedule the start of their project until you know the availability or lead-time of all required products. You can even blame it on company policy. “Based on past experiences, our own and those reported by other contractors and homeowners, we have made it our company policy not to start any project unless we are sure we can complete the project on time, as agreed, with the least amount of disruption for our customers.”

 

Make that list and work it!

When you assemble the list of allowance items include the related dollar value included for each item and a total cost allowance value for all of the items to be selected. Make sure you include a column where the client can write in their actual selections.  Then, add one more column to the list where the clients will fill out the actual cost of their individual selections and can tally up the total for comparison to your list and total cost. If you’re comfortable doing so, this is the place to include what mark-up will be added on any additional cost over the allowance total.

 

Sample allowances and selections form

Many builders and remodelers report that creating and using a list often times provides the client with a sort of psychological goal of not exceeding the total allowance. Assuming you have established realistic allowances, clients will usually try to avoid any additional costs and or mark-up cost; spending more on one item only if they can save on another. 

 


Topics: Margin and Markup, Contracts, Allowances, Success Strategies, Production Considerations, Estimating Considerations, Keeping More Money, Plans and Specifications

Benefits Of Helping Lead Carpenters Become Managers

Posted by Shawn McCadden on Tue, Sep 17,2013 @ 06:00 AM

Helping Lead Carpenters Become Managers Benefits Them And The Business

Why use lead carpenters

 

As a construction company moves into a true Lead Carpenter system, managers and lead carpenters may become confused and insecure with the idea that the lead carpenter isn’t always “working” or “productive”; at least in the traditional sense.  Knowing in advance that this can actually happen is a great way of avoiding the confusion and insecurities.  A lead carpenter in training might not necessarily like what’s happening, but being forewarned and understanding that this is a typical side effect helps to relieve the stress and speed up the transition.

 

Motivating them to make the changes

It’s a fact of human nature for any of us; being required to leave our comfort zone for a new way of doing things creates resistance.  You can defuse that resistance by helping your leads discover the new opportunities this change can bring about for them as well as your business.

 

For them: A chance to create their own destiny:

lead carpenter system benefitsWith the right manager and company, a good lead carpenter has a huge opportunity for personal and professional growth. Proper training as well as the ability to implement what is learned creates many opportunities for a lead carpenter. As we implemented the system at my remodeling company, our leads discovered that this new role generated a variety of benefits for them. For example; our leads discovered that they could delegate to others those activities that they preferred not to do.  At first this included activities like roofing, insulation and siding. Soon they discovered that if they could find a landscape subcontractor to supply laborers to dig footing holes, they no longer had to dig those holes (provided the cost was within the project’s budget, including the lead’s management time).

For the Lead Carpenter it created a way to control what they did and didn’t do on each project. They also recognized that they had more physical energy left on Friday afternoon. This was an immediate benefit to their social and family lives, but was also a long-term benefit in terms of their careers. Mastering a lead carpenter system certainly can prepare that person for future management roles, or simply allow a carpenter’s body to make it until retirement.

Benefits to the business:

Mastering a lead carpenter system

 

 

As a company, we discovered that these personal benefits for our leads had created other residual beneficial effects we had not originally anticipated. This type of delegation quickly became a way of doing business.  As the company grew, the need for more subcontractors grew as well. Soon our leads were finding, qualifying and developing relationships with new subs.  They were also helping us find good carpenters to hire who also wanted to become lead carpenters.  The benefits to the business were many…  

 

Some of the benefits my company came to realize included:

  1. The ability to grow the business quickly but with control
  2. More sub contractors to choose from, particularly when current subs can’t meet the scheduling requirements of a growing company
  3. Higher volume of production without increasing the number of production employees
  4. Why use a lead carpenter systemFewer risks of losing and replacing in-house production employees
  5. Subs observe your company style and culture, like it, buy into it, and might even consider becoming an employee
  6. Provides a great way to discover and observe potential employees
  7. Might unleash hidden talents in your current employees
  8. Customers will love the efficiency and quality of an organized and talented production team
  9. Customer satisfaction is easier to achieve
  10. Customers want “their lead carpenter” to return for their next project
  11. The business makes more money
  12. The owner and management staff can concentrate their efforts on other pressing issues or new business opportunities

 

lead carpenter system for business owner workshop click here

 

Topics: Success Strategies, Team Building, Lead Carpenter System, Customer Relations, Keeping More Money, Creating Referrals

How Contractors Can Manage Allowances To Protect Profits

Posted by Shawn McCadden on Thu, Sep 12,2013 @ 06:00 AM

 

How Contractors Can Manage Allowances To Protect Profits

 

Does this sound familiar?

Problems managing construction allowances

 

During the design of the project the clients insisted that a $5.00 per square foot allowance for  an “in-stock” kitchen backsplash tile was plenty. During construction they picked out a handmade tile from Spain that sells for $22.00 per foot, takes 5 weeks to get and requires significantly more labor to install than you assumed for the self-spacing stock tiles. The project will be ready for the tile work next week; however the clients finally selected and ordered the above mentioned Spanish tile late last week. The clients insist it won’t be a big deal. “You can keep the project moving.  Finish everything except the tile then return when the tile comes in.”

 

Déjà vu, again?

If the story above sounds familiar, you probably also know the gross profit, scheduling and customer satisfaction implications such a scenario can have on your business. While this provides justification for your mark-up on the direct costs of a project, is it even worth trying to explain all this to your clients? Rather than risk such a conversation, many contractors will simply charge for the difference, eat the mark-up, pay the extra labor cost to the tile sub and hope it never happens again. Surprise, the same problems surface when the clients select the floor coverings!

Problems related to allowances will never go away completely. However, you can implement several strategies to manage their impact and protect your mark-up/margin requirements.

 

Being proactive is the key

Managing construction allowances to protect profitsProjects are most profitable and clients are happiest when everything happens as originally planned. Any changes to that plan can cause frustration for either party and may reduce your ability to get referrals if the client sees the changes as your fault. Before allowances throw a monkey wrench into your schedule, help prospects discover what will happen if selections are not made on time, or they choose products that will not be available when needed to keep the project moving as planned. Make sure you do this and mutually agree on things before you allow them to become clients!

 

Examples of proactive discussion topics:

  •  If you are remodeling their kitchen or perhaps the only bathroom in the house, will it be a problem if the project is not completed when originally agreed?
  • Are they willing accept and to pay for the additional costs related to pulling out of the project and then trying to return later?
  • If you do have to leave, how would they feel if you have to finish someone else's project before you return to complete their project?
  • Please feel free to add your own in the comments section below

 

Just talking about these considerations is not enough.

Manage Allowances To Protect Profits

 

After having proactive conversation with your prospects document their responsibilities in your agreement and what will or will not happen if they do not follow through.  Without clear consequences, and understanding the impact of those consequences, prospects become customers who assume they are always right!




Looking for more help with estimating and managing allowances? 

Check out the workshop titled: "Estimating, Pricing and Producing Successful Projects". 

Estimating seminar for contractors

The workshop is being offered several times at different locations between now and the end of the year.  Its also approved for 6 MA CSL Continuing Education Credits if you need to renew your MA Construction Supervisor License.

 



Topics: Managing Allowances, Success Strategies, Customer Relations, Keeping More Money, Plans and Specifications

Contractors Are You Sure You Are Working With The Right Vendors?

Posted by Shawn McCadden on Sun, May 19,2013 @ 11:02 AM

The Marketplace is Improving; Are You Sure You Are Working With The Right Vendors?

Building product supply and demand

The marketplace seems to be picking up for contractors.  Many are reporting increased leads and sales.  With increased demand for the products contractors need to build their projects we will definitely see supply and demand challenges with local lumberyards, the big boxes and specialty product vendors.  This supply and demand challenge is one of the reasons many in the construction industry are predicting as much as a 25% increase in cost on many building products.  Although contractors need to be aware of these increases as they price their projects, I suggest they also need to make sure the vendors and suppliers they purchase their materials and products from will be prepared for the increased demand.

If you are a contractor who has been buying on price from vendors who have been selling on low price to get your business, you might want to think twice.   If that vendor has a good business, low or no debt and is using efficient business systems and technology to keep their costs low, you may be OK.  But if your vendor has very high debt, has cut back on staffing, equipment and service, just so they could sell at low prices, their business may not be prepared for a surge in sales as the economy improves.


Choosing and keeping the right building product dealers for your business and your customers

Here are some things to think about regarding the vendors you are currently using.  This same list can also help you decide which vendor or vendors you should work with going forward:

    • Many lumberyards and specialty dealers are short staffed.   To save money and to stay in business many of these businesses have reduced staff during the recession and often times the people they let go were the higher paid employees.   If this is a tactic any of your suppliers used they may have let go many of their most knowledgeable staff.   The remaining staff, often less skilled and far less knowledgeable about building products, construction and contractors, will be challenged to serve contractors as the number of contractors doing work and buying materials picks up.
    • Lumber supply and demandBuilding product suppliers who have high debt may not be able to finance the cost of increasing their inventories to keep up with the predicted supply and demand challenges as the economy improves.   If this happens at your supplier you may find that many products, even common commodities like framing lumber, will be out of stock.  Imagine going to the lumberyard first thing in the morning to get the materials you need to frame a deck or reframe that kitchen, only to find out you can’t get what you need.  To keep working that day you might have to pay for longer lengths than you need, or might even have to drive to a different supplier in the hopes that they will have what you need so you can work that day.  Remember, if you lose two hours chasing materials, in reality you also lost two hours of productive time on the job.   That would mean you lost a total of four hours you could have billed your client for if the materials were already at the jobsite.
    • Choosing building product vendorsLumber and building materials dealers who cut back on staff may also be challenged to help you sell to your customers.   If you had a customer who wanted to see the door, cabinets or windows you recommend, will you be able to send them down to your local supplier to see the products they are looking for?  What is the condition of the showroom?  Is there going to be anyone there to make and take the time to meet with and help your customer?   Will the person working at that dealer have the sales skills, product knowledge and knowledge about you and your business to help you make the sale?

 

The risks of low price

Selling on low price typically puts any business on a path to failure.  Sure, it may seem to help things at first when money gets tight.  However, unless they can ramp up their businesses, and do so before the market place improves, they will be forced to play a game of keep up and catch up as their customers’ needs and demands for products and service increases.   Working with a low price vendor might seem attractive, but can you be confident they will have what you need when you needed it?   If they require a deposit on special order items, are you confident they will still be in business by the time you expect delivery of what you ordered?   What will your customers think of you and your business if their project start date gets delayed and or the completion date gets extended because you can’t get what you need from your vendors to keep their project and your business on schedule?


Summary

Low price LBM dealers

 

Choosing the wrong vendors by saving a few bucks on materials may cost you and your construction business lots of wasted time, money and the valuable referrals your business has enjoyed from what used to be happy customers.  I highly recommend you choose your vendors wisely!



Topics: New Business Realities, Working with Vendors, LBM Related Topics, LBM Dealer Topics, Business Growth, Production Considerations, Building Relationships, Customer Relations, Keeping More Money, Sage Advice, Shawn's Predictions