This week Wade, Stephen, and Rob are discussing how to find profitable jobs, especially in today’s competitive environment.
We cover how what you need to do to make sure a job will be profitable (hint: don’t just go by a gut feeling), how to analyze and rank past jobs to find out what type of work you should focus on, and what you can do to discover and win more of the profitable jobs you want.
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
Rob Williams: [00:00:05] Welcome to the Contractor Success Forum! Today, we’re going to be discussing how to find profitable projects.
The Contractor Success Forum discusses financial strategies for running a more profitable, successful construction business. Stephen, I was listening to our podcast this morning, I just got last week’s.
And did you know, Wade and I talked about this last week. Did you know that when you’re looking at that podcast, you can touch your finger on that thing and you pull it up and what’s right below there when you do that, Stephen? Show notes. There are show notes down there! For years I didn’t know they were down there, all that valuable information with our information and all the great extra resources you could be getting about our shows.
It’s so cool. And oh, one more thing I was so excited about. Wade knows this because we talked about it last time. Do you know, what else is down there? There’s this little box and it has a little arrow up there. And do you know what that does?
Stephen Brown: [00:01:12] I’m stumped.
Rob Williams: [00:01:14] It shares it! You can share that with your best friends or your best contractors and sometimes it depends on whether you’re on Spotify, because I listened on Spotify and I saw it and you can just share it just right there. Boom. The text message comes up. Just send it right there. Or I was looking on iTunes, you can do that. And there are three little dots right there. All you gotta to do is hit those three little dots.
You don’t even have to scroll down and boom, and then you can share. But anyway, that I was so excited about that. I’m sorry. I had to do that. I know. I know. I was actually going to ask you about your fishing trip. How was that?
Stephen Brown: [00:01:52] It was fun. We caught a, beaut. I’ll have to tell you about that. We had a good time. We rented some boats and floated up and down the river and spent a lot of time just relaxing and hanging out.
Rob Williams: [00:02:07] All right. Well, cool. Well now you’re back with the great three long-term construction industry professionals. That’s us! So first we have Stephen Brown, a construction bond agent with McDaniel Whitley Bonding and Insurance Agency with over 30 years of experience, underwriting and placing bonds for you as contractors. And Wade Carpenter with Carpenter and Company CPAs helping contractors nationwide to become permanently profitable for over 30 years. And I don’t say this enough, but you know, he actually does job costing remotely for these contractors. That’s such a cool thing. And then me, I’m Rob Williams, your profit strategist with IronGate Entrepreneurial Support Systems, driving profit in contractors’ businesses with decades of vertical integration as a contractor, a manufacturer, an aviator, and a financial strategist in the construction industry. Whoa.
So today we’re going to talk about finding profitable projects. Man. That’s so valuable. What does that mean to you guys?
Stephen Brown: [00:03:23] I saw a photograph once, it’s- it’s out there and it’s a boat. It’s a yacht. And the name of the dinghy is Contract and the name of the yacht is Change Orders. You know, that’s kind of the secret of profitable jobs is getting your money, isn’t it?
Rob Williams: [00:03:42] Yeah. I never figured that out. I used to hear that for some people, the dinghy was the contract and the change order was the yacht. I don’t know. I didn’t know how to play that game.
Stephen Brown: [00:03:53] Yeah, no, the dinghy is the, is the contract and the change order is the yacht.
Yeah, no, that’s
Rob Williams: [00:04:01] Yeah.
Stephen Brown: [00:04:01] Yeah, that’s my point.
Wade Carpenter: [00:04:02] Just got to get those change orders signed or you don’t get anything out of them.
Stephen Brown: [00:04:05] Yeah. Get them in writing. A verbal change order is worth nothing.
Rob Williams: [00:04:11] Yeah.
Stephen Brown: [00:04:12] So profitable jobs, finding profitable jobs, going out there, you know, it’s competitive. Everybody’s competing for the same work. How am I going to do that? And, as we were talking about this earlier, how do you know your job’s profitable?
Wade Carpenter: [00:04:25] Well, I guess I can definitely take that. I mean, if you don’t have good books, if you don’t have good job costing, you may have a gut feel, but a lot of times that gut can deceive you.
Rob Williams: [00:04:36] Yeah, that’s right. And Wade, you were talking earlier about when you have that job, cost, you know, where do you start? There’s two different standpoints from where you go, where do you even start? I think. From Wade and I’s perspective on finding profitable jobs, first, I want to see what has been profitable in the past, for you as the contractor, listening to this.
So take your own company and your books, so what for you in your special niche and your abilities, has been profitable? And Wade, as a job coster, tell me a little bit about that. Do you line them up or rank them? Tell me a-
Wade Carpenter: [00:05:20] Well, sometimes it’s forest for the trees and when you’re in the, in the field doing the jobs, you don’t see what you’re really making money at. And, if you sit down with your CPA or whatever, and you’ve got good books, just go segment them. It may be like residential versus commercial versus, different types. Like you may be doing churches or retail, or any number of things. I want to explore more on this talk today about, where people can find the jobs and what they’re good at.
Rob Williams: [00:05:50] Yeah.
Stephen Brown: [00:05:51] A lot of times too, you know, you go through some hard times on some projects that you really shouldn’t have taken on and you’ve invested in them. You may have invested in additional equipment, personnel and other things that are dragging you down. And I heard someone say the best advice is get rid of that. Move right on back to what brought you to the dance. And that is what you do best day in and day out. That’s your core and that’s what you have to sell. And that’s the only thing that allows you to really provide quality on a consistent basis.
Rob Williams: [00:06:24] I’ve had a bunch of consultants over the years, and I think the most common sense thing to do most people can figure it out is to rank your jobs. If you have a spreadsheet and you put the profit and you go from most profitable to least profitable, you might rank them by percent, you might rank them by raw dollar, it’s interesting to see both. But it’s interesting to see what is the bottom.
But, what about some of those other factors? The pain in the ass factor. I think we might start getting an E for explicit for that, but yeah, on our podcast here, but you can rank it that way. You know, How much did you enjoy working with those people or that kind of job? Is that something you like to do, but that affects you emotionally as your effort. And then, did you have to spend a lot of time learning that? That might be another column.
There may be a lot of extra overhead that doesn’t match that overhead percent you put in there. I don’t know whether 15% or 20%, whatever – 10%, whatever percent you’re putting in there for overhead, that may not be accurate on some of those jobs. So that job ranking may be off because if it’s a job you’ve done over and over again, you as the owner probably didn’t have to put much, you might’ve been playing golf the whole time during that, because you already knew how to do everything. You don’t have to study and learn these things. So, but don’t, don’t forget those extra factors.
Stephen Brown: [00:07:44] I mean, Wade should you rank it by gross profit or net profit? Does that matter?
Rob Williams: [00:07:50] I would say both, but what do you think? I
Wade Carpenter: [00:07:52] I go by gross profit, as long as you’re consistent, because go by net profit and it depends on how you allocate overhead. You could have a huge job that could look really bad because you dumped a whole bunch of overhead on it.
Rob Williams: [00:08:07] Yeah, I would do gross profit too, because that factor that I was just talking about, because for your books, your overhead is allocated, but maybe for your effort, it’s not really allocated appropriately to each individual job because most of your overhead, you’re not tracking every minute of thought of everybody in the office to the jobs.
Most people don’t.
Wade Carpenter: [00:08:30] I think a lot of people still, in construction, they still chase the big job. And the biggest job may not be your most profitable job. Some of the ones that have we sit down and look at it and say, the job’s over a million, but we take longer and we tend to stretch those out.
And the overhead catches up to us on that. But you know, these other jobs, like, 300 to 500,000, I’m just making something up here, but we find out those were the most profitable because we get in and get out and we get paid fast.
Rob Williams: [00:09:00] We used to have one house, I think it was the 1 0 1 plan. It was a thousand square feet. We made more money on that house than we did on these 2,500 square foot houses. I mean, we had it down pat and we could build it in days.
Stephen Brown: [00:09:18] Yeah, but I understand that, some contractors, they want to show their prospects, the people that they’re out there to impress, what their capabilities are. If you’ve already done it, it speaks a thousand words. I’ve already done it. But finding that profitable job. Some people will argue, well, competitive bid jobs with a bunch of other bidders where they take the lowest bid, I’ll never make money on that. If you just give your price and you don’t know what your competitors are doing, it’s frustrating.
Sometimes it costs money to bid work, but at the same time, getting in there and developing your relationships, finding out, making sure you know everything that’s going on in your operating territory and finding jobs that are out to bid from subscription services, like Dodge, CDC or local builders exchanges. Stuff posted on federal websites for federal work and your local municipalities, you know, in your region, what do they have coming out to bid?
And another thing is a lot of successful contractors and subcontractors develop a relationship with architects and engineers. You know, If you’re going to bid a job, their information’s right on the cover of the bid specs. Give them a ring and talk to them a little bit, get to know them. Next thing you know, you’ll swing by the office to visit with him and you’d be surprised. Architects generally, unless their swamped, love talking to you about what’s going on out there.
Rob Williams: [00:10:43] Yeah, so I was going to say that was my number two thing. Once you get all those jobs lined up with the prices down there, then then you figure out how to find new jobs. And I think one of my thoughts was, are there qualifications to bid it? Who gets to bid this? Do they need to be bonded? Do they not need to be bonded? So are you competing against people that are just trying to find a labor job for themselves? Or are you, is there some kind of qualification process?
Like I’m sure a lot of those federal jobs have some kind of qualification process that might narrow it down. Although I just was reading a friend of mine’s book that was talking about some of those federal jobs. The margins are actually lower because they’ve got so many people bidding them. So it depends on which jobs they are. Wade, can you chime in there?
Wade Carpenter: [00:11:29] Yeah, well, absolutely. When you’re talking about bid jobs, I mean, that’s what everybody complains about that everybody, especially when times get tight, everybody’s bidding, and they drive the margins down. And the ones that win are the ones that are really good at what they do. They may have a niche where maybe they’re doing water treatment plants, or schools, or a certain type of retail, and then there’s other ones that, they get really in good with, a big retailer and they do all their stores. They can get in and get out and they know exactly what they need. Those are the ones that make really good money .
Stephen Brown: [00:12:02] Right. And I’ve heard other contractors say, don’t worry about what your competitors are doing or whether their plates full or not. Bid your numbers for the work that you need to do, or don’t do it at all. And I understand we were talking about robbing Peter to pay Paul on certain projects because of your overhead expenses, your payroll costs and so forth. And again, that’s all about what Profit First has to offer. Being able to determine that.
But going after profitable work is just a lot about relationships. A lot of contractors have certain owners that they work for exclusively and they stay very busy year in and year out and they quote their profits on there and it’s done.
Then there’s construction managers that are predominantly concerned that you keep it within budget, but that the work is quality work. It reflects on them if it’s not. And then you’ve got GCs that will bid sub work, subcontractor trade work, just planning on subbing out the labor only. And right now the market’s kind of hard and that’s kind of hard to do so the subs are in a stronger position to make more profit.
Rob Williams: [00:13:15] Stephen, I remember in ’08, ’09, when those jobs were ridiculously competitive, because you had all the residential guys coming to bid the commercial jobs and a lot of those jobs, they were just bidding to keep their labor working. So they were really doing it cheap. But I do remember a lot of my friends that had been in business a long time, they were, I would guess we call that a qualified bid or a negotiated bid where they were just doing work for an owner, and they, they were the only one doing it. Whether it was cost plus, or just a bid system. Can you talk about that either one of y’all? About getting qualified for that? It’s not really qualified or negotiating if you’ve got a niche and a reputation. All three of us were talking about how building your reputation can go a long way too, to get some of those profitable jobs.
Stephen Brown: [00:14:05] Yeah, certain areas of the country, depending on logistically where the distribution center is just have industrial plants they do service work for. They make their profit, but they have to be available 24/7. And there’s always kind of a trade-off. I think that you’d be surprised at some of the federal or municipal jobs that are right up your alley that just drop in front of you, that you may or may not know about and have missed an opportunity for that.
Rob Williams: [00:14:35] What do you think Wade?
Wade Carpenter: [00:14:37] Well, I was just sitting there thinking about what you were saying. If you’re a general contractor , your subs can make or break you too. And some of the GCs– I’ve got one that does about 150 million a year and his subs love him. They pay well and the subs take care of the GC.
20, 25 years ago, I had a $600 million general contractor and he was one of the ones that he would go through the subs and, nickel and dime them and sue them. And the quality of work there, it just, you know, it’s a well-known name. If I threw it out, you guys would probably know it across the country, and they nickel and dime their subs to death. But sometimes you get lesser quality because those guys don’t really care for the GC and vice versa, and it reflects on them.
Stephen Brown: [00:15:24] I think that’s a great point Wade. And not only taking care of subs, but your vendors, your materials suppliers. On a large pipe job where the materials are half of the contract amount or more, you’re going to need a better price than your competitor. And it’s that loyalty. You take those vendors, you pay them on time. You appreciate them. You take time to have a relationship. They make money off of you. And I I’ve had customers that have treated me like I was the most important vendor they had and, I would bend over backwards to do anything for them. And you know, that all goes into estimating a job.
Rob Williams: [00:16:03] Yep. Yeah. Those vendors can actually be your qualification to get in there too, your unique qualification because you work with them. I do have one good friend contractor that, his whole business is based basically on his vendors’ expertise. He qualifies because that vendor is such an expert at it and it makes his life easy as well. So, get those good relationships going. I know this is not really about the vendor thing, but that does have to do with getting the good jobs.
I know we’re about out of time, but that one other thing that we talked about is profitable jobs as contract provisions. We could do a whole episode on that. And, you know, what we already did! We just did an episode on contract provisions. So we won’t talk about that cause we just did it. So go back and listen to that one.
Stephen Brown: [00:16:48] Hey, there’s some scary contract provisions out there. So read your contracts.
Rob Williams: [00:16:53] Yeah. Good episode there. Yeah. So go listen to that one.
And anything else to add? Did we leave out a whole subject?
Oh, supplier bonds. That was one other note I had that’s, to make a job, especially right now because I’m just thinking about material we’ve– up, up, up. And I just read yesterday that this week we’re having a massive lumber drop. So, it’s just crazy. So how do you protect your profit with that? Which I think we’ve had some other subjects about that. I think that’s mixed in some of our other episodes.
Stephen Brown: [00:17:21] You can make your material provider give you a supply bond to lock in your prices, according to your agreement. It’s just a third party bonding. The bonding company guarantees it. And I really kind of recommend it if those materials are just stuff that you can’t get off the shelf.
And because of that, they have to be made for your project. And they’re not easy to get. A supply bond is a great way to remind them that they’re going to do exactly what they say in their contract and supply that exactly the way they said. It’s just an option. It’s not very expensive to require a supply bond.
Rob Williams: [00:17:59] And that supply bond may take some of your bonding capacity off of you and displace that. Does that work that way? Okay, well, cool.
Well, this has been a great episode. I know we’ve, we’ve actually gone over– this subject, we thought it was so small, and we’ve already gone over our time again!
So it’s great having you guys here at the Contractor Success Forum. We have Wade Carpenter with Carpenter and Company, CPAs.
Wade Carpenter: [00:18:26] Yep.
Rob Williams: [00:18:26] Appreciate you being on.
And Stephen Brown with McDaniel-Whitley.
And our web page, it’s already in the show notes, is, go to ContractorSuccessForum.com and see us. Our information’s there. You can look at all these episodes here and download them and get all that valuable– just because it’s free doesn’t mean it’s not valuable. So, it is valuable. So thank you guys for being here and we’ll see you on the next episode. Thanks.