93. Closing High Margin Contracts With Russ Stephens

When we start making real money in a building company, and I'm talking 10% net profit, all of a sudden we're seeing a few hundred thousand net profit. We get very protective and we don't want to put someone on, on a hundred $150,000 a year, that's going to eat into that. But we have to. And this is where a plan comes in handy because we can look at the effects of that further down the track and see what it's going to translate to. Half a million net profit.

Welcome to Professional Builders Secrets, the podcast for building company owners wanting to grow safely and securely. I'm your host, Will Blunt and today I'm joined by Russ Stevens, the co founder of the association of Professional Builders. Russ, welcome to the show.

Thanks so much, Will. Great to be here.

Yeah, absolute pleasure to have you on the show again. And today we're talking all about closing high margin contracts, which I know is going to be a really attractive topic for all the builders out there. What do you consider to be a high margin contract?

Well, I guess that really does depend on the, on the context. APB members. For instance, we always talk in terms of a 10% net margin, which normally requires a 25% gross margin to be added to the cost of goods sold, which is a 33.3% markup. Now that really applies to new homes with, with the guys doing renovations or remodeling projects, then the markup needs to be even higher in the region of 55%. So that would typically return those guys about a 15 to 20% net net profit margin. However, most builders aren't achieving those kind of margins because they don't have the, the marketing in place or the sales process in. They only typically mark up by about 20 to 25% which really, that just equates to a 16.6% margin to 20% gross margin, which, so if you look in the context of those guys, a high margin contract is probably what our members are achieving. But if you ask our members what a high margin contract is, then it's obviously it's going to be higher than they're currently achieving.

What are the implications over time? I guess if you're not hitting the higher margins?

Well, I mean, what happens over time is you can only grow a building company safely and securely if you've got the correct margins in place, which are building your equity and your cash reserves. And the danger is that if you don't have those things in place, you really are going to scale up on absolute wafer thin margins. Which sooner or later, I mean, when there's a downturn and you don't have those reserves in place, it's dangerous. So the implications are that your building company is going to become more and more vulnerable if you don't build your equity and the cash reserves as you scale up your revenue.

Interesting, because I'm sure there's a lot of builders out there that are probably thinking 20, 25% markup is good. So do you ever get pushback from builders about this, these numbers you're talking?

Yeah, all the time. Funny. Not as much now as we used to. When we started out in 2014, we literally had builders. They would laugh at us openly. They had no shame. We'd be standing there doing a presentation, they would just look at each other and laugh. And some even got angry. We, yeah, builders would literally stand up and walk out of a presentation saying, I'm not listening to this rubbish. And, yeah, that's, that's understandable because, you know, it's the whole belief system that's. That's operated in the residential construction industry. Builders have been conditioned over a long period of time to be led to believe that it is all about price and that if you are going to, you know, attempt to charge more than 20% or 25% markup, you know, you're. You're not going to win the job. I've even, I've heard it implied that you're ripping people off when you charge more, which is crazy when you think of the work that builders do, the expertise, first of all, that builders have, the service that they provide and the risk that they take whenever they sign a contract, they deserve to be well compensated or compensated well for that work. So it's crazy that they should be made to feel guilty about charging what they're worth. But, yeah, to answer your question, we had. We. We still do get a bit of pushback. I got to be. I got to be honest. Especially, yeah, if you're talking to someone that's doing 5 or 6 million and you're saying, well, yeah, you got to be producing 500 to 600,000 net profit on top of pulling out a 250 to $300,000 salary. They're like, some people just can't compute that because, you know, they're so used to working on finer margins. So it does become hard. But I think now that we've got the proof, we've got so many builders that we've been working with for a period of time, we've got so much proof that this can be achieved, you know, as long as you follow the processes. We don't get so much pushback. Certainly not open openly. I know, I know. Builders in the background. They, you know, they've shared with us. Yeah, they've, they've sat in a presentation and like been texting their advisor or their, the GM saying like you'll never believe what these guys are saying. Or you know, one guy said he phoned his wife, he says you'll never believe what these guys are saying. But they're not, they don't openly dismiss it. They're skeptical, which is healthy, I get that. But they're also open minded enough to, to try. We've even had guys say they, they signed up to prove us wrong. You know, they knew it was, they would, knew it couldn't be done. So they, they just signed up to prove us wrong. We're pleasantly surprised.

Is it a matter of them undervaluing their services or feeling like they're not going to close deals if they have the large markups?

Yeah, I think it's a combination of both really. The fear of not closing those jobs if you go in too high. That all again comes back to marketing because business is all about supply and demand. It's what it always comes back to. It's why we always talk about margins are linked to marketing. So you've got to generate more demand than you can supply. That's the first thing. And that builds confidence then as well. So when you're just fulfilling your demand. Yeah, that's a dangerous place to be for a building company because it does make you psychologically dependent on everyone that's coming through that funnel. They're a dead cert. They're a dead cert. I've been working with them for six, seven months. I've got to get them across the line. Now they're kind of wavering. They're saying they've got a cheaper price. I'm going to match it to make sure I win the deal because yeah, we hear this a lot. I can't afford to lose this one. I need this job. So there is that aspect. But it's true as well that a lot of builders initially, they do undervalue themselves simply because they don't always understand the finances, sorry, the ratios behind their numbers. And once we sit down with a builder and we actually show them the true costs of running the building company, we show them the true ratios and then we show them, in some cases maybe they're not clear on the difference between markup and margin. And there's no shame in that. It simply means that you haven't been shown. So never be embarrassed about what you don't know. You simply haven't been shown it. But when we show all these things, sometimes a lot of cases, builders get very angry because they realize that they've been working so hard for so little. And then when that anger, once they get over the anger, a determination comes out. And really this, a lot of this stems from what we call pricing for profit, which is a different strategy for pricing contracts where you, you build in your fixed expenses, you add that to the cost of sale, and then you add a profit to that figure, which means what you're technically doing is adding a net margin instead of a gross margin. But when we teach builders that methodology as to how to price their jobs, then they realize that the way they've been pricing, they're literally just breaking even, they're running on fumes. And it angers some builders, but once they get over that anger, there's a real determination to charge what they're worth. And they're always amazed how easy it is to say, I put the price up. And they just said yes. And it's a bit of a shock initially, but it shouldn't be because this is their value, this is what they're bringing to the table.

What, what would you say to builders that, are they feeling that squeeze? So that domino effect of maybe they didn't have a lot of leads coming in, they feel as if this is the one contract they need to land and the only way they think they can get that contract is to drop their price. What would you say to them?

Well, I think this whole funnel, you know, the success of a residential building company all comes down to education and communication. And this is fundamentally what we teach in the marketing process in order to attract better clients, hire, you know, more educated clients that then understand value. But obviously when you're at the position in the funnel that you just described, it's a little bit late for that, but you can still do it verbally. It's not as impactful as having educated them all the way through, but you can still do it verbally. And the trouble is, I think in any industry, we take for granted the knowledge that we have and we assume that it's so obvious that other people understand it as well. And we really have to go back to zero based thinking and assume that the client doesn't know too much about our industry. Because although these consumers are smart, successful people, they don't know too much about Residential construction and what's involved in running a residential construction business. And in a lot of cases, they don't like the fact that they, they don't understand, you know, they certainly don't like the fact they don't understand the terminology we use as well. So there can be a tendency to just nod and smile. So we have to take a moment to step back and just educate them on the nuances about what we're saying and make sure they're following when we talk about PCs and PSEs, LDs, you know, make sure they understand if we're using jargon and bring them along and educate them the value that you imagine you've got a successful person that you're speaking to, you start educating that person. Yeah, they love it. Yeah, they're getting more knowledgeable and then they're talking about this great builder, he knows so much. The reason they think that is because you told them, you know, you educated them so you can do it that. But you've got to be educating one to one, which is not as scalable as educating in the marketing system. But that alone will help you put at least another 2% on your price and it will differentiate you from the other builders that they're speaking to as well. So there are options to win these contracts, even when you feel like you're being played off against another builder that's maybe coming in at a lower price.

Interesting. So I guess you've said there that one of the key problems of, of scaling and building company safely and securely is related to margins. And then obviously those margins based on what you've said then is based on is related to marketing and the content that you're producing and educating your potential customers on. What other problems do builders face when it comes to growing their company?

Well, I think if we start right at the beginning, we got to look at the business model because this is a fundamental problem for a lot of building companies and it's the reason why they cannot scale beyond a certain point. And it's nothing complex. When I'm talking about the business model, I'm talking, I mean, the right business model is a design and construct company rather than a builder that quotes other people's plans. Because when a consumer comes to you with their plans already drawn up by an architect or a building designer, do you really think they're just coming to you? Like, we know that's not the case. Yeah, they're, they're, they're being told to share those plans with three other builders at least. But the reality is, I Mean, we've all seen it. I'm sure we've all had an email at some point where a consumer has put 20 different builders in the two box asking for a price. And then obviously, yeah, yeah, and you know, harsh, but maybe deserved the abuse that they got back by reply. Yeah, because it's disrespectful, isn't it, to expect 20 people, you know, 20 building companies to give up their time. But again, it's probably education. They don't realize how much time's involved. But the problem is even if it's 20 builders they're going out to or three, you're seen as a commodity. A consumer does not have the knowledge to compare two different quotes, let alone three or four. Even if they relate to the same plans. We all know that, that no two quotes are the same. It's just not a good, it's not a good business model. You know, you'll spend your life quoting for free without making any real money. So design and construct is where it's at. First of all, you've got to get the consumer before they go to an architect or a designer and be involved in the design stage. This is what professional builders do. This is where the margins are. Another one of course as well, which is probably getting spoken about more and more lately, is you've got to be operating on fixed price contracts. And I know there's been a bit of nervousness and backlash about fixed price contracts because of what we've been through with the COVID boom where some of these large building companies that overcommitted got destroyed and caught out by being on fixed price contracts. But the solution is not a cost plus. There's been hundreds of different studies on comparisons between cost plus contracts and fixed price. Fixed price always comes out way, way higher. I think it was co constructed a study on this and I think increase in margin was something like 30 odd percent. So I'm not talking about 30 odd, you know, like percent being added. I'm talking as a percentage of, you know, what a gross margin would be and added to a cost plus versus a fixed price. So you know, I get it. Cost plus contracts, they can give the perception of being safer for builders because they're protected. The reality is very, very different when you use a cost plus you're focusing the client on price, your margins under scrutiny. It's very hard to get to the type of margins we talk about on a cost plus. You'd have to be in a red hot market and very good at what you do to Achieve those kind of margins, it's extraordinarily rare. So fixed price contract is where it's at. The COVID boom is behind us. You can protect yourself with cost escalation clauses anyway. So getting the business model model correct is probably one of the first things. And then there's really, there's three components after that. You know, you've got to attract the right clients using a proven marketing system which will then generate more opportunities where we go back to supply and demand. You've then got to convert more of those opportunities into high margin contracts. And to do that you need a repeatable, full documented sales process. Something that is missing in around about 50% of building companies at the moment. And as part of that, you also need a strategy called construction slots, which will cap your supply, which brings scarcity and urgency into your sales process. Two majorly important factors in any business which you need in order to sell. Scarcity and urgency. And then finally you've got to scale. And when you scale, you've got to do that profitably because your ratios will change as your building company scales up. And that's why you need a proper estimating but probably pricing tool like the pricing for profit calculator, which will always take into account your fixed expenses and make sure that you're going to be profitable as you scale.

I love that. So a three part system attract, convert and scale. I'm guessing you can't scale before you've done the first two though.

No, absolutely. Absolutely right. And it's where a lot of building companies do end up starting especially, I mean some examples we've seen over the years, especially if they're taking advice from people that are not familiar with our industry. Now I hate it when people say like, well, my business is different or you know, this and that. But in residential construction, our industry is very, very different from almost every other industry. Builders have an extraordinarily long sales process which costs money to put people through. And if you start using generally accepted marketing principles and scale up a building company without understanding that, you will run out of money before the cash can come in to cover the money you're spending. And we've seen this happen numerous times. We, sky and myself actually attended a presentation by a top, top marketer. This guy, he was a great showman on stage, Massive respect to him. He packed the room out. He was very good at what he did, enjoyed his presentation. But as part of his pitch, he was using proof, social proof as to how well his systems work. And one of the examples he Used was a building company where he sent, I think something like eight members, family bankrupt because his systems were so good. They scaled so fast that it couldn't keep up and the whole thing fell over. And I thought, how can you use that as an example of how good you are? He was trying to say, look at my systems, they're so powerful. They blew this company up. And it was a horrific example. But it was purely because this guy didn't understand our industry. He didn't understand that the margins have to be fixed before you can scale. And that's an extreme example. But we do see this happening a lot where, you know, if you're running a building company and you're kind of on the edge for cash flow, it's very easy to mistakenly think you can scale your way out of trouble. You know, if I just had a few more jobs, everything would be fine. Like, no, it wouldn't. All you're going to do is generate more positive cash flow, which is going to mask the underlying problem and you're going to create a bigger and bigger monster. Just look what's happened with these big residential building companies in Australia over the past two or three years. They had a massive surge in demand at the back end of 2020. They signed three and four times the amount of contracts they would normally sign on fixed price contracts. And then they couldn't deliver those contracts because there were obviously restrictions on resources, et cetera, supply chain issues. Their costs went up and they ended up doing a lot more work but, but losing a lot more money faster than they would ever have done before and they keeled over pretty quick. Well, we see that kind of situation develop at a much lower level with smaller building companies over a longer period of time where they can actually be generating more work. But in the background they're probably losing about 3 to 5% net a year. When they take into account their fixed expenses that all compounds but, but because they're cash flow positive, it doesn't always get seen for years, especially if they're not producing accurate financials and then they fall over three years later with massive debts. Not really understanding where all these debts suddenly came from. Even the accountants that look at the accounts, they don't understand it. We hear them say things like, well, they were doing well until 12 months ago and then they started losing money. It's rubbish. They've been losing money for years, they just didn't realize it. But that all comes from, you know, like you say will, it's, you know, going for scaling before you get the first two components in place first, which will make sure that you've got profitable growth.

Okay, so let's talk about the components in isolation then from the attract component, which is all about marketing. How do builders attract high quality leads? Where do they advertise? How much should they spend?

Okay, well, in terms of attracting high quality leads to the business, there's one, one single strategy that just works basically in any industry and it works incredibly well for builders. I would say probably better for builders than in most industries because there's so few builders doing it. And what I'm talking about here is content marketing. It's, it's a lot of work and that's probably why we don't see many building companies do it. But the building companies that do this are absolutely smashing. They don't have a lead problem at all. You know, they never have had a lead problem while they've been doing this. And, and you can see the way these companies operate. You know, life is just so much easier for them. But just to explain, content marketing is all about producing educational information for your target market that is actionable. So you're really addressing the topics that are on your consumer's mind when they come to a builder. You know, what are their, their fears? You know, what are their questions? What, what do they ask you in those first few meetings or even further down the funnel? Let's get those into articles and get them on our website under a blog. And then when we've done that. Because that sounds like quite a lot of work. When we've done that, let's, let's create a video script from that blog as well. Yeah. Which is just editing a few words really, and just do a talking head into camera, camera. And, and then let's use those videos on social media, on YouTube, on Facebook. And then let's, let's splice them up into smaller clips and even the text, let's take clips of the text of the, the blog article as well and let's use them as social media posts. You know, from one article alone, one blog article, we've got a full blown video, we've got a full blown blog article, but we've got, We've also got 15 social media posts. So now if we're doing one a month, we can post every other day on social. And the other thing we get, we take this article, we can turn it into what we call a soap opera sequence email campaign, which means we're going to cut that article into three and we're going to run an email campaign where, you know, one, one email leads into the other, you know, bit like a soap opera. We might leave them on a bit of a cliffhanger as to what we're going to tell them the next day. But that's another bit a of, of crucial content. So now, yeah, we've got emails, we've got social media posts, we've got blogs, we've got videos. And this information is so valuable for consumers, you know, especially if you're in a, in a smaller area, you can dominate your market. You'll get people stopping you in your street, you know, you'll get people walk in talking to you like they've known you for years because you're their friend and they want to build with you. You're that you're the builder they trust. So content marketing is extremely important and it's, I guess it's a bit like a building company, isn't it? It's getting the business model right, that's getting your marketing model correct from the start. But when you got the correct model, yeah, it's not enough to do the marketing. You've got to amplify it. And the way we amplify is through advertising. And the two most proven channels right now at this moment in time are facing Facebook and Google and maybe a bit of Instagram as well. That, that kind of works quite well. But Facebook and Google is where you're gonna generate probably 80% of your leads.

I love that. The thing I love most about it, Russ, that process is. Well, everyone's short on time, I guess and builders feel that pressure more than most. And you can chunk all of that work into one section and then it kind of gives you content for a long period of time.

Yeah, and this is. Oh yeah, we've actually got an action plan in our members portal that tell exactly how to do that. You start with a brainstorm with your team, you get the ideas. What's the conversation going on inside a consumer's head? How can we answer those questions? And leveraged as well because we can do it verbally in a one to one conversation, but much better if we can do it en masse. So yeah, we give them the process for brainstorming the ideas and then just getting those articles written. And builders don't have to do this stuff themselves. I mean, in this day and age it's easier than ever to bring in contractors to do the work for you. As a builder, you've got all this knowledge, but you don't necessarily have the copywriting skills to write it. In the best kind of structure. So engage a copywriter and what they will do is interview about you about these topics. They'll know the questions to ask to bring together top quality structured article. And we'd probably Recommend Doing about 12 in a block because like you say, this really leverages your time. So you get your copywriter in, they create all the structure and then admin team. Well, I mean I guess next thing get a videographer in to actually film. I mean you can do it on your phone. That works. Yeah, pretty good. But yeah, you'll want to get more professional year on year. So we like to see builders go into a studio and record this property properly. So yeah, the videographer is going to film it. They're going to do all the editing again. Yeah, it's, it's protecting your time. And then of course now you've got your, your blog articles, you've got the content is purely an admin job now to, to schedule that out for the next year. And yeah, what you got the next year, you've got social media going out every other day. You've got an email campaign of three emails once a month. You've got a blog that you can release every month. You've got all these videos that you can put on YouTube once a month. It's y. You've got a phenomenal bank of content which I guarantee if you do this, it will transform your business. And I guess the other good point probably worth just mentioning, it's like in case you're thinking, well yeah, but where do I start? Where do I find these people? Apb, we've got them all for you under rewards. You don't even have to be a member to see the partners that can do these services. But if you are a member, obviously you get cash back as well. So it's even more beneficial. But yeah, I would say 168 hours a week, we're all the same, we've all got limited time. But if you want to do more with your business, you don't always want to work longer and harder. Bring other people in by their time and bring other people in.

Yeah, exactly. And then it can literally be a day or two of your time which produces content for the whole year. Sounds amazing.

Yeah, highly leveraged. That's what we want to be doing. Yeah, absolutely, absolutely.

So you mentioned that you want to amplify the content you create using Facebook and Google Ads. How much are builders spending on advertising?

Okay, well, going to create a bit of a shock here. 3% of your revenue or your target revenue, I should say that should be what you're aiming to spend. So just to clarify that if you're maybe you're at $3 million a year revenue, but you've got a plan to go to 5 million in the next year, here we're talking 3% of 5 million. So 150,000 on your marketing and advertising. So not just purely the advertising, because you know, you could allocate some of that to your marketing as well. But these are the kind of numbers that we're talking about. The only thing I would say on that is be careful who you engage to spend that money. Because it's not just a case of okay, I'm at 3 million, I want to go at 5. You know, I, these guys said I've got to spend 3% to get there, I'll spend 3%. Careful who you engage. They've got to understand our industry. If it's a marketing agency, they've got to have experience in service based business. But our data proves that the builders that spend more on advertising have a higher gross margin and more importantly, a higher net margin. And the reason that's important is because, because yeah, you can spend more money and create more demand for your services and increase your gross margin, but if you only increase your gross margin by say 1 or 2% and it's costing you 3%, your net margin is going to be lower. But our data proves that not only do these guys that spend more on advertising have higher gross margins, it translates all the way to net margin, even when they spend all that money, which is incredible.

Yeah. And I think what you'd underestimate is the intangible benefit of the credibility that the builders are building through all of that content they're getting out there. So when it comes to that question of price, they're the expert now. They're not like, they're not just someone else they're shopping around to quote for.

Yeah, the intangible. There was a quote, wasn't there, years ago? It must have been back in the 30s or the 40s where someone said half of my advertising spend is wasted. However, I don't know which half. And as marketers, we kind of laugh at that now because we're in the digital age and we can track everything, or so we think. And we kind of laugh at the people from yesteryear. But the truth is there is still a massive intangible. We see it ourselves, don't we? We up our spend on paid advertising, all of a sudden our organic Leads go up. It wasn't through what we were doing on SEO. It was pur. Because people saw the paid advertising, did a bit of their own research, came through organically. So, yeah, you're right. There's this massive intangible. But also in terms of the proof, the authority, that is so, so valuable. And how do you measure that? It's very hard to measure those components.

Well, the other piece of that is the touch points as well, Russ. I mean, you notice all the time people are getting exposed to an ad on Facebook and then they're seeing a blog post and they're seeing a social post, then they're having a call with something, then they're visiting a page on your website. So there's. It's hard to actually draw a straight line from a prospect right through to a sale.

Yeah, I mean, there's the 711 rule, which is 7 hours and 11 touch points that we always trying to keep in mind. Because sometimes you can do a lot of work in marketing, and even as a builder, you might get someone to a meeting and spend an hour and they're still not quite sure. And it can feel frustrating. But if you constantly think 7 11, you're just trying to get them further down this path. And it's an ongoing process. And, yeah, the 711 is a proven rule of what it takes for someone to make a buying decision. It's harder to measure now, I think, because so many people, if you think five or six years ago, people would opt in and you could kind of measure their journey a lot easier. But now there's so many people that don't opt in, and they're doing their research in the background. I mean, how many people have builders have we seen that listen to this podcast, for instance, for months and then sign up to membership? And from our visibility, they look like they just heard about us and jumped on. But when we speak to them, we found that they say, no. I've been following you guys for ages, and I thought it's time to jump in. And it's the same for builders. It's not always easy to do those measurements, but, you know, we have to measure what we can, I guess. And as long as we're on top of that, then, yeah, we've got to, like, factor in some invisible stuff.

I'm sure you and I could talk about marketing for hours. But getting back onto the topic, I guess once a builder has attracted their prospects using those marketing tactics you're talking about there, the next stage is conversion version. So how do they Identify those best prospects that they want to be having conversations with.

Yeah, look, that's so, so important. And it's, and it's a difficult thing to do when you don't have an abundance of opportunity. Because we become a little bit more desperate, don't we? You know, if we've only got like three opportunities, we are, we're going to try and close them all. But we, you know, the problem is we can end up trying to fit a square peg into a round hole. So it's very important that talking about here really is the sales process now. And it's very important that we have a structured qualifying process at the beginning of our sales process. And that starts with seven disqualifying questions. And these are closed questions. They're completely emotionless and they are firm disqualifiers. If the consumer gives us the wrong answer, basically or the answer that we don't want. Yeah, we're talking about things like land. Do you have land? If the answer is no, they're not qualified. They can't build if they don't have land. You know, we can't get emotionally attached to someone. They're going to sit on our database. They're still a prospect for the future, but they're not an opportunity right now. Location. If they sit outside our footprint again, you know, there's no point, you know, we're not going to make that one work. You know, what type of build are you looking to do? You know, if we specialize in high end custom homes and they're looking to do a renovation, our business model doesn't suit that type of work. It won't be profitable for us to take that job on. Have they got designs done? Because if someone, you know, if we are design and construct company and someone comes to us with designs, you know, if as long as we have an abundance of work, we're just going to say no, you know, I know there's always exceptions, we can make these ones work. But if we've got a queue of people that don't have designs done, and that's, we know that is a proven model that works and gives us the highest margins, it's a flat. No. If they do have designs, it's, you know, we don't, we don't need those people, as harsh as that sounds. So, so these are all closed questions and they're instant disqualifiers. And from there we then move on to the open questions, which is part of what's known as the discovery process. And the reason this, this is so Important to separate them is that we can disqualify some one within three or four minutes on the phone and then we don't want to invest any more time, you know, because you know, we've got to protect our time. But if they get through the qualifying questions now we got to be prepared to invest a lot more time and, and go into discovery because we got to identify the most the emotion behind what they're doing. And the reason for that is as human beings we buy on emotion and justify by with logic. So we want to understand what's their biggest fear going into this. What's the most important thing they look for in a builder. Have they built before? What did they enjoy about the process? Now all this is golden intel that we are going to use in the future when we deliver the contract proposal. Probably along the way as well. But in the contract proposal to close the deal. But other intel like the family, the names and what they do for a living, this is all good intel that we're going to use to build that rapport on the way through the process. But there's a lot of gold that we've got to document which is why we have to use a CRM to keep all this information logged and all of those things we learn. You bring that out in the contract proposal, you're taking it away from a logical decision, which is a list of inclusions in the price to an emotional one because we're going to build out the contract proposal in a slightly different way that taps into the emotion. So that first part of the process is really, really important, the qualifying.

Yeah, I love that you kind of, you're taking them on an emotional journey I guess from that sales process right through to the end of the build. Right where you're basically allaying their fears and all those things you just spoke about.

Yeah, yeah. And we'd love it to be a tick and flick, wouldn't we? I even heard of a salesperson in a display home basically had a, had a clipboard and a checklist like. Yeah, these are all yes and no. It doesn't work like that when you're selling high ticket items.

Yeah. So how then do you close them? So you've got, you've done the discovery, you've got the information, you've qualified, the fact that they don't meet any of those disqualifying criteria. What happens next?

Well, I guess there's two ways you can do it. You can do it like the old school way which if you're good at saving sales yeah, this will probably work for you where you, you basically ask for the sale. Yeah, the, the consumer will come up with an objection because it's a knee jerk reaction. It's what we always do. Suddenly we're being asked for 7, $800,000 or more. You know, I need to think about that. That's a, that's an objection. It's a knee jerk reaction. The best sales people amongst us can overcome that objection and get the sale. But you know, most, most, most of us aren't built like that. So the, the way that I would recommend do it is through construction slots. And construction slots is simply taps into the supply and demand formula. So if our building company is set up and geared to do say 12 homes a year, for instance, that would be one opening, one starting slot per, per month. So we get that mapped out and then our goal is to try and get twice as many people to the prelim stage as we have construction slots. So yeah, 12 a year. We're looking to get 20. We sign up 24 prelims over the year. We've now got a two for one ratio for every construction slot. So our demand exceeds our supply. And now when we're talking to a prospect and we don't wait until the last minute to do this, we're going to do it all the way through. So we're engaging the prospect. It's one of those discovery questions. When are you looking to move into your home? We don't ask them when the, they want to start because you know, consumers, you know, they want to start. I mean, you know, we're in July now, recording this, you know, they want to start next month and be in by Christmas. Yeah, they don't always understand, you know, that's fine as long as we're talking about Christmas, you know, the year after. But they don't always understand like how long the whole prelim process takes. So yeah, best to ask when they want to move in. And then as builders, we got the expertise to kind of, kind of work backwards from that and, and educate them. But part of what we're talking about as we get closer to time is I've got a construction slot open on the 3rd of March, April, May is taken, the next one is June. So which one would you like to aim for? Well, they all want the first one, don't they? March. And that's fine, but we've got to get all of this done. Yeah. By the end of November to be in that position. And it's like the, the attitude has changed to the consumer, what do I need to do? And then we're reminding them of holding this slot open for you, which, you know, we have to be careful how we use those because we really only want to book a slot once we got a signed contract and a deposit, even if that slot is, you know, eight months in advance. We only really want to close them off at that point. But we always want to be talking about the availability of slots and end, I've got someone else. If you can't commit, if you can't get this done, I'm gonna have to let that go. And then we'll have to wait for the June slot. So construction slots brings in scarcity and urgency. They are the two things you need to sell anything in life. And it transforms building companies. We've seen it, haven't we, Will? I mean, I'm sure you've interviewed plenty of builders that talk about construction slots as changing their life. And it means they don't have to be great salespeople. They can just be catching casual themselves, really. But all the selling is being done for them by construction slots. So, yeah, if you want to close quality prospects, bring construction slots into your sales process. That's the easiest way.

Yeah. Jim Schneider's episode. I interviewed Jim Schneider from Schneider Construction in the USA and he spoke about how construction slots just changed his whole business because he's not a natural salesperson. And he found by creating, just having those slots there and creating that scarcity, the real scarcity, he didn't feel the pressure to need to sell. It just happened naturally.

Yeah, yeah, yeah. It's phenomenal. It's a great, great process to implement.

Okay. So you've attracted the leads you've built, so you've had those discovery questions with them and then built the construction slots. So you've kind of created that scarcity and you're starting to really hum along as a business. At what point can you scale safely and securely?

Yeah. So you've got the right model in place. You've now got your marketing firing, creating all those opportunities which have led to twice as many prelims as you have construction slots. Now you've got a plan. First and foremost. I would say, ideally, as a business, you're already doing your quarterly strategic planning and your annual planning. But before you scale up, you can't do it off the cuff. You've got to have a documented plan of what you're doing, doing and when. Because when you're looking ahead, this is what you're going to be doing is increasing Your supply effectively when you scale up. So you're going to be putting on more construction slots. Maybe you're going to go from 12 to 18 for instance if you want to grow by 50% over the course of a year. So you put that into your business plan. Now we know exactly when the revenue is going to be coming in in which means we also we know when we need to put more supervisors on so we can put that into our budget. But before that we need to be scaling up our marketing here and then we got to be making sure, well can our sales resources handle these extra leads and turn those into contracts? Maybe we need to put another salesperson on. But when we look at the numbers, we know the resources you need to pay put on and when we need to put them on. And at this point what we will experience are the negative effects of what we call the S curve. Now the S curve is our net profit. And as we scale up in an ideal world it just goes up like that. But the reality is it follows an S because we put these extra resources on which increase our fixed expense ratio takes our net profit down in order to get us to the next step. So we get a serious series of S's and we have to embrace the S curve. We can't be afraid of it because it's very easy. When we start making real money in a building company and I'm talking 10 net profit, all of a sudden we're seeing a few hundred thousand net profit. We get very protective and we, you know, we don't want to put someone on, on a hundred, $150,000 a year that's going to eat into that. But we have to. And this is where a plan comes in in handy because we can look at the effects of that further down the track and see what it's going to trans a million net profit, et cetera. So yeah, we've got to have a plan and then we've got to execute the plan. That's when we scale.

So how do you embrace the S curve then? You've worked so hard to build that net margin and get it up to 10% and now you're talking about adding into that so you can scale.

Yeah, look, I think it's just really mindset like understanding that it's going to come out at the other end as long as we follow the plan. This is where coaching can help as well. But also I think networking with like minded professional builders because yeah, I think it's one thing for us as coaches to talk about this is what you need to do and this is how you do it. But especially in maybe older builders, there's still a little bit of hesitancy and talking to builders that have actually been through and done this, that just fills a builder with so much confidence. We saw a great example of this quite recently with a top professional builder in Adelaide called Ryan Stannard, who, who was part of our retreat that we held for our high end builders in Hawaii recently. And when he told his story about what he'd achieved in the last year, it. It just energized the whole group because here is one of our own who's actually done what I would like to do do, and he's come out the other end of it. It just fills us with so much belief when we see these, these positive examples. So I think, yeah, mixing with the right people is important. A coach is always helpful as well, you know, to give us that accountability and keep us on track. But yeah, just, you know, keep looking at your plan. Don't create a business plan and put it away. Keep referring to it. You know, I do this all the time. You know, it keeps me energized. Look at where you've come from in the last couple of years and where you're going.

Yeah. And Ryan even says it himself. If he can do it, then anyone can do it with the right, with the right systems and processes in place.

Yeah, look, a part of that is true because, you know, there's no special skills you need, but you do need grit, determination, tenacity, which Ryan has in abundance. So in terms of following the process, Ryan's absolutely right. Yeah. He's saying, if I can do it, anyone can do it and any builder can do this. You do far more complex stuff on site than following these processes. But Ryan has exceptional tenacity and drive and you do need that.

Well, Russ, you've provided so much value on closing high margin contracts today. My biggest takeaways were starting by getting your business smaller model. Right. And that's having fixed price contracts and a design and build business model. Then it's all about attracting, converting and scaling. So spending 3% of your annual revenue on marketing, documenting your sales process and asking those discovery questions, and then embracing the S curve and scaling profitably. But do you have any other further advice for builders today on how they can close high margin contracts?

Yeah, look, I think in terms of maybe one of the most important components of that that you can get working on straight away is your sales process. Because if you don't have a documented, repeatable sales process that is going to hurt you considerably. And even if you do have a sales process, it's always worth checking against a proven model that's delivering high margin contracts. So if you fall into either of those two groups, I would recommend downloading our Builder Sales Page Blueprint, which is a very comprehensive guide through the APB sales process for residential home builders. So I think we can put a link to that download on this podcast episode, but I would highly recommend taking a look at that. Even if you've got a sales process and comparing it to what you're currently doing, I think you'll find a couple of ideas. And if you don't have a documented sales process, this is a great place to to start.

Yep, that's a great starting point. Thanks Russ, and I'll make sure we can share that in the in the show notes for the episode. But thanks for coming on the show today. Thanks to all the listeners out there who have spent an hour with us today and listened to Russ talk about the whole process of closing high margin contracts. If you like the show, please subscribe to Professional Builder Secrets and if you're feeling generous, leave us a review. But until next time, have a a great day.

Thanks. Will.