Episode 64: How To Avoid Pricing Mistakes With Darren Wallbank
In episode 64 of the Professional Builders Secrets podcast, we’re joined by Darren Wallbank, Executive Chairman at Builda Price. Throughout this episode, Darren goes over costing projects in the building industry and the key to long-term profitability in your building company.
Episode 64: How To Avoid Pricing Mistakes With Darren Wallbank
In episode 64 of the Professional Builders Secrets podcast, we’re joined by Darren Wallbank, Executive Chairman at Builda Price. Throughout this episode, Darren goes over costing projects in the building industry and the key to long-term profitability in your building company.
Show Notes
Transcript
In episode 64 of the Professional Builders Secrets podcast, we’re joined by Darren Wallbank, Executive Chairman at Builda Price. Throughout this episode, Darren goes over costing projects in the building industry and the key to long-term profitability in your building company.
Inside episode 64 you will discover
- The main reason builders struggle with pricing
- Automation, the future of the building industry?
- How to prevent mistakes that lead to costly overruns
- Specialist vs generalist? Which one is better
- The key to pricing jobs to increase your net margin
- And much, much more.
Listen to the full episode to uncover what you need to be incorporating into your project costings to maximise your profit margin and set your building company up for success.
Darren Wallbank - Executive Chairman at Builda Price
Having worked for a number of major building material suppliers in executive positions, Darren Wallbank knows the construction industry well. In his current role at BuildaPrice, he focuses on strategy and product development consulting often with builders to make sure their products reflect what is required.
He also heads up the development team helping them setup growth into Australia so that as a company they can react quickly with product changes to suit this ever changing industry.
Timeline
1:39 About Darren and his role at Builda Price
6:04 The future of the building industry
11:39 Common mistakes that cause cost overruns
19:48 Why specialising increases your profitability
23:29 What’s in the pipeline from Builda Price?
Links, Resources & More
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Darren Wallbank:
When a builder's on our software, they will not have to process supplier invoices manually.
Darren Wallbank:
I absolutely believe the future is about more fully integrated solutions.
Darren Wallbank:
Insanity's to do the same thing again and again.
Darren Wallbank:
Because builders intuitively do understand pricing. They understand jobs, they understand what they're doing.
Darren Wallbank:
But if you can understand other players in your industry, you can learn from that.
Darren Wallbank:
You've got to keep nimble.
Darren Wallbank:
Because if something's working, let's just keep working it and work out how to improve it and just grow that.
Bosco Anthony:
Hello and welcome to the Professional Builders Secrets podcast, a podcast by the Association of Professional Builders (APB) for building company owners, general managers, VPs and emerging leaders. Here we discuss all things running a professional building company from sales processes to financials, operations and marketing. We have got another exciting episode from the Professional Builder Secrets podcast. Joining us today is Darren Wallbank, Co-founder for Builda Price. Darren, nice to have you here today.
Darren Wallbank:
Oh, it’s great to be here. Yeah.
Bosco Anthony:
Yeah. Let’s start off with you telling me a little bit about Builda Price and how it assists builders.
Darren Wallbank:
At Builda Price, we use the by-line that it’s about giving family time back to builders. It’s about putting in processes and system to enable a builder to get some of that time back. We find that builders tend to use night times and weekends to do a lot of process stuff. So, we’ve focused on getting solutions that give that time back. At Builda Price, we work on a solution that takes the whole building process in. We have everything from a quantifying or estimating team, so we do takeoffs for builders right through to pricing, job tracking, back costing, scheduling Gantt charts, time sheets, even bringing out and releasing health and safety at the moment.
Darren Wallbank:
We’re bringing together a fully integrated solution, which is where we see our difference in the market. It’s not uncommon for us to replace another product in the market, but we end up replacing three or four products because we’re putting everything in one solution. At Builda Price, we’re really focused on getting a single solution for builders because that’s what we found they’re looking for. We come out of New Zealand, where we’ve got hundreds of builders. We’re pretty strong here and we’re now working through into Australia as well.
Bosco Anthony:
That’s really exciting. What is your role at Builda Price and how did you get started in this industry?
Darren Wallbank:
That’s a big question. I’m a co-founder, one of the directors. I actually head up strategy for the business and I head up the development team. But I’ll also do demos because I really want to be close to the builders. I want to hear what they’re saying, where their issues are so we can respond very quickly and that’s why I head up those two areas.
Darren Wallbank:
But I suppose this industry’s in my blood. My dad was building and ever since I was a kid, I seemed to be building with him. I’ve got three younger brothers: one’s a builder, two are painters. That’s the industry. I’m actually an accountant by background so don’t hold that against me, but that’s what I have done. But I ended up working for PlaceMakers and Carters for 15 years, which are two of the big supply merchants here in New Zealand, similar to the Bowens/Dyson type situation in Australia.
Darren Wallbank:
I was in the executive team, and I looked after 30 stores for them. I ended up being marketing and IT manager in Carters, so I could see the strength for putting the marketing and the technology together, and I actually ended up writing the strategic plan for PlaceMakers and for some of the other groups in New Zealand. I’ve done quite a bit of corporate work, so I know the industry really well. But when I got out of corporate, I then actually ended up owning an accounting practice where I looked after builders and I looked after sub-trades and got to the point where I found that they just were not making the money they should for the risk and the stress that builders take on, which frustrated me.
Darren Wallbank:
I could see the sub-trades making a lot more than the builders and started to look at some of the issues that were going on. As a result of that, I ended up getting into software, and I had been in it previously in my corporate roles, and I was starting to buy and build software. We’ve now got several companies in the group and we have quite a range of software and services that we provide. Really, I’ve been in the industry for a long time.
Bosco Anthony:
It sounds like you’ve been around it for sure. Did builders struggle with pricing, in your opinion? You talked about having the tagline about putting some family time back, you alluded to that at least, so I’m assuming that builders do struggle with pricing, I guess?
Darren Wallbank:
Yeah. We have a lot of builders using our software. What tends to happen is it’s not unusual for builders to be pricing jobs at night-time when they’re finished, and running jobs during the day and pricing on the weekend. We can see that a builder could take 20, 25 hours to price a reasonable size job and we’ve really focused on trying to get solutions so they could price a job in two to three hours in our software now and get a lot more comfort out of that.
Darren Wallbank:
We like to call the pricing part of what we do the ‘sleeping pill’ for the builder because normally if a builder’s not going to sleep, it could be after he’s just put a big price together, he’s putting it into his customer and he’s worrying, “Have I got this right? Have I got everything in here? Have I missed anything?” We find when we’re dealing with builders, there’s quite a comfort in being with them and helping them through that pricing process where they need it. They do struggle generally. Some are really good at it, but a number do struggle in that area.
Bosco Anthony:
How do you see the future of the building industry when it comes to efficiencies like pricing and improvement in automation? Do you feel like this is a place that is going to take off even further, especially with the product that you’ve brought to market?
Darren Wallbank:
Yeah. I absolutely believe the future is about more fully integrated solutions for pricing right through the business. We’re finding builders are looking for the nirvana, for the one scenario that solves this, rather than have multiple specialist apps because it’s not unusual for a builder to have four or five apps to try and solve these problems. Whereas we say actually we’ll give you a fully integrated solution to solve this, cloud based.
Darren Wallbank:
I think you’re going to see more and more integration happening and the smart players will be heavily into that space. That’ll be between all the stakeholders in the project. It could be from the architect through the builder, through the sub-trades, through to the end client, actually smoothing that process of pricing and having those parties being able to be involved in it electronically as the job gets priced. I believe that’s where the future’s going to end up.
Bosco Anthony:
Where do you see builders making, let’s say pricing mistakes, or where do you find the errors typically when it comes to pricing, specifically?
Darren Wallbank:
Yeah, well it’s that quote that says “insanity’s to do the same thing again and again.” Part of what we see is there are probably a thousand spreadsheets out there with builders using multiple different ways to price a job. But we know with spreadsheets, you could be making the same mistake again and again. I think the common pricing mistakes are one, not checking that you’ve got the pricing right through good back costing and process, and two, not checking what people are giving you. If you’re using an estimator or you’re getting a takeoff done or you’re using formulas to do takeoffs, what are your check processes around that to make sure you’ve got quantities right and that you’ve got everything in the job? That’s something we really focused on in our pricing software. We focused on putting self-checks in place so that we can give you a formula, a set of things to calculate what this job’s going to cost.
Darren Wallbank:
But we also included what we call common sense tests through the software to say, “Okay, what does your gut feel say about this? Let’s compare that to what we have.” That raises an issue if there’s a big gap, because builders intuitively do understand pricing, they understand jobs, they understand what they’re doing, but getting that into a formula that speeds it up and makes sure they’ve got everything in there is key. I think not checking what they’re doing and just getting a process and then just running with that all the time is one of the common errors.
Darren Wallbank:
I think one of the other common errors is that builders don’t value their own time or their project manager’s time. We quite often see that time not recovered for a project. And when people start using their time sheets and back costing jobs versus how they price them, two areas we find are really under recovered are project management time and cleaning time, something simple like cleaning and maintaining the site, areas that aren’t necessarily included in the price or in the overhead percentages well enough to cover the cost.
Darren Wallbank:
It's just not valuing time, and it’s one of the biggest frustrations, as I mentioned earlier, for me when I was doing the accounting for a lot of builders. I was doing a lot of management accounting, doing the year end results, doing coaching with them and they would not be making the returns. If they made a salary that was about it and it’s because they weren’t recovering these areas well enough. That frustrated me because as a builder you’ve got all that risk, you’ve got all that stress to run a job or project and you’re just not getting the return on it. It’s about pricing but making sure you’re testing and checking that all the time to make sure you've got everything in there.
Bosco Anthony:
How can builders learn from post-project reviews? Do you tend to ask them or recommend that they look back on post projects?
Darren Wallbank:
I think the key to that and one of the things I’m really passionate about is having good back costing within the project. One of the things we are focused on really clearly is that there are back costing projects, there are spreadsheets that people use, but you’ve actually got to back cost to how you price the job. If you price the job into a number of categories, then let’s make sure you’re back costing to that source information so that you can understand which jobs you’re making money on, which you aren’t, which categories within the job you’re making and losing money on.
Darren Wallbank:
I found with some builders they didn’t know if they made money or lost money on jobs and they’d be using the cash flow for the next job within the job they just finished. Or if the job had lost money, then they need to understand within the job which parts of the job were losing money. They could be making good profit on parts of the job but losing their shirt on another part.
Darren Wallbank:
Through our software, particularly our back costing, we give real back costing as the project moves in real time and we give a position at the end of the job as to where this job ended up, where you are up and where you are down. That becomes particularly useful as you start to get more and more history because we start to see our builders understand actually these jobs are better for them because they’re making money on these sorts of jobs versus these other types. We do see changes in business practice occur or business focus as to what customers to look at because they start to understand what their niche is and what works for them.
Bosco Anthony:
When we look at these different projects and we look at a post-project review and everything else, what can cause a cost overrun or a time blow out, typically? Where do you see a lot of that time going and how could you prevent that?
Darren Wallbank:
Yeah, it’s interesting. I think what can cause it is not managing it, just poor project management, poor task management. I remember putting the software into one of our builders and he basically kicked off the job and they back costed. Well, they backdated the data into the software because it was a reasonable size job, and they wanted to understand it. He phoned after a couple of days and he said, “Actually we’ve already blown the budget on a couple of these categories because we hadn’t been time sheeting against the categories versus how we priced it.”
Darren Wallbank:
What he did immediately was put a staff incentive in straight away to say, “Look, can we recover this? I’ll give you a percentage of the recovery.” Coming back to the fact of tailoring and measuring, I think where people don’t project management, they don’t manage the task or I think more importantly where they don’t measure what’s going on.
Darren Wallbank:
To me it’s critical to know today, based on my time sheets, based on my supplier invoices, how is my job? How is it versus how I priced it and where is it going to end up based on everything I’ve got today? Where’s the forecast position? We’ve just released forecast position, because I know that was one of the areas Russ [Stephens, Co-found of APB] is pretty keen on, to understand where this job is going to end up based on everything I know today. If you’ve got that sort of feel and touch on your business as a builder, I think you can respond quickly, you can react quickly and you can fix things before you even get to the end of the job rather than get to the end of the job and work out, “I lost my shirt but I can’t fix that now.”
Bosco Anthony:
They say that prevention is better than cure in most cases. Where could the builders potentially prevent this from happening? What are some of the common things that cause those mistakes to happen in the first place?
Darren Wallbank:
I think it just comes back to not having good process, not having good systems, just not having things working well together. Again, it’s not uncommon for us to see when we put our software in, we’re replacing stuff. There’s a myriad of solutions, there’s spreadsheets used, there’s maybe some odd apps used, but there’s not a good process between them all. If you can get that process right, it means that you’ve got stuff in front of you today that you can react and work to. It is about having a processing system and whether it’s your Gantt chart, your project management, your relationship with suppliers, customers and subbies [sub-contractors] is just good process, good communication and responding as you get that information highlighted.
Bosco Anthony:
What’s the holistic impact of not properly back costing items to a job? I mean, yes it impacts the revenue side, but what are some of the other things that it impacts from a business scale?
Darren Wallbank:
Where you aren’t back costing, you are probably constantly making the same mistakes and you could be losing money on the same type of job every time, but you don’t even realise you’re doing it. You think you’re making money on that job, and you could be making money but you could be making a lot better money because you are actually fixing the areas or the tasks within the project that need to be fixed. One of the things I enjoy is when I get rung by some of our customers’ accountants saying that they are surprised how fast the margin improvements happened for their customers as they put the software in because they suddenly are reacting quickly enough. If you can get that margin improvement happening, because you’ve fixed that inefficiency, that really starts to improve the bottom line for a builder.
Bosco Anthony:
Should builders do takeoff themselves or should they pay someone else to do it? What’s your thought process around that?
Darren Wallbank:
I think that comes back to individual builder. Some builders have got that background, they’ve got that skill set, so it makes sense for them to do it themselves, and they can do it quickly. For other builders, it actually may be better if their time is spent running jobs or even in some cases being on the tools with the team and outsource that sort of functionality. Last month we had the biggest month we’ve ever had where we did builders’ takeoffs.
Darren Wallbank:
With our product you can do your own quantities, we can read it from a QS or you could use us to do the takeoff. We are finding more and more builders are using us for that service because they’re recognising where their time is best spent. They say, “Oh, where is my time spent?” One of the biggest areas that we have in our software that still surprises me and that gets builders excited is our invoice processing system.
Darren Wallbank:
When a builder’s on our software, they will not have to process supplier invoices manually. We actually read all their supplier invoices through our technology, we process them into the system and back cost them to the job so we can show the profitability and then we feed that straight through to Xero, basically. We actually save a lot of hours on that. I remember getting rung by a builder on a Saturday afternoon and he said, “I just spent three hours on processing supplier invoices. What’s that system you’ve got? Because I never want to do that again.” So we put the system in and now he doesn’t do it and so we’re saving admin time and saving the builder’s time.
Bosco Anthony:
It sounds like what you’re saying is that you really want builders to be on top of the things that they’re really good at. Do you believe that being a specialist at certain jobs for a builder is a good way to go or should they be a generalist?
Darren Wallbank:
I actually think specialist is the way to go, once you understand what you’re good at, but you won’t understand that until you’re measuring it well. It’s like if you don’t measure it, you can’t improve it. That’s what we tend to see. What I’m seeing more and more with the clients we’re dealing with who have been on this software for a while is they might have 20 or 30 jobs in there, and they’re starting to see actually five or six jobs that work really well for them. That happens to be this sort of job, therefore they start to focus their energy into that area.
Darren Wallbank:
I think the other benefit that I tend to see is that they then start to be known for being specialists in that area. Customers actually will be more attracted to them because they’ve got a reputation in that area. It’s more than just efficiencies and profit, it’s actually building the business, building the brand. I think there are real advantages in it and efficiencies in just the way they run their business.
Bosco Anthony:
How do you measure what jobs are the most profitable long-term? When you talk about measurement, do you use the tools, do you use programs or can you assess that in a different way?
Darren Wallbank:
No, for us, because of my accounting background, that’s one of my passions in that area. We want to be able to show a builder where they are making or losing. We absolutely do that in our software. We do it. You could price your job two months ago. We can tell you in our software today where you are versus what you priced, what your cost was, what you quoted your customer. We can show you that right now, based on everything that’s in the system. But we can also show you where it’s forecast to finish and at the end of the job, we’ll actually show you where you are up or down on that job. You’ll absolutely understand all the financials around it. There is no excuse for maintaining a common problem. What we also do with that now is we enable that to be opened up based on what the builder wants to do for their client.
Darren Wallbank:
One of the areas we find is as a builder gets to the end of the job, it’s quite common to have a disputed invoice. Their client is asking, “Why have I suddenly got an invoice for all these extras, all these variations at the end when my budget was $x and I’m suddenly $50,000 over?” Getting paid that last invoice can be quite difficult for builders. It’s important to have a customer portal and have that forecast position available to show the customer so they are aware that this is where the job’s heading for and there’s not a surprise at the end, where suddenly the cost is blown out. I think having your finger on all those financials is just vital for builders.
Bosco Anthony:
Why is it important to specialise rather than generalize from a pricing perspective?
Darren Wallbank:
I think it enables you to do a couple of things. One, you’re going to get efficiencies probably in your purchasing and the way you get quotes from your subbies because you’re going to get that economy and improvement by just knowing what you’re doing in those areas. Two, you’re going to have your finger on the way you price. You’re going to know actually based on your history, because of the way you’ve measured it, these jobs work for you and you know which parts of the job have got risk in them or where you should be allowing maybe a larger buffer or contingency in this. You just have a better feel for how that job’s going to work and you focus your business on that.
Bosco Anthony:
When you talk about focusing your business on the jobs that work, should builders then find out what their most profitable jobs are and then tend to stick to them? Is that something that you recommend?
Darren Wallbank:
Yeah, I would. That would be my recommendation because if something’s working, just keep working on it and work out how to improve it and just grow that. Part of that also comes back to what’s the builder’s view on where they want to get to? Having dealt with lots of builders over the years, if they want to grow, then they’ve got to have a clear understanding of what works for them, what doesn’t, good processes, and put that in place. It just comes down to what their outcome and view are. I think if they’re focused, they’ve got specialists, they’ve got good systems, they can scale it. It’s really interesting. I’ve seen over the years builders as owners of their building businesses can get to a certain size but then they’ve got to make a decision as to whether they grow or not.
Darren Wallbank:
That’s whether they put a partner in the business because there’s a certain milestone that you have to actually make those choices and decide, “Yes, I’m going to go for this, I’m going to go for the next level,” or, “No, I’ll stay where I am because I’m comfortable with that.” But to make those decisions, you do need to have an overview and a feel for all your financials in the business. What we try to do is to make that as easy as possible for the builder, because builders aren’t trained accountants, so let’s put all this information and this process together in a way that is easy to use and not complex.
Darren Wallbank:
That’s one of the things I believe we do really well versus our competitors. In a number of cases we’ve simplified the processes, understood what is critical rather than trying to get into a whole lot of depth. We do that by working with our builders. We’ve got hundreds of guys on the software who give us the feedback and we react very quickly because if it’s not simple, they just won’t use it. It’s got to have what they need, but it’s got to be kept in a way that they can do it.
Bosco Anthony:
Right. Do you end up limiting yourself if you focus on a specialty? This is for the critics out there who might say it could lead to limiting your business opportunities.
Darren Wallbank:
No, I think like any strategy, having done a lot of strategic planning, you’ve got to keep nimble. If you’re specialising in an area and the market’s moving away from you, then you’d better react to that and you need to have your finger on it. Or if that part of specialisation is down at the moment because people aren’t doing curved rammed earth homes, then okay, can you move into another area?
Darren Wallbank:
I think you have a focus, but you constantly review what that focus is and you have your plan around the business to react to how the market and everything’s moving around you. Again, it comes back to that definition of insanity. You should keep doing this as long as it’s doing well for you, but you’d better know it’s doing well for you. But if it stops doing well, then don’t keep doing it. You need to change. And every good strategy should be doing that and being reviewed constantly.
Bosco Anthony:
I could talk to you for hours around pricing, but I’ll ask you one final question and it’s around Builda Price. What can builders expect coming down the pipeline from Builda Price and what are some of the things that your team is focusing on for the future?
Darren Wallbank:
We’ve got some pretty exciting initiatives. Because I come from industry that plays at the supply end right through, we’ve got some stuff that we are going to bring out over the next year or two that will be surprising to the industry. But I think the key we’re focusing on at the moment is to make our product what we call a single solution. We want to make it smooth. We’re releasing a lot of stuff, so we just need to know that that’s working well, and we rely on our feedback from our builders.
Darren Wallbank:
What we will be moving towards is just adding more and more to the solution. One of the exciting things we’ll be looking to bring through with some of our product is the ability for a builder to understand not only their own jobs, but understand how they rank or how they look compared to other builders in their area.
Darren Wallbank:
Because one of the things I’ve learned over the years, if you can understand other players in your industry, you can learn from that. What I’ve seen with builders, which probably still surprises me, is they will work together. One of our biggest sales techniques is builders referring other builders to us. They’re not scared to help their mate down the road. I think in the financials we can bring information there that will enable a builder to understand, “Actually, how do I rank against my friend down the road? What’s he doing better than I am? Should I go and chat to them about these areas?”
Darren Wallbank:
We’re going to bring some exciting stuff through in that area and that’ll come out pretty quickly. We are dealing with a number of suppliers and working a lot on the integration. Now, one of the things we heavily focus on is our integration into Xero. We only back Xero. We didn’t back MYOB because we saw 95% of the builders we had coming on were using Xero. We’re working heavily to make sure the products work well together seamlessly. And we’re doing that with some other bits of software as well. What you’ll see from us more and more is the ability to have one solution that will do what you need in your business as opposed to having four or five different apps trying to do it.
Bosco Anthony:
Well, Darren, that was very insightful. I hope our listeners out there and builders specifically will have some tips on how to prevent pricing mistakes. It’s been a pleasure having you and I look forward to having you back on the podcast in the near future.
Darren Wallbank:
Awesome. Thanks for the time. It’s great.
Bosco Anthony:
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