Markup & Profit

Tuesday, December 11, 2007

End of Year Planning, Part 2

Last week's newsletter ended with "Have you tried direct mail advertising? What have you tried that generated the type of leads you want? That is where to focus your money. Check the results monthly to see the results and adjust your advertising as needed."

Let me add a comment. If you are not getting the type of leads you want, or if you are getting leads from customers whose only focus is price, you are advertising in the wrong place. This also frequently happens when you are working by referral only. You end up with leads that are a waste of your time.

What else do we need to plan for 2008? Below is a list of the things that need to be resolved. Using the stats you compiled from 2007, it should be a relatively easy task.

But first, there are two thoughts you need to keep as you go through this exercise.
  • 1. Always keep the attitude of: "Where can we save", not "Where can we cut".

The attitude of "Where can we save" means thoroughly analyzing the subject at hand. What is it, where and how is it used? Can we use it differently or in conjunction with other things? What can we do to reduce the cost of owning or operating the item? Can we extend its life, can we reduce the maintenance required for successful operation? Saving costs requires taking a long-term view and making a smart, well-thought out decision.

The attitude of "Where can we cut?" is an emotional reaction. It means eliminating something completely so you can save money today, but it doesn't take the long term view. Normally this happens after little thought to anything other than eliminating that expense.

The two are as different as daylight and dark and the prudent contractor will always focus on saving rather than cutting.

  • 2. I read a quote recently from one of my favorite guys, Brian Tracy. He said, "Decisiveness is a characteristic of high-performing men and women. Almost any decision is better than no decision at all."

Decide to give this 2008 planning session your best effort. Spend quality time each day working on your plans and goals for 2008. Don't give it lip service, reading through this newsletter and telling yourself you will get to it right after Christmas.

You will get out of this exercise exactly what you put into it. Give it your best effort and one year from now you will be amazed at the results.

2007 TAXES

This needs to be a priority. Make it a goal to have all your tax materials together and ready to go to your CPA by the end of January, 2008. Call your CPA and schedule an appointment for the last week of January to be sure you follow through. Taxes are a distraction.


  • What is your budget for office equipment for 2008?
  • What new equipment do we need?
  • What equipment needs to be repaired or replaced?
  • Is the traffic flow in your office good or do you need to rework or remodel your office next year?
  • Do you have staff members that might function better in a different place in the office?
  • Is your showroom a collection spot for almost anything that comes in the front door, or is it kept neat, clean and ready to help your customers?
  • Are parking spaces in front of the office reserved for visitors only? Staff, subs and suppliers should park away from the front entry so your customers have easy access to your front door.


  • What is your budget for office staff for 2008?
  • Are classes or seminars available for your office staff to help them do a better job?
  • Do you have a plan in place to take key people to at least one convention this year?
  • Do you have a plan in place to purchase (and read) at least one new book each month?
  • Is there someone you can bring in, a coach, a consultant, a trainer that can provide training for you or your staff?
  • Do you have problems or issues that warrant that?
  • Have you scheduled your year-end review for each member of your staff, which should include reading and signing your employee manual?

This review should include an analysis of their performance in 2007. Ask yourself this question for each employee:

  • Do I need this person in this job?
  • Are they doing the job they have been hired to do?
  • Should I combine two or more jobs, or should I hire another to share their workload?

Here are some additional questions about your employees:

  • Are they willing to cross train for other jobs?
  • Can they help doing the cross training of other employees?
  • Should this person be asked to take a more responsible position?
  • Could I find a replacement that would do a better job?


  • What is your budget for paperwork for 2008?
  • Does your contract need updating? (Very few don't)
  • Do you have pre-printed change work order forms?
  • Do you have pre-printed Right of Rescission forms?
  • Do you keep about one month of paperwork in reserve?
  • Is your company Employee Manual up to date, a copy on file for every employee? Has everyone signed the manual?
  • Is your sub-contractor manual up to date?
  • Are you using a sub-contractor agreement manual with a separate form for each job? Are all your subs required to sign the agreement before they are allowed onto any job site?
  • Do you have a standard checklist in place to check that your subs license, bond and insurance are always up to date?
  • Does your company provide or help with obtaining financing for your customers? Do you have a checklist to cover every step that needs to be taken to obtain the financing needed for your work?


  • What is your budget for tools and equipment for 2008?
  • Do you have a list of each tool or equipment owned by the company complete with serial numbers, make, model and instruction books?
  • What needs to be repaired?
  • What needs to be replaced?
  • Did you spend more in 2007 to rent equipment that you would have spent purchasing the same equipment?
  • What will be our maintenance cost for the year for T & E?
  • Do you have equipment in storage that should be sold?


  • Are all of your vehicle licenses up to date?
  • Do you have all the VIN #s and license plate numbers written down and easily accessible?
  • Are all your trailers legal, including lights, license and weight postings?
  • Did you pay more in 2007 for moving equipment to different job sites than you would have spent if you had a trailer for that equipment?
  • What vehicle(s) needs to be repaired?
  • What needs to be replaced?
  • Do you have a written maintenance schedule in place for each vehicle?


Plain and simple, you should not have any inventory. If you have leftovers from a job, take them back to the supplier and pay the restock fee. It is far cheaper than maintaining a storage facility.


What educational programs do you need for yourself and your staff? After your review of 2007, you should notice if you or your staff need outside instruction on how to do things more efficiently and/or more profitably.

As stated above under "Staff", plan on adding at least one new book to the company library each month. Place someone in charge of the library, checking books in and out so they don't wander away permanently.

Attend at least one convention in 2008. You should be able to take your key people with you. This is not a fun and games trip, this is an educational trip. You and your staff should take advantage of every class available.


Are you involved with an association? If you are, it is time to ask some tough questions. It is all too easy to get caught up in association work and involvement at the expense of both your business and your family.

If you are on the Board of Directors, is it taking time away from your business that is costing you money? You need to look long and hard at your level of involvement and weigh the value of your time and money invested compared to the return you are getting. Yes, you need to give something back to the industry. You also need to take care of your own business. All too often company owners work through the chairs of their association while their business goes from bad to worse, then bankrupt.

Associations are very good for our business in general and for your particular business. No question. They provide political clout to keep bureaucrats and elected people focused on what is important. They provide marketing that can be a boost for your business. And the networking available, the ability to spend time with others who fight the same battles you fight, is invaluable. But make darned sure that your involvement stays balanced with the discretionary time you have available from your business and family.


Just as you would schedule your vehicles and equipment for regular maintenance, scheduling a financial check up for your company is a sound idea.

Whether managing cash flow, determining whether you can afford employee salary increases or projecting sales figures for the next quarter, a frequent review of your financial position is beneficial to keep your company running smoothly and avoiding problems that could derail your progress.

Please keep in mind that almost all financial problems of any construction company show warning signs well in advance. I have written about the Eight Warning Signs of Financial Problems in construction related companies in these newsletters, and discuss it in the Markup & Profit Video. Ignore them at your own peril.

If you are new in business or have been in business less than two years, check your financial position every other month at least. After that you should have the experience to check things about every six months and make adjustments as needed.

The key issue here, gang, is to put the financial checkup in writing, with check lists and a definite schedule, then make darned sure you do it. No excuses, no stories, no procrastination. "Get-R-Done".


As I talked about last week, I have been through eight cycles in this business over the last forty plus years. Things repeat themselves every five to seven years in this business so what you are seeing today in our economy is normal. The economic adjustment we are going through has nothing to do with the present administration, what the media thinks (or doesn't), what any political party or candidate likes or doesn't like, believe or doesn't believe. This is America at work.

When you get married, it is for better or worse, richer or poorer. When you go into business, it is peaks and valleys, the good with the bad. If you can't handle this market adjustment that will probably hang around until after our next presidential election, now is a good time to call it quits and find something else to do. We wish you well.

For those that see this downturn as an opportunity to polish both your sales skills and the way you run your business, you will find many rewards in the near future.

Tuesday, December 04, 2007

Planning 2008 - Part 1

This week and next we are going to review 2007 and plan 2008. I am borrowing some thoughts from Tony Robbins, one of the better known motivational speakers and educators. I also got help from my friend Sonny Lykos, who has been in business many years and knows this exercise.

First thing, describe your business. What is it exactly you do? What is it exactly you want to do? Are the two the same? Write it down so you can see and touch it, make it yours. Gang, this is no place to get lazy. You'll want a reference point throughout this exercise.

Next, review 2007. We want to look at all the issues, not just the good stuff that has happened. This is called an honest evaluation.

Let's start with the following.

  • How much business will be sold, built and collected by December 31?
  • What will be your net profit?
  • What will be your Gross Profit?
  • What will be your Gross Margin?
  • What will be the total owner's compensation?
  • How many leads did you get in?
  • How many leads turned into actual appointments with customers?
  • How many jobs did you sell?
  • What was your sales to leads ratio?
  • What was the average sale price?
  • What markup (or gross margin) did you use?
  • Did you use just one markup or did you fall into the trap of different markups on different jobs?
  • List all of your lead sources.
  • List the leads and sales in each category.
  • Calculate the cost of each lead in each category.
  • Who are your employees?
    What are their skills?
  • What is their record of on time performance both showing up for work and getting jobs done?
  • Do we have deadwood on staff?
  • List the good and any problems you had with each employee.
  • If you had a problem, did you come up with a solution and implement it?
  • Do you have a program in place for cross training employees?
  • Are any of your employees willing to be cross trained?
  • Are any of your employees willing to cross train others?
  • Who can you train to cover for or replace you?
  • What subs do you have an ongoing relationship with?
  • What subs are on your "don't use again" list, and what subs are on your "call first" list?
  • What is their record of on time performance both showing up for work and getting jobs done?
  • What are the strengths and weaknesses of each?
  • How was your safety record?
  • Did you hold regular safety meetings?
  • How did each of your jobs end this year?
  • Are you on good terms with the building owner or was it a relief to both of you to end the job? If things went wrong, where did they go wrong?

You should be getting the idea of where I am going with all this. You can't tell where you are or set a course for where you want to go until you know exactly where you have been.

Compiling the info above, plus anything else you can think of that is important, will give you a clear picture of your company and how efficiently it is running. It will also tell you how good of company owner/manager you are or have become. Honesty here, gang. No bs, no rationalization, put down the straight skinny.

Now answer these questions (from Tony Robbins):

What are the key strengths of your business? Do you have a unique selling point that separates you from your competition? Write it down.
What are the weaknesses or challenges of your business?

Put this down on paper also, so you can see it, read it and most importantly, own it. We are where we are and that is a fact of life. Face it straight on.

Now let's begin to apply it to 2008.

I have been through eight cycles in this business over the last forty plus years. A cycle is from a high with a great business climate and more business than everyone can handle, down to an economy in the toilet due to high interest rates and "Oh, woe is me", then back up to "Everything is Beautiful". It is the same old story. Things repeat themselves every five to seven years.

I think we are at or near the bottom of a cycle, waiting for things to get better. But it will probably hold steady until after the next presidential election in November 2008. That said, for planning purposes it would be good to assume that 2008 will be about the same as 2007. Take a conservative approach, and if you can beat your goals and projections, that's terrific.

Estimate how much business you will do in 2008. If you have been in business more than three or four years, you might be able to forecast an increase of 5-8 percent growth, maybe more depending on your market. If you have been in business less than three years, your growth can be as much as 10-30 percent as your business becomes known. Most if not all your growth next year will depend on your marketing program for 2008.

Remember, when the economy tightens up, you must increase your advertising budget, not reduce it. Those that cut back on their advertising when the economy makes an adjustment, go away. Cutting your advertising budget to save money is like stopping your watch to save time.

I recently spent three days working with a company in Florida that is doing exceptionally well in this business climate. They have a solid marketing plan in place supported by a good budget. They schmooze and they ask for referrals. They take self-promotion seriously and as a result they will do over $6.5M this year. Best part of it is their net profit is well over 10 percent. Their biggest concern is how to get the jobs done. It all boils down to your marketing campaign.

If you aren't sure how to estimate how much business you will do next year, use the Owner's compensation method. Determine exactly how much money you, as the owner, want to make next year, and divide that number by 8 percent (.08). The answer is the amount of business you must sell, build and collect for the company to support your salary.

You now have your sales goal for 2008. Let's say you want to sell, build and collect $1.5M. That is 7 percent more than the $1.4M you sold, built and collected in 2007. The math shows you can safely pay yourself $120,000 compensation for 2008. ($1,500,000 X .08 = $120,000). That should keep you focused.

Now the question that begs to be asked is how do you get that $1,500,000 in the door? Let's assume that your overhead figures this year (2007) were 31.5 percent of total sales. Because the economy is tight and will be for the next year, and your focus needs to be on getting (or keeping) your company debt free, you are going to force yourself to maintain the 31.5 percent overhead and spend not a dime more. That is the way a disciplined and prudent company is run. Cardinal Rule #8 is: You shall honor your overhead budget at all times, and spend not otherwise. If you haven't been doing that, this is a good time to start.

Our overhead for next year will be a total of $472,500, of which you will pay yourself $120,000, and 5 percent of your total budget is for marketing. 5 percent of $1,500,000 is $75,000. So subtract those two expenses off your overhead budget ($472,500 - $120,000 -$75,000 = $277,500). We now have $277,500 to pay the entire balance of the overhead for the company.
A side note. For larger companies, you might consider hiring a full time Marketing Manager. I have read several reports about companies putting such a person in place and it seems to be working well. It is worth looking into.

Now look at what you spent and where last year, and apportion the $277,500 available to pay those bills in 2008. Make a plan to have 2008 a "No New Toys" year. Sorry, but the discipline must start somewhere and this is as good a spot as any.

Now sales. Reviewing our numbers from 2007 we find that we sold 43 jobs with an average sales price of $32,558. If you sell primarily large jobs with a few small ones, throw out the small ones when calculating your average sales price. You want the average to be as close to average as you can get.

If your sale to leads ratio is normal, you will sell about 1 in 4 leads you go on. That means to sell 43 jobs, you need 172 leads. For safety's sake, add about 20 percent to cover the possibility of more "tire kickers", "I want a square foot price", or "I am just looking for the cheapest price" calls next year. 172 plus 20 percent means you need 206 leads.

In your review of 2007, you found that your average lead cost you $73. So in 2008 to generate 206 leads, you can reasonably expect to spend 206 x $73, or $15,038 to get the leads in the door.

This is well short of the budgeted $75,000. Where does the balance of the money get spent? Part of your review from last year was to:

List all of your various lead sources.

List the leads and sales in each category.

Then, Calculate the cost of each lead in each category.
That tells you where the best place is to spend the initial investment of $15,038. Now let's enhance the number of leads that come in from each source. If you know that your web page generated half your leads last year, it would be smart to enhance your web site so you get the maximum advertising value from that page. If you do kitchens and baths, why not have a web page for each? Can you add testimonials or pictures?

Have you tried direct mail advertising? What have you tried that generated the type of leads you want? That is where to focus your money. Check the results monthly to see the results and adjust your advertising as needed.

Next week we will continue this exercise and finish planning for 2008.

Tuesday, November 20, 2007

THE SALES CALL: Why do your customers tell you "your price is too high"?

Good question. Do you think for a minute that they really know one way or the other if your price is too high? Consider this. If your customers did in fact know that your price is or was too high on any given price quotation that you have given them, you and your company would not be necessary. They would do the work themselves.

"Your price is too high" is a tired old line that your customers have been trained to use to get you, the contractor, to lower the sales price of your work. They have been told by the media, their neighbors, someone at work, their family, whoever that if they tell you "your price is too high", you will, in alllikelihood, change the quotation to some lower number. You will do this in hopes of getting their job. That is exactly what most "order takers" will do. The good salesperson knows better and doesn't lower their price, unless the customer changes the job.

"Your price is too high" (and that statement can come in a number of different forms) simply means that you have not done your job as a salesperson. Plain and simple, you have been lazy and have missed some very important steps of the sale.

You have not pinned down the budget to the point that you know what they want and are willing to spend. We outline this procedure in our seminar on sales, on our tapes of the M & P seminar, and we also talk about it at length in our Markup and Profit book. To get a "Yes" when asking for the order, you must get the four basic questions answered.

Those four questions are:
1. What do you want to do?
2. When do you want to do it?
3. Who will make the buying decision?
4. What does that person(s) want to spend?

If you get the answer to those four questions, you will get to "yes" much quicker.

Sticking to and getting the answers to those four questions will help you determine if your customer is in fact qualified to buy from you. You will also eliminate most of the so-called "sales objections".

Knowing the answer to those questions will take your sales ratio from 1 in 5 to 1 in 3 very quickly. It will also give you the ability to raise your markup at least 10% to 15% and keep your sales ratio the same.

Learn the technique, ask the questions, get the answers and watch not only your sales increase, but your profits increase as well

Copyright © 1999-2005 by Construction Programs and Results. All Rights Reserved. No part of this website or content thereof may be reproduced, distributed or transmitted in any form or by any means, nor may any part of this website be stored in a database or other electronic retrieval system, or any other website, without the prior written permission of CPR.

Tuesday, October 30, 2007

Getting Your Phone to Ring, Part 4

One of the things we've heard over and over again recently is, "We don't have any leads coming in. Our phones are dead!"

When I ask how they spend their time, almost always their focus is on building jobs. When the market gets tough, your focus must be on sales. You can be the best mechanic in the world but if you don't sell jobs, you have nothing to build. That is the reality of our industry today.

Brian Tracy said, "The key to success is to focus your conscious mind on things we desire not things we fear." If you desire a profitable business, you must get out there and sell.

Let's take a look at some of the ideas sent to us by other readers.

First, from my buddy Sonny Lykos (this is also posted on our blog):

"One of the reasons Michael offers a free newsletter is the same reason others do. It's reading tells the customer or potential customer that its author is an expert in his/her field."

"Several months ago I stopped sending my own one page, 2-sided newsletter I created on my word processor. Nothing fancy; only information. I stopped it due to the large numbers of calls I was receiving from it. Some of the people that called said things like: 'Mr. Smith received your newsletter and made a copy for me. Can you come and give me an estimate on some work I want done? You seem to be the caliber of person we need.'"

"If anyone's interested in doing the same, email me and I'll email you back with a couple of copies to give you an idea of it's simplicity and contents. It was a quarterly newsletter that only took about 1/2 to 1 hour to create since I used the same format for each issue. It was snail mailed and emailed to them. I also kept several copies in my truck to give away to neighbors of my customers."

Sonny Lykos, Construction Solutions Systems, Inc.
Naples, FL

I recently spent the day with Sonny as he made his rounds. He does, in fact, carry copies of his newsletter with him and is ready to respond to any request by a customer for more information about his business.

And another note from Brad Stearns, whom we also quoted last week. This guy is full of ways to promote his business, and they work. He is as busy as he wants to be. What downturn?

"Thought I'd relay another strategy I use to create more business with an example. I asked and was approved to be a vendor for a local elders service agency. As we boomers get older we will need many more services – especially with the rise of efforts to keep seniors in their homes. My first request was to meet with a man about patching a 'Top hat size' hole in an asphalt driveway so that no one would trip on it."

"When I arrived at my appointment I was actually met by a group. It turned out that the driveway was shared by a group of condo owners all 70 and above in age. I was there for several hours putting together plans to rebuild several porches, replace rotting wooden gutters and fascia (which we are very experienced in), and repairing numerous small safety and security needs. In the end, conversations turned to the possibilities that when we're done with the outside work before winter we could discuss new kitchens and baths. Not bad for a day's work that started out as a small quick asphalt cold patch job."

"I wanted to provide this example for another reason. While we are very busy, I here the same complaints you hear about how slow it is and getting worse. Since we are so busy with new leads and business, I've been intrigued why I see lots of work available and others don't. So I started to ask non-referral prospects about how they found us and why they called us and not someone else. 'I couldn't find anybody' was the most common refrain. Our yellow pages book has 13 pages of contractors, so it's not a shortage of contractors. I began asking why they couldn't find anybody. The answers were very telling of our industry. The consumer couldn't figure out what the contractor did because either:

  • His marketing message was not clear
  • He claimed to do it all like 'you need what repaired? I do that' which makes people distrustful
  • The consumer didn't know how to locate one or (here's the best one)
  • They couldn't find someone who KNEW HOW TO LISTEN."

"The last one is a huge issue. I can't count the times when I went to a prospect's home, let them speak and walked away with a job."

"And of course you know the other complaints: Appointments were not kept and calls were not returned."

"You already know some of the ways I make myself available to be 'found' but one of my favorites is yours: hand out a minimum of 4 business cards a day!"

Best, Brad

I could not have said it any better, Brad. (With the exception of the business cards - 4 is a lot of pressure, I recommend a minimum of 1 business card each day!) Returning phone calls and showing up on time for appointments is just as important as placing ads anywhere, direct mailing your stuff or even making phone calls to potential clients. Brad is a great example of someone who gets out and gets it done instead of sitting back and complaining.

One more comment about Brad's note. He commented that ads that say, "you need what repaired? I do that," make people distrustful.

That gang, is exactly why I have said over and over again. Don't try to be all things to all people. Pick three things you do well, three things you know you can make a profit on and pass on all other work. Stay focused on what you do best.

Now from Odus Sweetin, some thoughts on radio and newspaper advertising.

"A tip you may share for low priced advertising sources. Seek out the new and upcoming radio stations, little existing station completely changing their format, community newspapers, community news inserts in a larger newspaper, etc., for low cost ads in your target market. Some of us are small businesses. We do not need a great number of leads to meet our planned production goals."

"Normally you will find that if you start the media source off and become loyal, lots of deals come your way first. An example locally is our local online news. When it started out, it was a long time group of downsized/phased out primary newspaper editors. Obviously, they would have a great following. A yearly ad in a prime location was $750. Then it went to $950 as readership increased. If you started with them in the early days, your costs are the same now. New advertisers for the same space now pay $1,950 per year."

"In advertising, one thing is the rule; big is better. It generates more leads so we have a lower cost per lead. If we must be big, we can be bigger with the smaller costs."

Have a good day,

Odus has a great idea, especially as a long term advertising strategy. And as Morris DeShong discussed last week, long term advertising is much more effective than hit-and-miss.

Last week, I also mentioned the importance of a website. We've been asked for ideas on quality websites for construction companies - I'm going to list a few of the ones we've seen and admire.

Roy Kennedy sent me a link to his web page. Notice on Roy's site that he has a section on Home Tips. Additionally, he makes it easy for his customers to sign up for his newsletter.

Another example by Dennis Gehman, who also offers a newsletter. Notice also that Dennis has a focus on just the work he wants to do.

I've talked about the importance of having a website that loads quickly. Check out Burgin Construction. Brad and Rhonda do a great business and they get many leads through their web site.

Here are more impressive web sites from companies we know:

Note, Michaels other three parts will be available soon.

Monday, October 08, 2007


Time Management is one of the most misunderstood and most abused elements of our business lives.

There are three basic uses of time in your life. The first, and by far the most important should be the time with your family. Do you want more time with your family? Then let's look at the second use of time - Donkey work.

What is "Donkey" work? It is the time you spend chasing your tail, doing things that will not increase your bottom line, and in fact might cost you money.

Not delegating is a major problem with most contractors that I've spoken to across the country. Here is where my Cardinal Rule # 4 kicks in. You must put your ego in your pocket and trust that someone else can do a particular task as well or better than you can. Doesn't make any difference what the item is, if you can find someone else to do a given task. . . . "Delegate". Even if they can't do the task as well as you, big deal. As long as it is done adequately, that should be good enough. Too many people in this business get hung up on the idea of "we build great quality into all our jobs. That is what we are known for!" Yes, but others can provide quality work for you. "Delegate".

Delivering materials to job sites. Oh the pain of it all. Millions of dollars are wasted each day by the owner of a construction company running around delivering materials to job sites. If you are doing that, you are wasting not only your time and money, but it should be ample warning to you that you have not delegated responsibility for material procurement to someone on the job site as you should have.

And, now my favorite subject to rag on some of you about . . "Working On The Job With The Tools"! More millions are wasted here each day also. Put the tools away and run your business. The best you can ever hope for working with the tools is to make a living. Maybe, if you're young, have lots of smarts and know what you're doing, you can make a good living. Bottom line, you will never make any money. Physically you can't work enough hours, nor can you bill enough hours each week. If you are over 35, you should have all the education you need on how to build a given job. It is time now to put the tools away and run your business. A good rule of thumb for time management in a construction company is that the owner should spend 50% of their time on marketing and advertising and 50% of their time running their business.

Now I know I'm going to get some squawks from readers that don't believe this, or are convinced that they must be on the job site. So, those of you that have been to the M & P seminar, and have put your tools away, or have started to put the tools away, would you send me an e-mail and tell me what your profit picture has done since you put the tools away and started running your business? I would greatly appreciate the input. I know a bunch of you promised me in class that you would put your tools away and you have. We would love to put feedback in a future newsletter to show what happens to company profits when the owners start running their business instead of letting their business run them. Thanks for the help here.

Ok, so what is the third use of time? It is staying focused on "Making a Profit ". Everything and anything else you do in your company is "Donkey Work". No, you probably don't want to hear that, but it is true. If you are not focused on making a profit, then you are focused on "Donkey Work".

Forget about "being competitive", that is an absolute money loser. You must be profitable. Forget about delivering materials to a job, delegate. Forget about working with the tools, hire it done.

Forget about sitting in coffee shops or association meetings with your buddies. That is time you could be spending on a whole laundry list of things for your company. And last but not least, forget about "donating" your time to associations or other groups (unless it is with your family). Donate your time to your family, they are the most important "business" you have.
Do these things and watch your bottom line grow to the minimum 8% net profit.

Copyright © 1999-2005 by Construction Programs and Results. All Rights Reserved. No part of this website or content thereof may be reproduced, distributed or transmitted in any form or by any means, nor may any part of this website be stored in a database or other electronic retrieval system, or any other website, without the prior written permission of CPR.

Tuesday, August 07, 2007

Customer Games with Your Money

I believe a majority of the conflicts I see as an expert witness, arbitrator, consultant and business coach are a direct result of a lack of respect for our profession. I served as expert witness last week and this attitude was obvious from both the owner and his attorney. I'm not sure about the judge, but it was clear that he was not happy that his precious court time was being used by yet another fight between an owner and a contractor.

That lack of respect is generated by the business practices of many in construction who run their business as a hobby. Unfortunately, everyone gets painted with the same brush, and it allows some clients to believe they don't have to pay if they don't want to. We're going to talk about how to insist on respect (with kindness).

First and foremost, don't drive around and give out "free estimates". As we outline in our new book, "Profitable Sales, A Contractor's Guide" and our video, ask and get answers to the four basic questions, get the budget set, and then design the job to the budget. Your design, estimating and proposal writing work should be done only with a design agreement, letter of intent or some other device that gets you paid for your time and effort. The rule in your company, and especially for the sales staff, needs to be "No freebies for any reason." If the customer wants you to work for free, find another customer. You are not in business to give out estimates or other work for free. You are in business (or at least you should be) to provide a service to your customers and make a profit doing it.

When you and your customer have agreed on a budget, designed the job to that budget and agreed on the job to be done including the price, it's time to write a solid, clear contract. The contract should include your proposal for the service or work, the legalese language necessary, a clear payment schedule, and the Right of Rescission. The contract should have a clearly written definition of how Change Work Orders are to be handled, and what happens if the payment schedule is not kept.

What happens? Example: You are working on a job, either a new home or a remodel and the owner has obtained financing from a lender. Your contract calls for a progress payment. For whatever reason the owner does not get it to you on the date specified. Don't just remind the owner that a payment is due and then go right on with the job. Bad plan. In your contract, specify that if a payment is not made on time, you will wait 24, 36 or 48 hours for the payment and then you will shut the job down. If you shut the job down, you may also file a lien against the property at the same time.

If you really want to let the folks know that you are serious, include a clause in the contract that says if you have to shut the job down, you will charge an additional $750 - $1,000 to restart the job.

Now, if the owner is late with their payment, shut the job down. No ifs, ands or buts, shut the job down. If you don't, you have accepted the owner's new terms on the contract. From that point on you will have a hard time getting any court to help enforce the terms of your original contract because you knowingly let the owner breach the terms of that agreement.

You have heard me say before that when we set foot in a courtroom, we are assumed guilty unless and until we can prove our innocence. To that end, it has been my experience that most courts will expect you to adhere to and convey the terms of your contract to the owner. You are the expert, you wrote the contract, and it is up to you to make sure both parties follow it.

Now, let's suppose the lender insists on an inspection to justify draws against the project. Here is where careful forethought and wording on your contracts is necessary. Suppose you ask for a draw at the 40 percent completion point. The lender says the job is only 30 percent done and wants to issue a check for that amount. That will short you 10 percent of the money that is due and you have probably already spent. Bad plan.

Make your draws based on a start or completion point. Insist that the draws be issued on the point in the job you are at or you will either charge interest to the owner for the delay in payment, shut the job down, or both.

I hear it already - "You can't do that." Why not? If you are smart and word your contracts correctly, you can do just about anything you want as long as it doesn't violate the city, county or state laws that apply. In this case, state usury laws would probably apply so be sure to talk to your attorney and include language in your contract that specifies how and when you will be paid and what the penalties are if the owner doesn't comply.

If you let others either write the contract or if you don't know what your legal rights and obligations are pertaining to how you are to be paid for your work, it's your own fault. You have to know the laws as they apply to your business, because that's part of being in business.

For those of you in California, I deal with California's stupid state laws all the time with our coaching clients. I know all too well the conditions that the well-meaning but ill-informed bureaucrats in Sacramento have dumped on you. You, above all others, need to be sure you know the laws and any workarounds that your attorneys recommend. Yes, there are several workarounds pertaining to such things as down and progress payments.

Ok, so suppose you shut a job down and one thing leads to another and now you have to file a lawsuit to get your money. Before you do that, make sure of the following:

  • You have an attorney who knows the law and preferably one who knows construction.

  • You have written a clear, solid, fixed figure or guaranteed price contract. (Not cost plus or time and materials.) You have kept your end of the contract and wrote change work orders whenever a change was made to the job.

  • Your contract carefully outlines what an allowance is, how and when it will be used and the amount you will charge. Additionally, it spells out exactly when you expect to be paid for the allowances and when you will issue refunds on any allowance amounts.

  • And your contracts include clear and concise language that spells out exactly how the job punch list will be handled.

I'm sure there are any numbers of other things that can and should be included, but those are the big ones.

One last issue.

Suppose you aren't getting paid for your work. You place a lien on the property. The Owner can bond around the lien, thinking they are taking the wind out of your sales. Maybe, maybe not. I read the following at the website of Levy . von Beck & Associates, P.S..

Here is what they had to say about bonding around a lien claim:

A properly perfected lien claim attaches to the real property that is identified in the lien. This means that the property owner cannot refinance or sell the property without taking care of the lien. In many states the owner or general contractor can, however, purchase a bond worth 150% of the lien amount and file it with the recorder's office. This will have the effect of removing a lien from the title. Many contractors and suppliers view this as a bad development, because it may relieve some of the pressure on the owner to resolve the lien claim quickly. Thus the property owner or the general contractor may threaten to bond around the lien, in an attempt to pressure the claimant to settle. In reality, however, bonding around the lien, or getting a lien discharge bond, is often good for the lien claimant, as a bond may provide a faster and less expensive legal remedy.

What does that all mean? It means, Pilgrim, that you need to get your derrière down to your attorney's office and get your contract language checked inside and out so you know exactly what the laws are before you enter into a contract with anyone. Every state's laws are different when it comes to a surety bond, so you need to fully understand the law in your are.

Customers can change between the day you sign a contract and the day you ask for a progress payment. Make sure your contracts are clear and there is no doubt about the payment schedule or the contract intent. Protect your assets.

Tuesday, July 03, 2007

FINDING GOOD EMPLOYEES (using your cell phone)

Good employees, with a strong work ethic and knowledge of their trade, are already employed. When they want to change jobs, they can usually do so quickly. That is why, when you decide to hire an employee, you also need to move quickly.

Here is a method that some of our coaching clients are using and so far it is working great.

Write a four or five line ad, starting with "Top Pay for (insert job name here)." Then list briefly what you are looking for, i.e., experience, must have own hand tools, late model vehicle, good driving record, no drugs or alcohol, whatever else you feel is important. The key phrase is "Top Pay for . . . " (If you can't give top pay, read our book "Markup & Profit; A Contractor's Guide". You aren't charging enough for your work.)

Put the ad everywhere you can: in the paper, on the Internet, on the bulletin board at the supply house. List your cell phone number - and make sure you have your cell phone with you to take the calls. When potential employees call in, here is what you say:

"I'm going to give you a 30 second commercial about the job, when I am done I want you to tell me if you can do it. You will be checked and evaluated during the first two weeks of employment so if you tell me you can do the job, be aware you will be checked and tested. I will not talk about money on this call. If you can do the job, we will meet later today or tomorrow morning, have some coffee, talk about the job, the pay and see if there is a fit between us. Is that fair enough?"

Now, notice that you won't talk money. That forces the potential employee to focus on the job requirements, and it stops your competition from calling and finding out what you are willing to pay good help. If the caller comes back with any questions about pay, they are the wrong person for you. Their focus is obviously on the pay, not the work, and it tells you they won't follow directions!

Give them the short commercial, describing the work and the requirements. Remember to keep it short and to the point. 30 seconds is plenty of time to tell them what you want. When you are done, you ask them, "Can you do that job?" If they say no, then say good-bye nicely. That is one less resume to look at, one less interview to hold - both you and the potential employee have saved time.

If the answer is yes, set a time and place to meet for coffee. When you meet, go through your normal hiring questions. If they measure up, hire them on the spot. Forget the resume and job history stuff. Good employees are not going to hang around waiting for you to go through the three to five week game of interviewing every guy in the world. Give your new employees a two-week trial period. If they make it through the first two weeks, there should be a second probationary period so you get a chance to really see what they are like and what they can do. The second period should be at least six weeks or more. At the end of the second trial period, you set their wage.

Remember, asking for resumes, former employers, and the rest of the fall-da-rah that goes with that approach seldom will get you the same truth that a short trial period will provide. If they don't work out, send them down the road and start over.

You should have an employee manual in place, and one job requirement is reading and signing the manual. If they won't sign the manual, don't hire them. In today's market, the deck is stacked more and more on the side of employees, and you must protect yourself and your company from those who are looking for a free lunch.

Using this approach, you will find that good employees are available, and they are ready to move ahead. Be ready to move ahead as well and you'll save yourself time and aggravation.

Final Comment:

I can't emphasize enough the value of a good employee manual.

I received a call from a company that terminated an employee. Almost a year later, the employee sued them for $26,000 for discrimination, etc. In your employee manual, include language that states they can only file a claim against your company for a period of 6 months after they leave. That limit has been upheld in the courts. Have your attorney write it, add it to your employee manual, and be sure that everyone, including long time employees, sign off on it. Cover Your Assets.