Increasing Margins

I grew up in the building industry, working for my dad at a family building company. I’ve been in the process of taking it over and knew I couldn’t do it alone. We brought Nic on as my partner: he didn’t have a lot of building experience but he’s a good friend of mine and very talented.

We had a lot of work to start out with. I already had the established brand from my father’s company and we wanted to expand on that a little bit, so we took on some custom jobs. With these custom jobs, however, we were really struggling with our pricing, and we’d be making maybe $10,000 on a job that cost $300,000 to build. It was tough; we knew there were people out there being successful in building and we didn’t want to reinvent the wheel.

We Didn’t Want To Reinvent The Wheel But We Needed Help

We signed up for the APB membership and after attending a lot of the classes, I realised it was really good content, a way for us to systematise our processes and bring value to the business, and ultimately that led to joining the Mentoring Program. I think accountability is a really big issue that business leaders have; to be accountable to a third party makes it easier to push yourself, to have somebody bring up those hard topics, things that you need to focus on that you’ve let go by the wayside. One of the main reasons we joined APB was to improve our margins, systematise things and have that accountability and not reinventing the wheel.

One of the first things we did was look at our accounting.

We were able to figure out why our reports weren’t accurate and to fix our accounting systems so that we could quickly pull reports, which had been a big problem.

One of the reasons we had low margins on the job was because we’d ask how much we were making, we’d pull a report, and find the reports were just inaccurate.

First Thing We Did Was Improve Our Accounting

So the first thing that we really focused on with Andy, our APB Coach, was to improve our accounting and we did that so we can pull reports quickly and monitor the jobs on a regular basis.

The second thing we did, and probably one of the most valuable things to me, was the Pricing For Profit training, making sure that we were accounting for our overheads, which was something that we were not doing at all when it came to pricing jobs. We had no idea how to divide overheads across jobs throughout the year and projecting what that would be so that we could continue to grow.

So we used that Pricing For Profit and our KPI spreadsheet to understand what our overhead numbers were and made sure those got added to our pricing just to help increase the net profit on our jobs.

The last solution or outcome was accountability.

We had somebody that we answered to on a regular basis to remind us of our goals and how we planned to move forward in that direction, who then held us accountable for the things we said we wanted to do.

We’re Trending Upwards To 8 and 9% Net Margins Now

Last year some of our jobs were bringing in 2 or 3% and now we’re trending upwards to 8 and 9% and working our way to getting up to hopefully 15% as our target, but we’re definitely trending in the right direction as a result of these changes.

APB has been great as far as quality goes; we can refer to a good roadmap on the website if need be. We adapted the schedule of content based on what our actual needs were. For instance, since we were running an already established building company, we didn’t necessarily need so much help to implement a marketing strategy as we did understanding pricing, and then understanding how to bring on team members and so on.

The content order makes a lot of sense in understanding who you’re targeting, who your audience is, who needs to have the best experience while they’re going through the process; it just affects all of the decisions down the road.

It is good to have gone through a lot of those things, to have asked a lot of questions about marketing and who our customer is; our ideal customer helps set the stage for making decisions in other areas of the business.

So we’ve done a lot of adaptation in that process since we started with APB.

We Discuss Our Strategy More Regularly

When we started the business Nic was going to manage the financial side while I managed the project management side because that’s where my expertise was. Then as we got busy we decided Nic could take on a few projects himself; it was something he wanted to try out so he started doing project management and the finance while I was doing the majority of the project management and then all of the sales.

And these are the things we worked on with our coach: what our core responsibilities were, what we ultimately wanted to be doing.

After Nic worked in projects and completed four houses, he decided that he really did not have the time he needed to do the project management and he has since switched back into doing almost fully the financial part, keeping the books, paying the bills, etc. He’s also been working on land entitlements for future projects, working with the cities to get land.

I’ve stayed in project management until recently we hired a new project manager and I’ve gone fully into the marketing and sales.

Being with APB has definitely helped Nic and I meet on a more regular basis to discuss strategy.

We still don’t do it as much as our coach would like us to, but we definitely do it way more often, a few times a month. A lot of the time it’s informal and some of them are scheduled, but we definitely discuss our strategy, how we want the company culture to be, how we can improve the customer experience, etc.

It’s definitely taken some trial and error to figure out where we are most valuable in the work that we can be doing and delegating tasks to each other that sit inside those realms and figuring out who we need to hire next to offload the tasks that we don’t enjoy doing.

For me, as I mentioned before, it’s really that Pricing For Profit training we went through that has been valuable, understanding what our overheads are, making sure that gets added into our pricing model and also projecting what the company is going to look like in a few years or even at the end of the year so we know, okay, our overhead is actually going to grow by quite a bit.

We Would Have Missed Out On A Lot Of Money If It Wasn’t For APB

I think this year we’ll have doubled our overhead and without projecting that we would not have been pricing our jobs correctly to increase our profit on these jobs that we have. We definitely would have missed out on a lot of money that we need to be making to actually continue to grow the company.

Again, the most valuable has been the Pricing For Profit training and the spreadsheet that’s in the KPI to help us price those jobs.

When we were just starting with APB and figuring out where our pricing should have been we had some old jobs that we had to get through the system before we could really implement our new pricing. And on those jobs, our margins were low enough that we were getting to the point where we were getting behind on our cash flow. So we were taking money from the next job to pay for the last job and that was a really scary position to be in; we wanted to get out of that as soon as possible.

Just understanding those numbers helped us do that. We learnt to price those future jobs so that we could always stay ahead of our payables. That way we were not so reliant on that next job to pay for the last one. It’s been amazing talking to other contractors and seeing how many people are in that position.

If the market ever turns, which it has before and we’ve seen companies go out of business as a result of this, we know we’ve got to be able to make sure the money’s in the right place for the right job and pay those on a regular basis.

In some areas, we definitely had some pushback. We had been working with one client; we had design plans with them and we’d been figuring out our pricing was just not accurate, we weren’t where we needed to be to make it worth it to even take on the job, and we had a price in our heads of how much per square foot roughly this plan was going to be.

So we designed the plan with a budget of $600,000 when we realised it was actually an extra $20 per square foot to build this than we originally had started talking about. And they actually left for a while, they started working with another builder. We were just really upfront with them, honest about it; we made mistakes, we realised our pricings were off, that we couldn’t build it for what we thought, what we told them.

They ended up coming back to us.

I’m not saying that everyone got scared off by our newer, higher prices and came back to us, but this couple did just because of how open we were with our pricing; we were just really upfront with them and they gained trust in that way, even though they did go off and try to find a better price from somebody.

I think being honest and open with people when you make those mistakes definitely helps build their trust.

Now at this point, I’m very confident with what it costs to build and I’m able to express that to people. Even though it is an expensive time to build a home they gain trust when they go into our homes and see how well they’re built and hear from past customers how good an experience it was and how they liked working with us.

It was a challenge for me to tell people the costs; it’s a lot better now, but we can still make mistakes in the estimating. If we make a mistake we’re not going back to the owner telling them there’s a change in the order because of our mistake. We’re sticking with the price that we promised them in the hopes that our long-term reputation will benefit from that, so we stick to our word. We feel like we will have greater long-term gain than short-term profit.

Every Dollar We’ve Spent With APB Has Paid Itself Back

I would definitely recommend the APB Mentoring Program to other builders because there is no reason to reinvent the wheel.

Every dollar we’ve spent on the coaching has paid itself back multiple times over.

Our sales have grown, but our margin on those sales has also grown and that’s definitely a direct result of the training that we received.

There’s just no reason to fight this battle by yourself.

Get as much support as possible; get the experts involved and use everything that they teach you.