230. Are Builders Actually Profitable With Russ Stephens & Sarah Biben

Welcome to another episode of Professional Builders Secrets. This episode was part of a webinar series that we did to launch the 2026 State of Residential Construction Industry Report. But because of the insights that were in the episode, we decided to share it here with our podcast audience as well. I interviewed Russ Stevens, the co-founder of APB, as well as Sarah Bibbon from Buildertrend, and we dive into what the most profitable builders are doing differently. How they price, how they structure costs, and how they measure real performance every week in their companies. There's a little bit of Q&A and some back and forth during the session. So if you notice that, that's the reason behind it. But the insights are extremely valuable and practical. So I hope you enjoy the session. This episode of Professional Builders Secrets is brought to you by Apparatus Contractor Services. Apparatus provides full-scope, end-to-end QuickBooks Precision construction accounting and CFO services for residential builders. If you feel like you can't completely trust your weekly and monthly financial reports, or you feel like you're flying blind, Apparatus will rebuild and operate your QuickBooks accounting system and give you precision construction accounting capability you can trust. Learn more at apparatusteam.com or on the APB Rewards Partner Directory.

Over a third of all builders surveyed showed a discrepancy greater than 10%, which shows there is a significant gap between perception and actual financial performance in the industry.

They're keeping busy, their teams are working, they have invoices going out, bank balance looks okay, but like revenue and heavy workload can really hide those gaps and those cracks in the process where margins tend to leak.

Revenue is vanity, profit is sanity. If you've got an accountant working for you that's not construction specific, chances are you're paying a lot of tax on profits you never made because you're missing a fundamental formula that has to be calculated each month, which is called the work in progress accounting adjustment. The hidden profit destroyer for builders is the timeline. When a job blows out by a week, you've got a fixed cost per day for every job. Over the course of a week, you've just destroyed over $3,000 in net profit. When builders understand their true break-even, they won't go below that, 'cause they're better off just sitting on the beach than signing a contract.

Welcome everyone to the second episode of this webinar series we're running called Beyond the Data. It's dedicated to providing real-world insights for builders from the latest State of Residential Construction Industry Report. Yeah, so welcome to everyone for wherever you're joining us from in the world. I know there's a lot of people piling into the room, so before I pass it across to our expert panelists today, let's do a bit of an introduction. My name's Will Blunt. I'm the head of marketing here at the Association of Professional Builders, and I'll be your host today. But I've also got a couple of expert panelists with me, Sarah and Russ, who I'll introduce in just a moment. I'll be bouncing off them to, to provide the real-world insights for you. But while we're waiting, if everyone that's joining us today could just start dropping in the chat where they're joining us from. I'm in Sydney, Australia. Russ is up on the Gold Coast, and Sarah is joining us from Omaha. So Cool. We got Rocky from West Virginia. Rocky, good to see you again. Deborah joining from Atlanta. Jaseel from Halifax in Canada. They're coming in fast. Tim from Boston. Michael from Hamilton in New Zealand. Got a New Zealander on the call. That's awesome to see. Allison from Colorado, I think. And they're flying in fast. So sorry if I don't mention your name, but welcome everyone to the webinar today. Great to have so many people joining us today. And talking about this topic around profitability and being a little bit unsure about your numbers in this industry is very common. So a lot of builders might not want to admit it, but it's very common. So certainly not something to be ashamed of at all. So hopefully you can get some good insights from, from Russ and Sarah today about how you can improve your understanding of your numbers in your building company and, and make better decisions in 2026. So what I would say is this is not your typical webinar. The slide you see on your screen at the moment is literally a placeholder. I'm going to stop sharing my screen in a moment and we're going to focus on a deep expert discussion because we've got two phenomenal industry experts with us today that have a lot of knowledge and insights around how to run profitable building companies. And so we're going to lean into that conversation, ask as many questions as you want. I encourage throughout the conversation, just drop a question in the chat to everyone. And I'll make sure that I can feed it back to Russ and Sarah as we're going as well. So we'll keep the conversation flowing as much as we can. But on that note, I'm going to stop sharing my screen and we are going to get into a couple of introductions here. So first off, Russ Stevens, Russ from the Association of Professional Builders. Russ is the co-founder of APB. If you don't know, we are a coaching company, a business coaching company for residential builders across the US, Australia, Canada, and New Zealand as well. And Ross is also the co-author of the Amazon number one bestselling book, Professional Builder Secrets. Ross, welcome to the webinar today.

Thanks so much, Will. Got to say, I'm loving this series of webinars. Always great to chat with you, but we're getting some fantastic guests on as well to hear their insights on the data from Sourciver. Great to see so many builders as well that Yeah, we've got to know over the years, tuning in each week as well. So yeah, so this is a great series, loving it.

Yeah, it's been really good so far. So very excited to see how today goes. And Sarah, we've also got you here today. So thanks for joining us. Sarah Bibbon is the Director of Product Design at Buildertrend, where she works closely with builders, product teams, and engineers to design workflows that connect financials with the day-to-day project management of building companies. I don't know if I've messed that up at all, Sarah, but welcome to the webinar today.

That's perfect. I'm excited to be here. It's a great report and happy to share what I've learned over the years and serving builders and profitability approach.

Awesome. Well, great to have you. Just for a bit of background on what Sourcei is, which is the report I kind of— we're taking some of the data from today to talk about. Sourcei is the State of Residential Construction Industry Report. It's the 2026 edition, which just got released. It's the 6th year of the report. And since starting this back in 2020, we've had over 8,400 participants. So the data you're seeing and the insights you're seeing in this year's report are correlating multiple years of data and looking at trends, looking at different parts of your building companies and how they're actually influencing the profitability and other performance areas of the company as well. So there's some really interesting insights that have come out of this year's report. I just want to acknowledge Buildertrend as well and the role they played in helping us collect the data for this version of the report. And over the years as well, their support has ensured that we get broad industry representation across multiple markets. So thank you for that. And just to cover this off, if you're wondering where you can get a copy of the report, everyone that has registered today will get sent one in their inbox. So you don't have to go and, go and track it down yourself. We'll make sure that you get that straight away. Great. Okay. I feel like I'm talking a lot. I'm going to quickly do an overview of what we're covering today, and then I'm going to pass it across to the experts. So today we're going to focus on insights from one particular area of the data, which is around profitability and how you can run a more profitable building company. But as I mentioned before, it's not your typical webinar. There's no slides. There's no just boring rotating through different points like that. We're going to dive into a really deep conversation, and you're going to have an opportunity to ask questions. So I highly encourage everyone to ask questions as we go here, and we can dive into more of the detail there. Yeah. So using data from Sourcii, what we're going to do today is give you— what you walk away with is a clear understanding of why revenue and activity don't necessarily equal profit. We'll look into an insight into the financial blind spots you may have in your building company and how you could be overestimating performance. We'll look at some simple ways that profitable builders keep more clarity and confidence in their numbers. And we'll look at the, the better questions you can ask to make sure you've got the right financial reports week to week in your building company. Let's dive into the meat of the content. Russ, do you want to kick us off with the first question, which is how common is it for builders to have a misled confidence about their financials? Because work is coming in, but the profit may not necessarily be there.

Yeah, look, I'd say it's extremely common in new construction. Remodeling, not so bad. But because new construction is cash flow positive, the result is that even a, you know, a small building company turning over $3 million a year can still generate about a quarter of a million in positive cash flow. And that can mask a lot of problems. I mean, on one hand it's great because it's cash flow for the business. So yeah, it's a great strategy, But if you do not understand your numbers, this is the very thing that's going to sink you. One interesting thing that came out of the data this year, and as we mentioned before, because we're utilising AI to go deeper into the metrics, we were able to analyse a new metric which we called accounting discrepancy. And this was a calculated field that compared builders' gross margin against what they were saying their fixed expenses and their net profit were. So if you add those two, you know, fixed expenses and net profit together, you can see if there's a discrepancy. And over a third of all builders surveyed showed a discrepancy greater than 10%, which shows there is a significant gap between perception and actual financial performance in the industry, which is something we've got to be concerned about.

Yeah, that's a big concern. Sarah, is there anything that you wanted to add to that that you're seeing from a Buildertrend perspective?

Yeah, yeah, that stat is certainly shocking. In my world, I'll speak to it for more like a qualitative sense, I guess, but, um, we definitely see this a lot with the builders who work in BuilderTrend and the ones I'm talking to day in and day out. And, you know, they're, they're keeping busy, their teams are working, they're— they have invoices going out, bank balance looks okay, but like revenue and heavy workload can really a lot like hide those gaps and those cracks in the process where Margins tend to leak. So builders think they're profitable, work keeps coming in, they're hitting their sales targets, but they're not necessarily like watching for the actual job costs along the way to see if their profit margins are still sitting in a healthy spot. So just pricing the job accordingly and then not monitoring that along the way, you're, you're missing a lot of pieces that tend to stack up over time. So that misleading confidence, those high top-level numbers can really hide a lot if you're not tracking at a more granular level in the day-to-day.

I remember hearing a phrase years ago, revenue is vanity, profit is sanity. And yeah, it's so, so true. Yeah, if you remember that and keep your eye on the profit, especially in the net profit.

I think you touched on this, Russ, and I know you're very passionate about this part of the concept, but this can tick along for quite a long time in construction, right? Because if you keep getting new work in, the revenue keeps coming through the business, right?

Yeah, I mean, we do refer to companies that operate in this way as effectively they're operating a construction Ponzi scheme, which can sound a bit harsh, but sometimes you have to use harsh language to try and get the point across. But the fact is they're robbing Peter to pay Paul. So they're using deposits from new jobs in its simplest form to cover outstanding invoices on existing jobs. I wouldn't for one minute suggest that any builder sets out to do this deliberately. It kind of sucks them in and it is purely a lack of knowledge. Unfortunately, the public have a very different perception. You know, when builders get caught out by this, they tend to think builders are crooks and it's simply not true. It's just a lack of education, but it's also a lack of accountability from the government because they're kind of turning a blind eye and they're allowing building companies to submit accounts that are not accurate. And renew their licenses when they could do a lot more for the industry by, you know, enforcing standards that ensure builders are profitable, which would, you know, allow more builders to wake up to the situation that they're in.

Yeah, accounting and construction job costing are two different methodologies, two ways of working, two ways of thinking that give you different levels of visibility. You know, if you're owning a business and used to monitoring your accounting practices effectively and following the law there, that's not enough in construction for healthy profit margins.

Can you expand on that a little bit, Sarah? Like, what do you mean by the differences there? Like, what can builders practically think about doing differently?

Yeah, so tracking things at the job level, like the robbing Peter to pay Paul, that's a great example of like, no, you need to know what your cash flow is looking like within the job so that you're covering your expenses effectively along the way. You're building in your invoicing cadences effectively, and you know what the like state of your job costs are for each job that day. You also need to be monitoring these top metrics at a company level and in your accounting platforms, but you need that picture of job financial health every single day and you need to track things at that job level.

Yeah, you're doing it at a macro level and a micro level, aren't you? At the micro level, you're tracking each project. You want to make sure every project is profitable and it's on track every month, but at a macro level, you're looking at your company accounts, which factor in all your fixed expenses. So yeah, very, yeah, very important point.

How would you explain to, at a 7th grade level so I can understand, Russ, the difference between how you can understand your financials in a construction company compared to accounting numbers?

Yeah, construction is complex. I'd probably underline that. Yeah, builders shouldn't feel bad about their accounts not making sense when they might have friends in other industries where it's relatively simple because it's complex. It's so complex, 95% of accountants don't understand it. And that's It's not just having a dig at accountants, it's actual fact. And the reason isn't necessarily their fault. They've just been taught a different way to calculate work in progress. It means something different in construction. And unless they're construction specific, they'll never understand how to put construction accounts together. So if you've got an accountant working for you that's not construction specific, chances are you're paying a lot of tax on profits you never made. Because they're being misreported. But in terms of explaining it at a 7th grade level, this is why we built a calculator, because it starts to get so complicated. We built a calculator so that a builder can literally put in the amount that they've invoiced a client to date. So say you've got a million dollar job, you've invoiced half a million dollars, you're 50% of the way through. You then put in the amount of purchase invoices you've received for that job. Maybe you're going full tilt and you've only received $100,000 in invoices. Yeah, as an example. Well, your accounts are going to show a $400,000 profit. So, but you know, you're not working on an 80% margin. Be nice, but yeah, that doesn't happen. But that's what your accounts tell you. And the reason they tell you that is because you're missing a fundamental formula that has to be calculated each month, which is called the work in progress accounting adjustment. What that does is it calculates the difference between the $100,000 that you've actually received in invoices and how much you should have received in invoices in a perfect scenario if you'd been invoiced everything in relation to that half million dollars that you've claimed. Once you know what that number is, you put a journal entry in your accounts, it corrects your accounts. Now your accounts are perfect each month, not just your profit and loss, but your balance sheet. So was that simple enough? Once I go down the rabbit hole, it just like, you'll keep going, it gets more and more detailed. The calculator just makes it so simple for builders.

I think the thing that I'm taking out of that, you need to go and find advice that you can, and potentially getting tools and things that can support you. So you don't need to be an expert necessarily, but understand it at a degree.

Yeah. And we've got some very, very smart builders that are all across their numbers, but they didn't grasp this instantly or easily. It still took a bit of discipline to get into the groove of doing this every month. So, but it is a skill so that everyone can learn.

There are a couple of questions coming through. If anyone's dropping their questions in, if they could do their best to provide as much context as possible so I can pass them on to Russ and Sarah, that would be great. But I think I can at least ask this one question. How do you structure yourself to be prepared for non-billables and still stay profitable? And I think this, and this is from Carson, this is specifically around cost-plus contracts, I think.

Who's that?

I don't know who wants to jump in. Maybe, Ross, do you want to start us off there?

I don't like cost plus. I know.

You can start.

Non-billables. I'm— by that, do you think they're referring to fixed expenses?

I'm guessing if they're a cost plus and they can't add it on to that, assume it's the overheads, etc.

Yeah. Well, if it's the overheads, then you've got to calculate those obviously before you sign the contract, start the job, because they go in as an admin cost. On a monthly basis. I'd say you're better off doing it on a monthly basis rather than a percentage of contract because especially on a cost plus, that's going to blow out. So you're going to underprice if you do it as a percentage. But in simple terms, you're going to look at your fixed expenses for the entire year for the company. You're going to calculate how many jobs you can run concurrently. Once you understand that, you know what your fixed expenses are going to be per month per job. And then you can just apply that as an admin charge to a cost plus. But if you want to get Yeah, really profitable. There are some exceptions. You know, if you're doing extremely big projects like $2, $3, $4 million, even $20 million plus, we see some guys doing then cost plus. Yeah, it's a good way to go. But generally, and the data backs this up, if you want to be profitable, fixed price is where it's at.

Yeah, that resonates for me as well. Whether you're fixed price or cost plus, you need to be calculating what your admin expenses are, what your company expenses are, and not just building in your profit margins on your job based on what you hope to make, but what you're actually covering beyond the job costs there as well.

Is there anything you'd add in from a product perspective, Sarah, and how Buildertrend helps builders understand their fixed costs better on a per-the-job, job-by-job basis?

Yeah, definitely. So in Buildertrend, we do personalize your experience based on that contract type. We know your invoicing flows, we know your budgeting needs, we know your pricing structures on an estimate look different. Whether you're cost plus or open book, and the level of visibility we give you and help you give your client differs on that greatly as well. So when you're estimating, we have a lot of different ways that you can build in that markup to hit your target profit margins in a job. We don't necessarily support the way to calculate that or to cover your admin expenses, but we give a lot of flexibility in terms of how are you getting to that contract price for your client. And if that is a fluid contract price for cost plus, we are doing the work for you if you're tracking your expenses and all of your job costs in BuilderTrend. We do that work for you for making sure your fee is visible to your client on top of your kind of evolving costs along that job lifecycle. You can provide budget visibility to your, to your clients if that is something you do, but it also will just give you that picture of what your profit margins look like as things change across the job.

A couple other questions coming in here. Reed, if you want to get that WIP accounting adjustments calculator Russ mentioned, that is a part of membership with the Association of Professional Builders. So It's available in our online portal there, but I won't go into too much more detail on that. You can go and check it out on our website if you'd like. Gino has asked a little bit more, and I think this is similar to the question before, but I just want to clarify with you, Ross. Gino's asked how to account for the behind-the-scenes time it takes to bid, prepare, manage, and admin a job. And it sounds like that's probably a fixed cost conversation as well. Is that right?

I would say in terms of the work going into preparing for a job, Everything that you do prior to contract, you want to be charging for, make sure you're covered. So this is where we use preliminary building agreements. Some guys use one big prelim, others would use the— they'd break it into two stages. A concept covers the design and then a prelim. But this is where you're going to cover all those expenses. Some guys, yeah, will break it into three. They'll charge for a site visit, then a concept design, and then prelims. But you've got to be charging as you go because the worst thing you can do is give your time away for free. Because people won't value it. And if you go down this pathway of like, it's going to be like included in the contract, this is what the client's going to be thinking. They're going to be thinking, yeah, they've given me all this free value, $20,000 worth of free value. They're going to get it back in the contract. I'll go with someone else. And that's why the contract's cheaper. It kind of adds to this belief that, yeah, it's all about price. So yeah, you've got to be charging all the way through and don't be afraid to charge some significant amounts of money. You know, whether it's $10,000, $20,000, $30,000 for prelims, because it, yeah, can be done with the right approach.

Yeah, I talked to a lot of builders that have that multi-contract kind of process, and they see it as a value proposition, really. They, they're providing that service, but they're offering that white glove service to their clients along that way. Like, we are customizing this home for you, we're really working with you, collaborating with you to lock in on this project together. So you shouldn't feel bad about charging for your own services, and it's really a client value proposition at the end of the day.

Yeah, once you've charged $500 for initial consultation, i.e., site visit, and then $5,000 for a concept design, and then maybe $25,000 for prelims, I mean, guess what? You put the contract, it's easy to ask for the sale. They got so used to, you know, just parting, you know, with money, it just becomes less of a barrier as well. You work that muscle.

I'm going to throw you off here, Ross, because I just realized the order of the questions need to be slightly shifted. But what I want to ask you is what numbers are builders typically looking at which might be telling them the wrong things in their companies? And you already mentioned WIP being an important one, but what are the numbers that are most important to actually get a good understanding of profitability?

To understand profitability, you've got to be doing the WIP calculation. Every month. Apart from that, you've got to have your fixed expenses up to date. Now, I think there's a bit of a misconception in that in order to get accurate financial reports each month, you need all your invoices in from your subcontractors, you know, because the plumber finished last week and until that invoice comes in and you get it on the system, you can't create accurate financials. That is not true. It really doesn't matter if he invoices you last week, next week, or next year because the WIP calculator will take that into account. So your gross profit, as long as you're doing WIP, your gross profit will always be accurate. But you've got to be diligent with your fixed expenses and make sure they're getting on your system in a timely manner. But we'd recommend, you know, a 7 to 10 day window for this. But by day 7, or at least by day 10 of the following month, you draw a line in the sand. Your accounts are finalized for the previous month and you lock them down. Because I guarantee you if you do not lock them down, someone will backdate an invoice. Yeah, they might believe because the invoice is dated last month that it has to go in last month's accounts. And that will basically make a mess of your work in progress calculation that you did at a moment in time to calculate what it was at month end. And all of a sudden your accounts are wrong for last month, but they're also wrong for this month. So Really, really important that you're diligent and you put robust systems in place that don't allow these changes to be made. Once you've drawn that line in the sand, you've completed your month end, because you sign it off, then you look at the reports every quarter. You might be reviewing your fixed expenses and updating your budgets so you know what to expect going forward. That all plays into how you price your jobs as well. So they're the key things, I would say.

Yeah, I was just going to jump into definitely echoing the WIP. I would say if you're trying to get very proactive about covering the cracks where margins tend to slip, like the one example I would like to highlight from the Sourcy report is they're calling out that labor hours are a blind spot. Like your whole team, your project managers aren't necessarily, you know, in these WIP reports in the same way or in your accounting platforms, but they are responsible for keeping the hours on track and the timelines and the production management of the job. And these hours can stack up and like your team is really busy, you're feeling really productive, but overtime and inefficiencies and rework, like those things stack up quite a bit and can eat into your margin. So you really need to be tracking your labor costs along the job so you can see what impact it's having versus what you planned, not just your hours, but the actual costs associated to that against how you actually baked that into your contract and establish your target margin. So those high-level numbers don't give you that level of granularity proactively enough to say, Hey, we actually have to tighten up here or we need to adjust spend elsewhere to be able to stay on target here.

Yeah, that's a great point. One thing we like to get our members doing, and especially our coaching clients where they're working with a coach every month, is we get them to track the gross, the revised gross margin on every job every month. Because what we're looking for is the trend. Because a lot of time we'll find when we first start working with a builder, that trend is downwards. So they're hemorrhaging margin through the job. But Once we bring the focus to that, it actually starts to go the other way. And it's only small amounts, but yeah, if your jobs are in decline in terms of their gross profit margin, then something needs to be addressed. And yeah, what gets inspected gets respected. So the high level, we're seeing that gross margin decline, but then we're digging into cost centers like Sarah's been describing. We want to see where those blowouts are. And it's not just the costs either because the hidden profit destroyer for builders is the timeline. 'Cause that's like an invisible cost. It's a bit like inflation. It's not always obvious. But when a job blows out by a week, you've got a fixed cost per day for every job. According to the data we just collected in Sourcei, it's roundabout between $600 and $650 per day for the typical builder. So over the course of a week, you've just destroyed over $3,000 in net profit, you know, by blowing out time.

Timeline.

So yeah, that's another one to keep a very close eye on.

Sorry if you haven't got this data on hand, Russ, but I know in Sourcei as well, there was data around how many builders were actually tracking the gross margin on their projects as well. Do you remember whether that was common across the industry?

Tracking the gross margin? This was in terms of their— I'm just trying to remember the actual question because we track how many, you know, what their gross profit is. This would have been the monthly financial reporting. Yeah, look, it was quite a high number. I think it was about two-thirds reported tracking it. Yeah, which is extraordinarily high. But I have to question, what are they— if they are tracking it, what are they doing about it? Because some of the other numbers didn't really correlate.

I pulled it up. I pulled it up. Do you want the gross margin on your projects every month? 68.1% said yes.

That's close enough, wasn't it?

It was actually, it was up from 58.6% in 2024. So there has been an improvement from that perspective in the cohort, which is good.

Which makes me think there's a disconnect between looking at it and actually acting on it or, you know, a core value of ours, trust but verify.

Yeah.

Are you digging deeper to make sure what you're looking at is accurate?

Do you notice, Sarah, from product data and things like that, how much builders are monitoring these numbers?

Yeah, it certainly varies. Too often we're seeing, you know, you're looking at it at job closeout, even your money's already gone at that point. You have no more room to adjust. I talk with a lot of builders actually sort of orient their team weekly, biweekly, monthly around their job budgets so they can really track like chronologically where are we at with our spend, what are we actually done spending on. How does that actually impact my forecasting for how much I expect to spend on this job? Where are we making forecasting adjustments? They're really collaborating around that visual picture of their financial health to make those adjustments and talk through like, okay, what do we have to do? What do we have to adapt here to continue moving forward? So you really need that kind of budget or WIP to orient around to make those kinds of decisions more effectively. And it really requires that you've structured your job effectively so you can like track that along the way. It's a more granular level of review with your team that gives you that proactivity.

I just want to acknowledge a couple more questions coming through. There was a question from Justin around construction loans, but sorry, Justin, I don't think we can dive into that one on this, this webinar. It's probably a bit of an offshoot and might require another couple of hours. So maybe follow that one up after the meeting with a business coach or something like that, or one of your trusted advisors. There is a question here which you might be able to handle quite quickly though, Russ. Do you price overhead as a percentage or build it into labour rates?

Yeah, when it comes to pricing overhead, we actually built a calculator for builders, the Pricing for Profit Calculator. And what this has enabled builders to do is rather than apply the traditional method to pricing, which is to gather the prices for all your materials and labour and then add a percentage to that, i.e., a gross markup, and then hope that gross profit covers your expenses. What we actually do is we divide this calculator where you do calculate the figure for the materials and labour, but you also input the fixed expenses for the business over the course of the year, along with the number of jobs you're able to run concurrently, because that enables us to then establish the cost per week per job over how many jobs are running. And then most importantly, the timeline for for the job that's being priced. Because this is a very important part of estimating. It's not just about getting quotes for materials and labour. It's about estimating the job schedule because the timeline plays a very big part in pricing a project. So once you've got those numbers, the calculator will spit out the contract price based on a target net margin. So if you're looking to clear 10% net after all your fixed expenses, is it will tell you what the contract price is. Importantly, it'll also tell you what your true breakeven price is. Yeah, the breakeven is not the cost, you know, it's not a case of covering your materials and labour, it's your materials and labour and your proportional fixed expenses. Yeah, that all comes into play as well. And only once you've covered that do you have a true breakeven point. So I think when builders understand their true breakeven, they won't go below that because they're better off just sitting on the beach than signing a contract. But because they want to make money, they understand that they to put a significant bit on the bottom to make money as an owner of the business rather than just a worker within the business. So to answer the question, the way we do it is we calculate a dollar amount and then we're applying a net profit percentage to that total dollar amount, which includes your fixed expenses and materials and labor. So probably a bit more long-winded than Gino was looking for there, but I'm sure Gino's very happy with that answer.

So John's asked where they can get that calculator, and same place as the WIP calculator. If you're a member of the Association of Professional Builders, there's a Pricing for Profit training in there with the calculator and some videos to tell you how to use it. But Sarah, talk to me a bit more about, I mean, obviously there's access to those tools within membership with APB, but Buildertrend builds a lot of this into the product as well. Is that right?

Yeah, definitely. We offer a robust estimating experience where where you can really define your markups or you set it by target margin on all of your different cost types, your materials, your labor, your equipment. So you can really develop a system with your estimate and then template a really healthy job for future jobs. So we really set you up in a way where you have the flexibility to set up your markup how you want to on that job to price that job. But the real benefit is the feedback loop of actually then putting that job into practice risk, budgeting against it, and then doing a job post-mortem to see, okay, this, this was a good job, or these were the things we learned and how we want to adapt it for the next one. And so it's really that learning cycle you can lean into with BuilderTrend.

Daniel's asked a pretty, pretty direct question here. Some of the copy for the registration for the webinar spoke about being profitable on paper but broke in real life, which is a very extreme way to explain it, but can you just restate what we spoke about a bit earlier in terms of how that plays out in a building company?

Yeah, and it plays out in two different ways depending on the type of business you've got. So if you are building new homes, you're in new construction, you're going to be cash flow positive. But if you're not doing the work in progress accounting adjustment, then on paper you're going to appear a lot more profitable than you really are. What happens is builders think they're profitable so they don't increase their margins. The ATO or the tax office this. The IRS thinks they're profitable, so they send them a large tax bill, which they then struggle to pay because they never made the money in the first place. And this, this starts to compound over a couple of years. So in terms of new construction, that is why you can appear profitable on paper but broke in real life. In terms of remodeling, it's actually the opposite generally, which means it's cash flow negative. That means you actually need to be pumping money into the business if you're growing it. So if you've got a remodeling company and you're growing at a significant pace, then although you're on paper, you're profitable, if you don't have enough net retained profit to cover that growth, that's why you might feel like you're broke. But I'd rather be in group 2 than group 1.

Yeah, we saw that come out in the data as well, Russ. A lot of builders thought they were more profitable than they actually were when we dug deeper in the numbers.

A lot of builders, yeah. And this is what we've been seeing for years when we have these deep dive discoveries with builders. Generally the conversation starts like, I'm good, I'm doing well, I just need a few more leads. But literally 10 minutes into the conversation you can see it's not good. There's a lot of pain under the surface and it's because on paper they think they're doing better than they are and they feel that they've got to keep this facade up. The best thing you can do is drop the facade, get into reality, and then your life will change very quickly.

Yeah, I think the numbers in the US alone was something like 17 point— well, not something like, exactly 17.1% of builders reported losses. But when we did the analysis on all of the data we had from the report, 51.4% actually were unprofitable, which is quite alarming.

Yeah. There's only one thing worse, isn't there, than knowing you're in trouble, and that's not knowing that you're in trouble.

Well, speaking to that, Deborah has just asked a question. How do you really determine if you are doing well or not?

Oh, you gotta, you gotta produce accurate monthly financial reports. It's that simple. And yeah, within our coaching program we actually run levels. So we coach builders through different stages and we get them to the top level, which is Certified Professional Builder. And all the guys that reach the top level have one thing in common. They are all across their numbers. I can jump in, I can look at their dashboards and they're a work of art. They are, they're beautiful, they're clean, their numbers make sense, but the builders at the bottom of the scale, there's gaps, they're not filling in the data, etc. So it goes hand in hand. And I think there's a lot of proof in the Saucy data as well that the builders know their numbers are not only more profitable, they work less hours and they take home bigger salaries as well.

I was just going to add in that real-time reporting too, not just your historical reports, your real-time reporting and a variety of them, right? Like your team also needs to know who's on point at, at every decision level. Like, you are about to pay a bill. Did we agree to that amount? Are we overpaying? Like, your team needs that visibility too, even in the, like, day-to-day decision-making. And then you can really monitor as a, as a business owner at those, that reporting level in real time. It's at that, at those levels you really need that visibility every day.

That's one thing always used to scare me about this industry, the ease with which companies could send two bills two invoices to a builder and both would get paid because they wouldn't have the systems checks in place. It's got a lot easier now with the software that kind of spots these duplicates. But yeah, it happened way, way too often for my liking. And I always got suspicious of companies that just sent out, yeah, someone didn't pay a bill within 14 days, they just send out another bill. I'm sure, yeah, it's because they knew sometimes they would just slip through and get paid twice.

Sarah, something else that came out of the data for Sourcy was around an increase in software investment from companies, but there was a gap between implementation and training around the software. Have you noticed anything like that play out that, I mean, just having visibility is great, but if you're not using it, then you probably don't get the benefits?

Totally. We transparently struggle with that for sure. Construction is complex and trying to develop a system of those checks and balances is complex. So you have to find that right way to get started. And so in BuilderTrend, we try to get builders up and running on some of the basics so you can get those feedback loops a little bit more effectively. And then there's a lot, lot of ways you can scale your practices beyond that. So if you're estimating at a little bit more of a granular level, so you can then code your expenses to the job against what you planned for. That gives you more of that like area by area, line by line, code by code level profitability that you can then better monitor and adjust along the way. And then if you can do that and then see where, where you're spending sort of chronologically, you can more effectively develop that system for invoicing and define your cadences, whether you're doing time-based or milestone. Like you can start to then create a system of invoicing for around your cash flow pattern. Returns, you can get that learning loop too. Okay, we set up a good practice here on this job using the estimate and budget. Now we can start scaling. We can start building into purchase orders to give us earlier insight and to better protect ourselves on the costs we're paying. We can start to adopt change orders. Is that actually a value proposition for our business versus it being like feeling like a nickel and diming your client? Like, we have a lot of ways you can kind of scale your practices. So we tend to recommend like start with the basics first so you can see in real time that profitability with your team, and then you can start to develop more of that system around it. Who's responsible for checking that that work is complete so the office admin can send that payment over? You know, those kinds of things you can really build up over time.

What do you think is holding more builders back if they initially see the benefit of getting software that's going to give them the visibility they need, but they never quite get to that point where they do have the, the visibility at the other side? What's the messy middle there? Like what's holding them back?

I think it really is about commitment. It's hard to switch processes and if there's enough working for you in your spreadsheets and your interpersonal communication, it sometimes takes hitting some real snags to be enough to convince you like, okay, we're going to invest the time to do this. You want to be doing the work you love, right? You want to, don't want to be setting up a software. You want to be building. You want to be delivering that ideal customer experience. Client experience. So I think it's mostly a commitment and time investment, but it does pay off and start to— like, I hear builders all the time, like, I know it in my brain and I can just communicate it. But, you know, the bus theory— if you get hit by a bus tomorrow, your team doesn't know what's in your brain. And software is a way to, like, get that out on paper, in a way— paper, if you will, digitally— so that he knows what that next step is. Who do I need to communicate at this point in time? And what data points do we actually need to look at at that job level to know where we need to adjust along the way.

Ross, any insights into the type of builder or the traits of the more successful builders that actually do take this action and get the things in place they need to know when they're profitable and when there's things to worry about?

In terms of the trait, it really is a discipline, I guess, an acknowledgement that the numbers do play a key part because that is always at the heart of Yeah, that's what we've seen over the years. It's what we've proved, I guess, with the data. So yeah, it's always the same things. It comes back down to financial management. And I think the Saucy Stats actually showed this as well. They backed it up that the builders that are the ones doing well, they typically, they run leaner structures. And you only do that when you're all across the numbers. When you're across the numbers, you question everything at least every quarter in your fixed expenses, which means you get rid of waste. When you get of waste that goes straight down to net profit. They prioritize their net profit over volume as well. Yeah, there can be a belief, not just in building but in business, that I just need more sales. And yeah, high volume in terms of revenue, that can feel good, but unless it's profitable, then it's just a waste of time. But we see the most successful builders, they switch their focus to net profit, you know, which jobs are the most profitable and they focus on getting more of those. And that kind of connects to their sales process. You know, they're selective in who they build for and what they build because you don't want to be building for the wrong type of clients because they will drain your profits in one way or another because they're just, you know, so demanding and, you know, plugging gaps. If you're a custom home builder and you plug your gaps with a few remodeling jobs, well, those are two very, very different models. They require very different approaches and it's hard to be efficient in both. So the guys that are most successful, they purely focus on one niche and they optimize their operations to do that. But at the heart of everything, it's always reporting. It's that discipline of reporting on everything and taking action.

Yeah. What I'm hearing is as much as if you get your numbers in place and you report on them and you know there's so many levers that you need to pull to actually improve those numbers. Like you were touching on, Sarah, at a project level, getting into the detail there, but also Russ, you were talking more organizationally across marketing, sales, and everything else. Like it's not a simple solution.

Yeah. And we do it ourselves. We sit down ourselves, well, don't we, every quarter, look at our business plan and we've got the levers that run all the way through the different departments. Yeah. They're key metrics. And just by measuring those metrics, we know exactly where the gap is and what we need to put our focus on. It's exactly the same for builders. You can do that macro level, micro level, but you've got multiple KPIs. You want to know exactly where's the bottleneck. Let's put our energy into fixing that.

A couple of other questions coming in. Deborah's asked, should we be raising our margins slightly annually? And if so, by how much? Sounds like a Ross question.

Depends where they are, I guess. The benchmark, if you're doing new construction, the benchmark for new construction is a 33.3% markup, which is a 25% gross margin. The benchmark for your fixed expenses is 15%, which would include owner's salary at market wage and also a significant reinvestment in marketing and advertising. We're looking 3%, even 4% these days. So it's not just a case of putting your margins up. You've got to make sure you're doing the other things as well, because if you put your margins up without getting your marketing correct and your sales process in place, then you're going to struggle to sign jobs. This is why people say, if I put my prices up, no one will sign a contract. It's not because the price is too dear. It's because the client or the prospect is not seeing value. If you're in remodeling, those numbers are higher. You're looking at 55% plus. Markup and slightly higher net margins at the end of it. But a remodelling company is not as scalable as a new construction company. So there's the trade-off. But to answer the question, like, should I be putting them up year on year? Well, if you're not achieving the benchmark, then absolutely. But you've got to be doing the other work in conjunction with that. But if you're in a hot market, you can go beyond these benchmarks, and we've seen that as well. So when you cap your supply and don't supply your demand, very easy to grow your margins beyond those benchmarks. But you know, you just got to be aware that if you are in a hot market, it will cool at some point and the margins are going to come back down to these kind of levels. This is where we see it sitting for the most professional builders.

Sarah, I want to go back to you now. Russ answered the question around what the best builders are doing differently. in terms of, how they're running their companies to be more profitable. Do you have a perspective on what you are seeing on that side of things?

Yeah, yeah, definitely. It's, I'll echo that it's about the reports. It's about the constant visibility you can get with your team. So some of those practical habits are orienting around a budget every other week with your team, capturing and protecting your cost through use of purchase orders. Again, that gives you that got better flexibility and proactivity about, okay, where are we expecting to spend here and holding to that throughout the job. So we just see a lot of those little practical, like, documentation. And I, I know that documentation can, can be painful, but if you really operationalize it and make sure people are responsible for getting things entered and visible right away, you can really start incentivizing your teams in other ways. We see builders incentivizing their project managers for healthier margins. We see teams being able to do more fun things because they're a more profitable business, right? So I think it's just getting a little bit more creative about how you're building that team morale around your financial aspects of your job. It's not on the surface as exciting for everyone, but there's a lot of other ways you can kind of create that company culture. And we see a lot of our builders like leaning into BuilderTrend for that visibility and also incentivizing their teams in other ways.

So another thing the most successful builders do as well, they pay themselves first. So they either draw a market salary through their fixed expenses or sometimes on the advice of the accountant, don't do it that way. You've still got to journal it into your fixed expenses. You've got to make sure that your fixed expenses reflect the true running costs for the building company. And we see this, the most successful builders actually do that. Because then that means they're not compromising their net profit margins or artificially inflating their net profit margins at the expense of their own salary. Great.

We've got a couple more questions flying through. Robert's asked, do you typically see the 33% markup benchmark only on fixed price contracts or is it possible on cost plus as well? And if not, then what's comparable?

I'll give my perspective on this. It is possible on cost plus. I have seen it or seen it claimed, but it's not common. And it's way easier to achieve on fixed price because you imagine it, if you're putting 33% on a cost plus contract, yeah, you're focusing the client's mind on the margin there. And it's going to be quite difficult. The only thing I would say is that you wouldn't do that because on a cost plus, you'd actually calculate your fixed expenses, which are about 15%. You'd work them in as an admin fee, which means you can drop down that gross markup, which makes it a bit easier. But generally, I think, you know, cost plus is a lot harder to achieve higher margins because you're having a conversation about cost rather than value.

I think there's so much to in how you present that. Like, I think that's a great example of like, you know, actually structuring the visibility around your profit and how you're actually baking in your builder's fee is helpful. Like, separating that admin fee from the builder's fee is so key to just even like being able to explain that like speak to the value a lot more inherently as well.

A few more questions. We'll try and get through as many as we can before we have to wrap up on the hour. Martha's asked, could you please elaborate more on why the profit benchmark for remodeling and new construction is different?

Yeah, I mean, there's a couple of reasons here. One, a remodeling company is not scalable as a new construction. That's one factor. But the other, it's a lot more decision-making intensive, which is another reason why it's harder to scale. So if you think about new construction, you can pretty much systemize the process. You can put a supervisor on the job and it can pretty much run and then you can go into the office and then you start working on the business and you scale. But with remodeling, it can be done, but you need someone of a much higher skill set that can make on-site decisions because there's so many unknowns. You pull a wall down, you don't know what's behind the wall. That's not Yeah, these are not things that you can easily systemize with lower skilled people. And so, yeah, like I say, it can be done, but you're looking for much more skilled supervisors on site making those calls.

And I think maybe time for a couple more questions. Gino's asked, does it make sense to hire a fractional CFO that will be able to help with clarity on your numbers?

Look, if you're doing $20 million plus, I'd say that's probably a good level to then be doing that. Less than that, you definitely don't want to because you, as the owner of the company, you've got to be all across this stuff. A fractional CFO will be working for you but reporting on stuff, and you're going to be asking the right questions. When you end up engaging a fractional CFO on a smaller business, you basically abdicate your responsibility for knowing the numbers, and now you're being directed and driven by someone else. And as the owner, you've got to know that stuff. So I would say, and it's gonna sound biased, but you are way, way better off engaging a coach than a fractional CFO because a coach will give you all the benefits of a fractional CFO and 10 times more. So, you know, because they're able to look at all aspects of your business, not just the financials. So yeah, they'll look at the financials, but then they'll see the gaps because that's what the numbers tell them.

And then they'll have the solutions to those gaps as Mitch has said that the Sourcey numbers showed that most builders are not reaching the percentage benchmark for margins. What he's asked is, does that margin only for job costs or do you factor in overhead? So I think this is a markup versus margin question, Russ.

Yeah, look, he's absolutely correct. Most builders are not achieving these margins. What we have seen is a significant improvement. When we started coaching builders over 11 years ago now, we would do a presentation and builders would fall about laughing in the room when we told them they should be making 10% net profit or double-digit net profit. People even got up and walked out in disgust. Yeah, that was Australia. Yeah, it can be quite harsh in Australia, builders. They're a bit more polite when we took that message to the US. They tell us now that they were nudging the person next to them saying like, is that, did I hear that right? Is that true? And then people saying, I was texting my supervisor. Or I was texting my wife saying like, you never guess what these guys are saying, but they didn't laugh and they didn't walk out. But what we have seen over the years is a steady improvement. I think something like two-thirds of builders in the survey expect to clear double-digit net profit in 2026. That is an incredible change from 11 years ago when it was unheard of. But quite correct, most builders are not achieving the benchmark target gross market value. Markup that we talk about. That doesn't make it wrong. It just means that the builders that are, are the most successful. And when we say the benchmark, we're not saying that's the average. We're saying this is the benchmark that you want to achieve to be successful. Great.

Well, we are running out of time. What I'm going to do is just quickly share my screen one last time. And if anyone wants to find out more about Buildertrend or the Association of Professional Builders, there's some QR codes on your screen there. Otherwise, you can go and check both companies out on our websites. And Build a Trend are also a rewards partner with APB. So if you're a member, you can get a cash rebate for engaging with them through that platform. But I just wanted to thank everyone. So that answers your question, I think, Deborah, about where you can find more info on coaching. Go and check out our website, book in a meeting with one of our team if you'd like to have a call and just talk about your specific situation. And that'd be the best next step, I think, for you to take. But thank you, Sarah and Russ in particular, for coming on and sharing your expertise. It's been a phenomenal session. I've got a ton of value out of it. And thank you to everyone that stayed around and listened for this long and asked so many questions. We've got a huge amount of people still in the room and really, really strong engagement. So I hope you all got the value that we promised out of this session, and we appreciate you all. So I hope 2026 is a more profitable year for all the builders that attended today. Russ, Sarah, thanks so much.

Thanks so much, Will. Thanks, guys. Hope to see you at IBS.