The Big Squeeze - Stop the Bleeding

Hey, welcome back to the contractor training room where we are talking about this thing we're calling the big squeeze, where revenues for our companies over the last year have taken a severe hit. Some markets are down 30 to 40%. But we built our businesses for growth, but we had declined. So our top line revenue, instead of going up continually like it has for the previous six years, might have actually flattened or worse yet, taken a dip. And then we also have the price of a job that's been steadily rising, but starting to hit up against market conditions that aren't allowing for a lot more. And so our top line revenue for the company and for the job have started to flatten out or maybe even decline in certain circumstances. And so what that is is that's pushing down. Think of it as pushing down. And then we have these other things, cost of goods sold and overhead that are pushing up. And it's creating this squeeze that's happening to our profit that's ending up leaving us without as much left over as we're used to in running one of our businesses, which may make us not viable. It could end up putting us out of business. And God forbid it does something terrible like bankruptcy and things like that. And we don't want any of that as a whole. Reason that I'm doing this entire series in the first place is hopefully to help you guys not only see it and understand it and put yourself in the shoes like, hey, yeah, I have seen that. But then to do something about it. And that's the important part. And for the last three episodes, we've been talking about the Neuro story selling system. And that Neuro Story selling system, what it's designed to do is to pour money into your bucket. But there's a problem that money, yes, we can increase our closing percentages, which would add money to our situation. We could increase the value of each one of our jobs to add money to our situation. But we're shoving that into this bucket. And unfortunately, this bucket has some holes in it that are leaking and that's leaking out that same money you're putting in out of your business. And so where do we find this ability to plug these holes? So let's, let's plug a couple of the holes today and then we're going to talk about plugging a few more of the holes in our next episode and then we'll wrap it all together and kind of give you exactly what this should look like in the end. So episode five today is all about buying right and paying fair. This idea that I need to buy my materials at the right price. I need to pay fair wages. All of those things are super important. And how do we do this in a way that starts to plug some of these holes in our bucket? And so let's talk about the material side of things. Let's talk that this one right here is our material side. And there's a couple of things about materials that maybe we don't realize or know. And between materials and labor, what we're seeing right now is anywhere from 55 to 60% of the job is going out to that alone. So if we could just shave a point or two here and there would make a massive difference over an entire year. So in order to shave the numbers down off of your materials, there's a few things that you need to do. Number one thing that we need to do is a price audit. So when was the last time that you compared your material invoices to the actual price that you negotiated? I'm involved with some technologies out there that are reading each one of the invoices coming in, comparing it to the price list, and saying, hey, is that accurate or not? And what we're finding is about 20% of the time they're not. It's very rarely that they're less. They're usually more. That could be a key code push, could be somebody doing the wrong button or discount applied. But if we don't audit the bills that are coming in, we're never going to know if we're paying the right price. And so I want you to put yourself in the shoes of your people that work for you and really think about what do they do when one of those invoices come in? They look at a job number and go, oh, job number. That goes in QuickBooks over here, and that goes in the CRM over there. Yay. I put that thing where it belongs. And the reality is, they didn't check it. If they did, it's very random checks. And so we're not catching this leaking money out of our bank account because it's dripping through, because we're not auditing the prices of the materials that we're buying at the price that we negotiated. So that's number one, price audit. We needed to audit our prices. Number two is our purchasing and rebate game. Are we up on it? Do you negotiate the prices at which you buy your materials? Do you challenge the people that you buy from to say, hey, we want to get the best possible price, or do you just trust that they give you the best Possible price. Here are some things that have happened over the last 14 years of coaching you guys that we see that you just trust that they're giving you the best possible price. That's number one. Number two, you don't ever check back in with them. You start to grow your business and they just keep on charging you. Where if you would just go and ask and say, hey, I bought a lot of material from you, I'm thinking about maybe going with somebody else. I'm having somebody else try to get my business, they would actually negotiate your price down because of volume. And then also, are you asking for all the rebates you should get? Are you getting the rebates not just from your distributors, but from your manufacturers as well that are in line with your market and your volume? And how do you ensure that we actually teach this to our clients. How to make your distributors and your manufacturers compete for your business to get your price down. And we can usually shave off 2 to 3% just in our first go round with a client. Now think about that. A $5 million company, if I could shave off 2 to 3%, that's a hundred to $150,000 straight to the bottom line, just right then and there. And how big of a difference would that make in your gross profit and your net profit margins? And so think about that for a second. Are you actually negotiating your purchasing and your rebates to at least equate with the market based on who you are? So that's number two. Number three is what we call the dumpster tax. Now, guys, it's been a pretty good six, seven year run here. Like I said, lots of jobs, lots of revenue, companies growing and all the other good stuff up until about May or June of last year. And then all the bottom fell out. Market conditions changed, tariffs got enacted, uncertainty, all these things changed the market. And now we're not on the trajectory that we were before, and we're not paying attention to everything that we need to pay attention to. And so we are ordering jobs maybe a little heavier than we need to. So we are ordering at 10% and 15% waste factors when it could be 8, 9% up to 12 or 13%. We're also not ensuring that the leftover materials are getting back to where they belong. So we get a credit or they might just being eaten. They're the dumpster tax. Like, hey, I want to get paid for these extra shingles. So they mysteriously just. We used every bit of them. Is that reality? Is that true? Like you, that perfect of an order that every single time you use every single shingle and everything's great. There's no bundles left over anything. They're usually asking for more bundles so they can get paid more. We're going to talk about that in labor in just a minute. But we don't want to have this dumpster tax of wasted materials that we're not returning. That ultimately, when we've done research on this, is another 1%, 1% that we could add immediately to the bottom line. Now we're talking about $200,000, $200,000. I don't know. You can do a lot with that. Maybe some bonuses for people and taking care of your people so that they stay with you. Maybe a vacation, Maybe it's a new piece of equipment and there's a lot of money right there. This price audit one is another 1 to 2% that we're losing. We're leaking out of our bucket in those three areas. And so these are the some of the things that we're going to talk about, how to do it. We're going to give you the tools to take to your distributors and make sure that you get the best possible price. We're going to let you know where you should be in your market, what kind of discounts and rebates you should be getting. And we're going to do all of this in that virtual intensive workshop that we're going to be doing online March 5th. But you can do this on your own. You don't need us. Go do these three things. And you'd probably be surprised at how much money you might be saving in your business. So that's material. Let's talk about the next one that up out of our way. And that was all materials. Okay, now let's talk about the other one, labor. Now, labor to me is a near and dear thing for me. I am grateful and thankful for every single crew that goes out there, works hard, busts their butt and does quality work. We could not exist without them. We should treat them with grace. We should treat them with love. We should care for them because they are just as much of a part of our company as anybody else. But we should also pay fairly. And so what do I mean by that? What does it mean to pay fairly? Well, over the last few years, we have been paying get the right one here. You got to think about market versus loyalty. And so we want to retain our crews, but we don't want to retain our crews at the cost of our business. And so we have to understand what Our market rate is. If we don't understand what that market rate is, we're going to struggle. We actually have quite a few tactics that help understand that. What's the market rate going for my market and what kind of volume do I have? You really need to think about volume in this equation too, that if I have more volume than the other guys out there, I have more steady work. And that would be something that somebody would want in their lives of stability, not one offs here and there. And then we also have to consider loyalty, that, hey, we may have worked with these crews for a long time and that allows for us to. That they deserve to be paid fairly. And so we want to make sure that we do pay fairly, but we don't want to pay it at the price of quality. So how do we incentivize our crews to do high quality while keeping our costs down in a fair market? Because what's happening is those costs have gone up and if we don't push back, we're not going to have anything left over and they're not going to have a place to work. And so we have to be fair and equitable and maybe even a little bit better than market rate. But we don't have to be ridiculous. And I've seen so much ridiculousness out there. And that comes really from a supply and demand type thing. We have more demand than, I'm sorry, we had more supply than we had available labor. So we went out and competed against ourselves and against our own industry and said, hey, you're working on that roof right there. For $60 a square, I'll pay you 70. Not 61 or 62, not 65, I'll pay you 70. The next guy came along and said, I'll pay you 75. And you just get completely out of control. And now you set expectations. Going to be hard to reel back off of. But how do we. How do we reel back off of that and stop paying this loyalty tax? Well, we can get involved in quality. We can also get involved in speed. We can't speak sacrifice quality for speed. But if we do things quicker, we do it well, we do it clean. Hey, I'll pay you more, but if you don't, I'm going to pay you less. That starts to make things fair. And we have some mechanisms that allow for that. We also want to get standardized. Okay, what do I mean by standardized? In other words, this is my base rate. I have a rate for the things that we do, and I don't pay for everything. I have A measurement. That is the measurement that we're going to be using. That's what I'm going to pay based off of and our work order of the things that need to go on that particular roof. And this is what we pay for those things. And we've kind of gotten nickeled and dimed along the way because it used to be put the roof on and it's $75 a square. But then it was well, if it's steep we're going to add some more. If it's two story, we're going to add some more. And those are both understandable. But if we're going to put drip edge on, that's going to cost more. If we're going to put a ridge vent in, that costs more. If we're going to put in low profile events that costs more. We're going to do this, that step flashing. That's all part of doing a roof. That's what we were paying the price per square for before. So we want to get standardized in the base things that need to be covered. So your price per square. Okay, you want to get standard. This is, this is what we pay. If you want to work for us, this is what we're willing to pay you. And that is based off of market and volume. It doesn't always stay the same as something that can come down. It can also go up. Has everything to do with supply and demand. And then we also pay. I got no problem. Second story. And I have a number for that and I have steep and I usually have a couple of numbers for that one for 812 to 1012 and then from 1012 to 1212 and everything after that is negotiable. But this is how much more I pay for each one of those. And I standardize those rates. I might pay for a chimney that needs to be reflashed if they have the skill to do it. But I am not ever paying for step flash ever. No way. And if that costs me a crew, that's fine. I'll find another crew that's willing to do the work for me and still do it with quality and speed. So we don't want to get nickeled and dimed. We want to pay fairly. We want to really take care of our crews. And there's other ways to take care of your crews. Bonuses on quality. They want to make more. Do great work and I'll give you a bonus. And I standardize those bonuses as well. You don't have any warranty repair calls backs for a month of Working with us, and you do at least this many jobs, whatever that number is, I'm going to bonus you a certain amount per job. Might be 50 bucks, 100 bucks, something like that, but it's there waiting for you. They'll mess up, so they can still get the good money. But you got to think about where we're losing money is when we got to go back. We lose all that time, we lose opportunity, we lose doing the next job because we're dealing with the job that was not done well. So we got to standardize our pricing. So this is just a little bit of how we're going to help you guys in this virtual workshop on a cost of goods perspective. And that's what this. I keep doing that. That's what this bucket is up here. This bucket is your cogs. If your cogs are superseding 50%, you need. You need to attend this virtual workshop, because I guarantee you we'll get it below that number. Most of you are dealing with 55 to 60%. Now, think about that. If it's just the 55, that's $250,000 a year on a $5 million company. This is leaking out of your bucket. Let's plug the holes in those buckets, keep that money inside, and help you guys be more profitable. Now, if you want to attend our virtual workshop or find out more about it, there's a QR code right here. Make it bigger so you guys can scan it. Let us know your interest. We're going to be doing it on March 5th, and we're going to be doing owners and key personnel, usually an operations person or a technically advanced person that we're going to be working with in the afternoon. This session is going to be three to four hours. We'll start at one, go to four, maybe five if there's lots of questions. And you are going to get an inordinate amount of stuff. First off, a cogs checklist and exactly how to go through that cost of goods sold checklist and make sure that you're spending the right money with your crews and saving the right money on your materials. So that's going to be the first thing. We're also going to have a supplier negotiation system that we're going to give you exactly how to negotiate your pricing so that you get the best possible price. And then finally, we're going to have a labor rate normalization guide. So we're going to get you that guide. That's just part of what you're going to get. This is Just from this episode. I have another episode coming up right after this where we're going to talk about hybrid workforce and what that might look like. But this is saving on your cost of goods. How do we do that? If we can just move that number a couple of percent, it makes a huge difference. Now think about what we're doing. And just for a second here, think about this. If we can move our cost of goods down just 1, 2%, that's adding another 50 to a hundred thousand dollars on a $5 million company. But if we're also raising up our prices by a percent or two, that's another 50 to 100. There we go. Now we're. Now we're force multiplying the situation. I can't wait for our last episode where we show you like it's going to blow your mind how to 19x exactly where you're at. I'm going to prove it to you. So this is episode five. We're going to hop into episode six here in just a second. We're going to get into the hybrid workforce and how that can save you those points that you need to save to increase the gap of your profit, make the money you deserve to make for running your business. We've seen too many businesses at a 2, 3% net profit this year. I'm sick and tired of it. I want you guys to be minimum 10, ideally 15, and this virtual workshop is going to allow you to do that. We'll see you in our next episode.