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Episode 32: Estimating for Remodelers Decoded w/ Michael Stone

In this week's episode, Spencer hosts Michael Stone of Markupandprofit.com. Michael is a business coach in the construction industry, and he has over 58 years of experience. We don't mean to date you Michael, but that's an impressive feat!

How to Estimate a Remodeling Job: Tips from an Pro

Michael shares some absolute GEMS in this episode that you cannot afford to miss. We mean that literally.  Michael talks us through his strategies for getting your Estimate Error factor to 2%, he talks about how to structure your payments to keep cash flow healthy, and how to price your jobs so that you maintain a consistent profit, even when things don't go to plan. 

Like we said, you can't afford to miss this episode.

Check it out here on Builder Funnel Radio.  

 

 


  • 3:30 - Estimating Jobs, Reducing Your Errors
  • 9:20 - How to Determine Your Markup
  • 12:47 - How to Clean Up Your Sales Process
  • 26:50 - Here's How to Guarantee You Get Paid
  • 36:00 - Michael's Parting Advice

 

Related Resources:

Full Episode Transcription

Note: this podcast was transcribed automatically and may contain minor grammatical errors and missed words.

 

Spencer 0:00
Welcome to Builder Funnel Radio. Here you'll learn about how to grow your building remodeling or contracting business. If you're not growing, you're dying. So we want you to always be in growth mode. Remember to get notified about new episodes, hit the subscribe button on your podcast player. That way you won't miss any of our expert guests that we bring on the show. In addition, as a special thank you for being a listener of the podcast, we've got some special bonuses for you just go to builder funnel comm slash podcasts. Again, hit that subscribe button to stay in the loop and go to builder funnel comm slash podcast for your special bonuses. Hey guys, welcome to builder funnel radio. I'm your host Spencer pal. And on this episode number 32 I host Michael stone of markup and profit. And in this episode we dive into profit and we talked a lot about markup. We talked about job costing, we get a little bit into sales as well and I think you'll really get some good actionable Tips out of this episode. Again, stay tuned for 32 with Michael stone. Hey, Michael, glad to have you on the show today.

Michael 1:07
Hi Spencer, thank you for inviting us. We really appreciate it. Hope we can help here.

Spencer 1:11
Yeah, I'm excited. And you know, before we we jump into the world of estimating today, I'd love for you to kind of share a little bit of your backstory and you know, how'd you get into the world of construction?

Michael 1:26
Oh, it was kind of a force entry thing. My father had a large construction company in southwestern North Dakota. And this was back in the mid 50s. And at that time, when you were you are a young male and you were in grade school or high school and your father had a business, you work for him period and the conversation so yeah, I got involved with him and you know, I started sweeping floors and fussing around cleaning the shop and cleaning trucks out. It was a large electrical end and H fat company and I started doing all the cleaning and you know, I started going out on service calls and other stuff with guys and just gradually progressed from there to from electrical to plumbing work to concrete and siding and roofing and windows and everything else building houses, you name it. So it's just been kind of a been at this 58 years now. So it's just been a progression from one step to another. I can't like keep looking for that next step of retirement, but I don't think it's going to be anytime soon.

Spencer 2:28
Yes, having too much fun.

Michael 2:30
Oh, I love what I do. You see the see the families, we help. And that's what Deb and I have built our business on is helping contractors take care of their families. I mean, that's our that's our focus. And it when you get a nice note from a guy or a gal, either one. And you know, saying thanks for all the help, and we're doing much better. I mean, doesn't get any better now. Yeah,

Spencer 2:57
yeah, that's awesome. And actually a pretty good segue. into our topic today, which is, you know, estimating and, and profit, I mean, a big part of making a profit and making sure you're running your business so that you are is on the front end when you actually, you know, quote, an estimate the job. So I'm curious to kind of dive into that with you today. And how do you in general, how do you approach estimating?

Michael 3:22
Well, I've taught estimating in 45 different states on just a rough guess, roughly 1000 contractors over the years and, and most of them are, you know, I love the guys but you know, they don't organize their thinking process to do estimates, estimates should be you develop a system, and then you use that system the same way every single time. You never deviate from it. And I found over the years that the guys that do have a good system and stick to it like glue are the ones that have the lowest error factor. And to me, that's when I look at an estimate I did first thing I look at You know, alright this is the estimated amount This is the actual amount of cost of all the outputs the error factor that tells me how good the estimator is and all your butts in there I mean it's that that that numbers that's what's important okay? Take your your estimated amount subtract from the irrational not subtract your estimated amount in the difference divided by the estimated amount is your factor. That's that's basically what the math formula is.

Spencer 4:27
Gotcha. And so do you look for certain error factors or when do you know you know, you're you're in a good spot when you know you're in a bad spot,

Michael 4:35
it's really easy to tell if they are factors under 2%. The guy knows guy or lady is the case may be know what they're doing. They're organized. They're doing things the way they should and they will sell them have any problem. Now there may be problems on the production of things, but on the estimating things, our numbers are right and starts creeping up over 2% and unfortunately, that applies to most contractors and they are a factor gets in, you know, most of us Like if they can get within 5%. And the good many of them are, are factors the 10% or even higher, which is

you're not estimating and you're guessing. Right?

Spencer 5:11
Yeah.

Michael 5:12
So I'm being mean or nasty. Yes. That's just the reality of it.

Spencer 5:16
Yeah, that's the raw numbers, right?

Michael 5:18
I mean, you can look at an estimate sheet and tell right now, where they asked me or knows what they're doing look, but numbers when you start seeing zeros at the end of things, you know, they're guessing.

Spencer 5:26
Yeah. So if you see an error factor that's north of 10, or you know, pretty high, you know, how do you start to course correct, you know, with, you know, moving forward.

Michael 5:35
Oh, well, if, if I'm being hired to help the individual then we sit down. So right now, let's see you do an estimate. And, you know, I start making notes and usually I can go about five minutes before I go crazy. Little things like, first thing you gotta do. You turn your phone off. I don't mean on buzz. I don't mean you know, have somebody else answer the phone. I mean, you turn the darn phone off. That's the That's a distraction, you don't need that. That's especially mobile phones, followed by a landline that should be turned off, you're going to sit down and do an estimate and make sure you don't have to go potty and you make sure you eat your lunch or breakfast or whatever it is, you're not hungry. You sit down, you should have a good set of pictures from the job that you're looking at to do the estimate on. They should be loaded on your computer monitor. And so when you sit down to do your estimate, and you pull up your estimating program, you should be able to flip back and forth between the pictures of the job and the the estimating program using and this idea well, I can remember what you did. You don't remember, the human mind is not capable remembering all the details on the job the scene once maybe twice. You see that's what I mean by doing the same thing, same way every time. Take a good set of pictures you get them up on like when I'm doing estimating. I have two monitors and try me and the one right in front He has my estimate sheet on them often right has the pictures on I just go back and forth and scroll down to the pictures. So I don't miss anything. And that'll go a long way. And the other one is our cardinal rule, I believe it's number six, and that is to get a written quote on anything over $300 on the cheap, and that's from subcontractors and suppliers. Another unwritten rule is that when you figure labor, or in house stuff, if you will, then you as checked by a certain person, and that is maybe your sometimes every time and you do that, you'll see your effect and that and using an Estimating Software program, you'll pull your estimating error factor down into the 2% range real quick. We have a number of coaching clients that ever arafat's with less than 1% and that's consistent over a year's term. So we know what works. That's great.

Spencer 7:55
Yeah. And I like how you you know, you can see the process that you're breaking down and Even just getting down to the basics of turning the distractions off and those sorts of things when you're dealing with these kinds of numbers, I mean, you can make a simple mistake or an easy mistake, but it can turn into a huge number. You know, at the end of the end of the day, I'm just

Michael 8:16
thinking about the case. In particular friend of mine, he was called back to the middle of Midwest someplace around Illinois somewhere and or Indiana. And this guy was losing money on every job he estimated. And so my friend went back and sit down in Washington do an estimate and took him like five and a half hours to do the estimate. And so my friend and sit down and he did the estimate took him an hour and a half, and it was over $7,000 job cost difference. And the reason once the other guy he was trying to help was constantly picking up his phone trying to talk and he left office people and everything else instead of staying focused on what he was doing. And so, you know, when you got a room addition 60 or 70,000 bucks and you got a $7,000 on it, that's over 10% right there. And it was all caused In this particular case, it was caused because the guy was constantly picking up the song. This is why I say you don't put the phone on. Does you turn the phones off? Yeah. You're good to go.

Spencer 9:10
Yeah, he'll be in good shape. Yeah, yeah. So let's talk about mark up, you know, because I think, you know, that's another big piece of making sure we have good profitability. I mean, how do you go about figuring out what the market should be? You know, I think we hear a lot of industry standards and different approaches. But, you know, what's your approach to that and figuring out for each company how they should decide on that?

Michael 9:33
Well, the only industry standard for markup is its sales price divided by job costs equals markup that you're using. Right now that isn't necessarily how you calculate it is calculated by taking to get to your markup you take your I'm I got to stop and think through this. Bear with me here. You take your sales price, subtract your overhead profit, which gives you your job costs. And so then it's just a simple matter division. I think that the thing that we're a lot of people miss is they take markup as a percentage, and it's not a markup is simply a number that you use to multiply times your job costs to get to the sales price you need. That number must cover your overhead expenses and your profit. Okay, now I guys don't, you know, they get start busting worried about well, that number is too big. It's too much. It's too We are not competitive. No, sir, you gotta put that crap out of your head because that's what it is. You have an option of being competitive in this business, you do not have an option of being profitable. You're either profitable or you're gone. And so, you know, I tell guys quit bacin where if the numbers 1.5 if it's 1.9 if it's 3.6, who cares if that's what it takes to cover your overhead and profit on top of your job costs. So you have a sales price and you can sell build a job, pay your overhead and have a decent 8% Net Profit and use it. quit worrying about what you this this number in your head, just forget that stuff that's got nothing to do with it. The only thing that counts is Do you have enough money in the job to cover your job cost your overhead and make a profit? Besides, if you don't make a profit your bond, I mean, yes.

Spencer 11:16
Yeah. Yeah, it can't last forever like that. Yeah,

Michael 11:20
that's a long winded answer. But essentially, if you're if you got a good profit loss statement, you can take your total sales divided by your cost of goods sold, and that will give you your markup, which is everything below the line.

Spencer 11:32
Yeah, that makes sense. And you know, and you're looking at your current overhead and you're looking at I mean, you can essentially decide your profitability, hey, this is where I'm trying to be as 8% 10 or, you know, you mentioned eight, and then it just becomes a math equation. So yeah, it's what do you say to those people that maybe they're doing, they're doing the math and they're saying, Okay, this is what it's saying, I need to be, you know, selling at the selling price and they're saying, it's way it's way too high. Is that just all head trash? Or do you sometimes need to dig into overhead? And maybe that's a little bit bloated? Or, you know, what do you think they're known

Michael 12:10
as head trash, or garbage? If you want nothing to do with it, it's whatever the number is. That's what you got to use all kinds of contractors that won't argue with that, and there's all kinds of contractors that go broke every year. I mean, they, that's not a coincidence. Okay, this stuff is this is not rocket science is plain, basic sixth grade mathematics. You either charge enough for your work, or you're going to go broke.

Spencer 12:36
I love it. I love it. Yeah. And I think we, you know, you get stuck in I mean, I call it head trash, or you can call it a lot of different things. But I think in our minds, everyone's different, but they think a certain number is a certain way. It feels high, it feels low, it feels just right. And, you know, at the end of the day, if if you're pricing it at a certain price and it's turning people away, then those maybe aren't your ideal clients. Is that what What you think are the

Michael 13:01
Yeah, that's part of it. But if you're giving prices in this turning people the way, you're right, it's probably not your clients. The other side of it is, maybe you need to go clean up your sales presentation, because in many cases, the best salesperson will get the top dollar for that job. And they can be anywhere from 10 to 30, or 40%, more than anybody else. You know, when I was still in sales full time, it was not uncommon for me to get 10 to 20% more for the same job than then all the competitors that were quoting it that I worked really hard at making a good presentation. So asking, you know, tons of questions up front, you know, but the other thing is this a little bit on the sales issue is that most contractors are so busy talking and giving all this advice and free design and all this other stuff. And that's not what we're doing on a sales call their sales calls where you go and ask questions to zip this and listen to the answers. They will tell you everything you need to know to get them from where you are now to a design contract to a final contract for whatever job it is you want to do.

Spencer 14:09
Yeah, yeah, I love that. And that was one of the things I wanted to talk to you about, because I see on a lot of guys websites, you know, click here for a free estimate call for a free estimate. Yeah. What are your thoughts on the free estimate?

Michael 14:23
Free only attracts people who are looking for something for nothing. You know, and that's it under the nice way to say it. And you shouldn't have free anywhere in your website shouldn't be on your traction banner, any of your printed material. You don't need free, what you need is a good presentation. And if you do that, you don't have to use the word free to see a free acessory you're an order taker hoping that you know, this free stuff will get you more work well if you know if you have to get a job from somebody that likes the word free. Yeah, you know, tell me there. There are whole focuses and I Price. Yeah,

Spencer 15:02
yeah, yeah, it's it's a great point. I mean, free attracts that kind of bottom of the barrel, you know, people looking for deals and discounts and the right way through. And yeah, I would imagine most people aren't in this business to be the lowest cost.

Michael 15:18
Well, now it's really interesting that the really good customers out there they know and understand that they're gonna have to pay a fair price to get the work done. That's how they got their money because they understand the business cycle. And then the people that want to keep prices, low prices, you got to cut your price, your price is too high. You know, those people don't understand this business. I mean, construction is a is a cost based business, you can only each job must stand on its own. Virtually all other businesses except one are market based businesses which you can lower your price on one site but then that that allows you to sell more of everything you have and of course you make out a little higher profit. Construction you can't do that construction to the job has to stand on their own time. So when guys start cutting their prices, you know they think they're in a market based business and they're not.

Spencer 16:10
Hey there, I hope you're enjoying today's episode. Just a quick reminder that this show is brought to you by builder funnel. We're a digital marketing agency specialize in helping Home Builders remodelers and contractors like yourself grow their businesses. We help you implement marketing and sales technology, such as marketing automation, and a CRM system, as well as drive more traffic leads and sales through strategies like content marketing, SEO, social media, paid traffic and email marketing. If you want to learn more and see if we're a good fit, just send a quick email to Hello at builder funnel calm and mentioned the podcast. I'll schedule a one on one website and digital marketing assessment with you where I'll take a look at your website. show you some areas where you can improve and we can see if we're a good fit. If you haven't noticed already, our company is huge on education, we host this podcast, create tons of videos, and create helpful blog posts to educate you guys on marketing and sales. I'll pack a ton of value into the website assessment. And I'll never pressure you to buy from us. Although we're confident you'll improve your marketing sales efforts by doing so, again, send me a quick note to Hello at builder file calm and enjoy the rest of the episode. I'm glad you mentioned that I think that's a really important point that probably a lot of people miss. And yeah, as long as each job stands on on its own, then you know, the rest of it is just math and it's going to work out and your bottom is going to look look like what you want it Yeah,

Michael 17:37
you won't be quite so quick to cut your markup either. If you know that job has to stand on its own and you ain't gonna make it up on the next one because there might not be a next one. Right?

Spencer 17:46
Yeah, yeah. And typically if you're cutting it, you're not willing to double it on the next one because

Michael 17:53
that's that's wishful thinking on the part of most of you know, they cut the price and listen, they'll cut it even more in the next one. First thing, you know, they're out of business. I mean, you know, we see that all the time.

Spencer 18:03
Yeah, yeah. So let's talk about price negotiation because it sounds like I mean, we talked about not doing free estimates. But I'm sure you know, you run into those customers, they love to negotiate, they love to get the deal, you know, how do you recommend people handle that, you know, when you come in and say, Hey, this is what it's going to cost?

Michael 18:21
Well, again, now this goes back to you know, you have this isn't something you can just tell him one time and expect to have its hit, you have to use this in your sales presentation. And that's normally in the first 30 minutes. I mean, you have to emphasize to them, that the sales price of their job is going to be directly related to the design they want and the and the selections they make of the materials, and other things that go into the job, or the design that they've come up with. So their selection of the design or their selection list and their design of the job is what determines the price of the job not me. So why I'm done and they say well we want to negotiate price and they say what would you do you want to price you want to do you want to negotiate price? Okay, fine. We're willing to do that. Do you want to go up or down? You want to go down? Okay? What do you want to take out of the job? Now you want to negotiate less to negotiate? What do you want to take out of your job to get the price down where you think it's right now if you want the price to go up, what do you ask me? You want me from for some more stuff? You tell me okay. I like to have a I can't remember just exactly how I did it. But when people start saying Well, I think your prices little high end and say let me check my price. Oh, you're right. My price is too high is too low. I made a mistake. We're going to add about 500 bucks to this shop. I'm just honored when I was out sewing and I didn't It was amazing how fast that negotiating stuff went away. I probably lesson jobs because of it. But you know, I didn't care. I don't want that kind of business. You know, because they're they're nickel damn money up front and they're gonna, you know, Diamond Cordy all the way through the job. It's just not worth it.

Spencer 19:55
Yeah,

Michael 19:56
yeah, it's almost there. This isn't you know, this I this is died this glorious came from a lot of sales calls

Spencer 20:02
that was a leftover from Halloween. I like a

Michael 20:10
long row, but it's been funny.

Spencer 20:12
Yes, yeah. Well I like that, you know, because you have to be able to stand behind your price and say, hey, what it is if you want to work with us, you know, this is the quality work we're going to do this is this is what it is.

Michael 20:24
Yeah. In our we do it. We do our two day class and we got with next week in Ontario, California. And, you know, we talk about stuff and guys are talking along with, you know, they're my relatives are my friends. And I have one thing that I use personally, every class, you want a friend, go buy a dog. You're in business to provide a service and make a profit doing it stick with that. Forget this trend stuff. And you know, guys listen to that, you know, all of a sudden it changes the whole attitude about how they're dealing with customers.

Spencer 20:56
Yeah, well, I think along that sentiment, you know, profit is is such an important part. It's a critical part of business. I would imagine though, you bump into a lot of guys that give excuses like this. And, you know, so I guess what are kind of the top complaints that you hear when somebody wants to cut a deal for a friend or whoever? What are some other things that people say? And then how do you respond to that

Michael 21:22
in regards to the price

Spencer 21:25
in regard to making a profit, because I think sometimes you know, people get into it for the the work the craft, whatever it is, and then you build it and it's your business and they start figuring that out that it's not just a hobby or for fun and, but sometimes people have a negative connotation with profit, and you know that that's greedy or bad, you know, so I'm kind of curious to hear what kind of

Michael 21:46
are you referring to all the stuff that the kids in school are being taught not by these so called knowledgeable teachers? Yes, I am. Yeah, I know. I don't want to bash the teachers because they do for most part, they do a good job, but they're in the theater. idea and this has been perpetrated, literally across the country that profits are bad. Well, you take the profit away from these companies, it was going to be a whole bunch of businesses failing. I mean, either make a profit or you're gone. I mean, that's the bottom line. And, you know, when, when people start one argue about prob, well, I think your price is too high stuff like, yeah, most of those things can be cured with the proper sales presentation. I wrote a book called profitable sales, a contractor's guide. And then I talked about asking, there's four basic questions you ask, and that is, you know, what do you want to do? When do you want to do it? Who's going to make the buying decision? And what's their criteria for picking their contractor and the budget for your job? Now, when you go through those four questions, and you get the answers, especially number two, which is when do you want to start and number four, which is what is your budget for your job? You get the answers to those questions. you're well on your way to getting a contract because you're eliminating all those objections and those uncertainties and you're building trust. With your customer, if you will. And if you make your presentation correctly, you you when you get to the point where you say all right now, all right, you want to be, you know, you got this kiss room, all you want to do it or you realize you're going to be somewhere in let's just say, you know, 75 80,000 raises, does that suit your family budget? And they say, Well, yeah, that's about what we thought good. Let me tell you how we worked from here and you reaching your bookcase, pull out your design agreement, and get to work on that. Now you've taken step by step right you and the design agreement as a small yes to get to the biggest, which is the contract for the job. But everybody wants to get in a hurry and start throwing numbers around everything. Just take a breath, slow down. take it one step at a time, if you can get a whole bunch of little yeses. And that's what big Zig Ziglar used to teach all the time. You get a whole bunch of little yeses. So when it comes time for the biggest, it's very easy to get it from.

Spencer 23:51
Yeah, yeah. I think a lot of people are making that shift to the design agreement. I'm I'm curious what you know, what do you say when you ask that And they say, you know, what's your budget? And they say, Well, I just don't know what this stuff costs, you know. So that's why I'm coming to you

Michael 24:08
just say, I don't know what it cost either. But that's not what I asked what I asked was, what is your budget? share with me what you would like to invest in your project right here. Okay. I don't know what's gonna cost you journalists got nobody knows what's going to cost because we don't know what's inside your head yet what your design is. So let's get let's get this cost up out of the way here. And let's talk about setting your budget because that's what we designed the job to remember I said earlier, we're going to talk about your we're going to talk about your design. We're going to talk about the the materials and stuff you want to put in this job. And that's what's going to determine the sales price, right? So let's what I'm asking you to do is turn that around. We'll start with the sales price. And let's work it backwards so we know what we can include in your design, and what materials that we can fit into that design. So do you get what you want? Why waste all this time with drawing plans and doing estimates? So the price is too high and we got to draw more plans, more estimates. That's a waste of time. Okay. I mean, I don't want a good contractor that follows that approach anymore. So, you know, we're going to set the budget, and we're gonna design to the budget, and we're going to move ahead with the project. And, and the, and the people, especially the home and building owners, and even architects, if you will, they're, if they're smart, they fall into contract right up front, they all work to one thing, getting the designers selections made and they end the design, that's the customer customers budget. And by doing that, God job gets done for less money because the contractor doesn't have to invest all this extra time. home on building owners are getting charged for it. They don't even realize it. When a contract, yes, you have three or four elements, somebody's got to pay for that. Okay. So, you know, the better the approach that that the contractor uses, you know, the less expensive the job will be but, but, you know, you can't expect the whole murder and all this stuff you got to you got to study and you got to learn a good process of asking questions and what questions they ask and how they relate to each other. And how, you know, you got to recognize the customer's personality and what's important to them and just kind of blend all this stuff together. Good salespeople do that and they make good money.

Spencer 26:18
Yeah, yeah. Yeah, I love how you flip that around, you know? And it's, there's always objections, and there's different ways to just, you know, walk them through the process and reposition the conversation so that you can get to where you want to go.

Michael 26:30
Yeah, you get you get paid. Oh, how can I get them to

Spencer 26:36
buy on the line? Yeah,

Michael 26:37
better believe it. That's it. And that's not being dishonor service of diffusion or anything else that's just doing the darn good job of helping the customer get their wants and needs met? That's what good salesmanship is.

Spencer 26:50
Yeah. Yeah. I agree. And I shifting gears a little bit. I want to talk about contractors and getting paid. I think a lot of people maybe you know, the Don't keep people on a payment schedule and then they get behind and suddenly it creates some cash flow problems and you see that come up a lot and how do you recommend, you know, diagnosing that that happening and then course correcting? Okay, I'll just

Michael 27:15
I'll just kind of add logistical it all ties together. First thing is that most contractors and bless their hearts I love every one of them. They haven't taken the time to study and find out what a good payment schedule is. It is not one third, down one third, one third, or fourth and fourth or any of the rest of that nonsense because those payment schedules have the contractor pan for the job out of his own pocket, the ideal payment schedule regardless of what state you're in, and even this applies to California because it works now American Jewish, right? And that is a down payment. And then a down payment and then a progress payment on the first Friday of the job and then the payment every other Friday after that and please let not hear anything from these guys doing commercial work or a great big housing or they're going to the banker in that you can't get that, yes, you can. If you if you set the British process up correctly, you can get paid every other week. I've got contractors across the nation as coaching clients that know how to do it, and it works very well. Now, you set up your payment schedule, which is a down payment. Now to say in California where you're limited to either $1,000 or 10% of the sales price, whichever is the least. Then you get a material purchase fee up front. Okay, and you can get a job initialization fee. Now, you got three checks before the job starts right there. So I mean, there's always a way there's always a workaround, and there's nothing illegal about right. But you get your down payment, your first payment on on the first Friday of the job, and then you're succeeding. x after that every other Friday should be an even amount. Nobody's your your seat as an example. You have a contract for $55,993 well Your your down payment should be some amount with $993 on it. So if you have eight more payments after that, you break that up into eight equal payments so the customer always noticed from from one step to the next exactly how much it was it was the same as it was two weeks ago. Okay, now you get down to the last two payments. Okay, I'm sorry, don't get down to the yeah the last two payments. The last two payments equal any one of the ones above that because your final payment should never be more than 2% of the sales price of the job. So you take so you What are your progress payments is at $500. Your last payment was? I don't know $55 so it's 200 times $1,000. Your last payments is 55. So your second last payment 4500 us payments, 1000 bucks, total 5500 which matches all the other progress payments up above it. If you follow that which you're going to find this. You take away this this idea of the customer has his big club to beat you over the head. You get a whole bunch of stuff at the end of the job. You know that because they owe you this big amount of money, you're afraid to argue with you, they don't pay it, you take that you take that call out of the equation there. It's just, it's not that hard to do. And your final payments 2% and the customer gives you any crap about it, they need to say, hey, just keep your final payment. We're done. We're out of here. By the way, there's no guarantee on the shop. Okay? So if you if you've estimated your job, right, you've covered your overhead with your markup. And and you're you're making 8% profit as you showed your last 2% is only two of the 8%. So you know, you walk out of there with the 6% net profit that's more than most guys make on their jobs. So you're good to go. So you see you can't lose on Yeah, it's it's all a matter of knowing how to set this thing up and make it work and I know you'll probably get calls from guys and all you can do that bank will lie. You don't let the bank come out. Okay, you want to remember your contract is with the home or building owner not with the bank.

Spencer 30:58
I love it.

Michael 30:59
Yeah. Let the bank's tell you how to charge your job you just you work it out with the home or building owner. This is how we're going to be paid now you take it to the bank and figure it out from there. I don't care. Okay, I like it. Yeah. And you get guys here Well, they will lend me any money why should you work out of your pocket? That's what they're telling you. Right? These lenders I mean, they're left to their own devices they'll have the contractor financing the hundred percent of the job and and waiting six months to pay him after the job is done to make sure this bank still doesn't have any liability. I mean, we see it all the time. So you know, you just say this is our payment schedule. This is what we expected let the homeowner go fight the battle with the bank because the home or building owner is is king to the banker where the contractor is kind of little bit less than way down the scale. What they think Yeah, yeah, gotta take control those saying he can't just say well, the industry said there is no industry standard in construction for I can't think of an industry standard in construction other than a two by four. And it's not two by four Not anymore. It's addition Fridays by three and five each of them. And, and that even is starting to vary a little bit now I noticed measuring some stuff, so,

Spencer 32:13
yeah, I like it, you gotta you know, you got to set those processes up and execute on him and stand by him, you know, because that's, that puts you in a good financial spot. And as you're going through that, you mentioned this, you've mentioned a couple of times the 8% profit. I'm just curious where that number came from? Why not six or 10 or 12? You know?

Michael 32:33
Yeah. Over the years, we've been coaching now since all this to say roughly 2000 Okay, so we've been out about 18 years, and I have found over the years that our coaching clients that maintain 8% net profit seem to have very few of any financial problems. And so that's where it came from. It's real simple formula. is working just about without exception across word for contractors, and not just locally we have, we have clients in 40 countries around the world for for our stuff. And, you know, we don't get a lot of feedback from foreign countries, but we get enough that that I can tell that they have the same problem as we do here in the US and Canada. And, you know, the, the, the those who have the 8% net profit seem to be doing pretty well. So that's where they tell us that should be your minimum. Okay. Cool.

Spencer 33:27
Yeah. And just out of curiosity, what's the highest profit you've seen that somebody can actually sustain over, you know, multiple years and, and they're still not causing other problems elsewhere, like trying to run to mean,

Michael 33:39
oh, well, short of, you know, a downturn like we had in December 2008 and January 2009, which was the last bottom the last downturn. Generally, it's not uncommon for us to see contractors in the 1214 15% net profit range. I've seen a number of them that that has They have exceptional leaders where they'll make 30% net profit not happen a lot but it does happen 20% is is reasonably common. But you know in the 10 to 12% is probably where most of the good contractors fall. If you're if you're much under 8% then you got some work to do better. Okay,

Unknown Speaker 34:20
yeah. Cool.

Spencer 34:23
Well, hey, Michael, I have one last question for you. But before I get to that, you know, how can our listeners get in touch with you you know, find you online what's the best way to connect with you?

Michael 34:33
Okay, website, markup and profit calm. Okay. All one word. My email is Michael at markup and profit com. Phone Numbers 360-335-1100. And nothing else just type in markup and profit on a on a website and will pop up. I mean, we only had up in the top 15 or 20 spots, but that is not that the word we're supposed to anybody else's just that nobody else has that kind of label or tag. So we're out we will join you know from the last flavor. Okay, um, you had one more question or not you had one but we have one more thing that we talked about and and what is my feeling on free estimates? And you know, I don't believe in in. Don't ever what we did talk about free I don't believe in giving up free estimates. But if you follow the design agreement process where you got ask your questions, get the answers telephone we're going to design to your budget, you set up the design agreement for you do the design work, you do the estimate, you write the contract and bring it back and lay it in front of them for their review. Now you're getting paid to do all that. So that's kind of how I answered that question. You should be paid for that. That's reasonable.

Spencer 35:54
Yeah, I agree. Yeah. And that's awesome. Then, yeah. My final question for today is Just if you could leave our listeners with one piece of advice, what would you say to them,

Michael 36:04
want a friend go buy a dog

work

on it, you got to remember here you're in business, to provide a service and make a profit doing it. You're not in business to be a mechanic. You're not in business to show everybody how much you can build and how fast you can build it. You know, you're not in business to buy a new fancy truck every year. You're not in business to employ your friends or relatives. You're in business to provide a service and making profit doing it and stay focused on that and and set everything else aside. If you do that, you'll be able to take care of your family. That's okay. The family should kids. Now, it's, I don't know I can't remember the last time I met an individual male that didn't want to take care of his wife and kids and I know they're out there but but I can't remember the last time run across somebody like that. So if you follow some basic principles, you will be able to take care of your family. You know, that your kids the toys and education they want and the clothes they want and the food they want and your wife has nice clothes or your husband has nice clothes and you drive a decent car doesn't have to be a new car, just you know. But yeah, it provide a service, make a profit doing it, you'll be okay.

Spencer 37:26
Well said Well said. Well, Michael, thank you so much for joining me today. This was awesome.

Michael 37:31
Anytime glad to do it.

Spencer 37:32
Hey, guys, I hope you enjoyed episode number 32. with Michael stone, I know you're driving around, or maybe you're at the gym. You're listening to this on the go. And so I like to boil it down into action items. So let's look at two action items that I saw come out of today's episode, although there was a lot of great stuff. So number one, let's look at what your margin of error is on your estimating. So Michael talked about that at the beginning of the episode as kind of a target of 2% but go back and look at a few past jobs and see what that actually was. So that's step one. Step two, is go ahead and use Michael's process of tuning out distractions, you know, shut the door, turn off your phone, all your notifications, and really put your head into that next estimate, then rerun the numbers and see what your margin of error is. And I bet it's going to be significantly improved. So I think if you take those two steps, you'll get a ton of value out of this episode. And guys, if you are getting some value out of builder, funnel radio, either this episode or some previous episodes, we'd really appreciate a review on iTunes. It helps us reach more construction professionals and get the word out. So again, head on over to iTunes or maybe you're just in your your app right now. Click us a review. We really appreciate it. And we'll see you next time on builder funnel radio. Thanks for joining us today on builder funnel radio. Don't forget to visit WWW dot builder funnel.com for tons of free marketing and sales resources and if you ever need hands on help implementing your marketing and sale system. Just send a quick note to radio at builder funnel calm. And as we close for today, remember, never stop learning. See you next time.

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