EP16: Are You Checking Your Vitals?

Well, you're not alone. A lot of contractors have no idea. I'd be a liar if I told you I've been doing job costing for 20 years. You know, it's one of those things where you do it and then you're like, okay, I feel like I'm making money. And then you scale your business and it changes. And then you think you can just fly by what it used to be, but things have changed. And so, you know, prices change. And so you just, you kind of get glazed over. But a lot, a lot of contractors have no idea. There's probably contractors that have gone through their entire career and lived and died. by their own sword and never even learned what job costing was. That's a shame.

This was a real eye-opener for me, and I hope this kicks this whole thing off. It basically is like how much it costs you to put whatever product you are selling or delivering or producing in someone's yard. And in the easiest, easiest, most simplest sense is you redo a kitchen. Like how much did it cost you? to put in their house. And what happens is it's like, oh, well, I got workman's comp and my labor and I had, you know, five guys for three days and then 10 guys for 17 days. And I had the Home Depot bill and I had this bill and that bill. And like, you know, and then my office helped out and, you know, then I ran into trouble and then I had to hire a plumber to bail me out. And like, the reality is, how much of the cost do you put that kitchen in that person's house? That's how much it costs. That's job costing in the most simplistic thing. It gets complicated when you try to, you have all these moving parts and the word problem and the mathematical problem becomes so complicated. You lose sight of just how much did it cost you to build that kitchen in that person's house?

But did you track it? Did you, did you like confirm that that's the case? Did you see, here's the problem. Contractors are moving so fast and they have so much coming at them. And there's so much, you know, like, you know, Hey, my girlfriend's sick. I can't come to work today. So the employee this, and like they, they're always scrambling. And when the job is over, they're already like, I got to get to the next job. You know, I, My gut says we did okay. Let's, you know, let's move on to the next job and let's not track it. And that's where the big failure comes in because you don't really know what you did. And it's like, it's the baseline for everything that a contractor is doing from the future, from then on out. It's a baseline. You need to know the numbers. Yeah.

I mean, that's the thing. I mean, a lot of contractors just work off their gut. I mean, that's the reality because that's what I did. I guarantee that's what you used to do, Brad. You work off your gut. Like you bit it, like, oh, I'm going to do really well right here. And like you either kick ass and you don't check the numbers because you're like, I killed it. I freaking crushed this job. You know, I got it done way faster than I thought. I bit it high. I feel amazing. I crushed it. And then there's the flip side of that. It's like, oh my God, I'm getting my ass kicked. I got to get out of this job. What's the fastest route to, you know, move on to my next project so I can, you know, recover? And then you're like, oh, I know I got my ass kicked on that job. I don't even want to check the numbers because it'll make me mad. I'm just going to get on to this next job and hopefully make a recovery. So I think there's a distinction between, hey, I'm just going to go off my gut and I'm actually going to, you know. sit down and check it out. And that's really a big factor for us right here.

Exactly. But I mean, a lot of that's to fill in the gaps, right? But, you know, you're talking like rainbows and unicorns here because I promise you right now, I promise you, Brad, a lot of our listeners, they're like 45 to 65% gross margin. That's a freaking pipe dream. You know, a lot of contractors are working on smaller numbers than that. I've had communications with contractors that are bidding. at 25 to 35% gross profit, and then they get into trouble and then they don't want to double check their stuff. And like, so imagine that for a second, you know, if you're bidding at 50% gross margins, you get into trouble, you end up at a, you know,35,40% gross margin. It's not a disaster. But if you're bidding at 25 to 35% gross margin and you run into trouble, it's a, that's a tough, that's a tough road. That's a tough lifestyle. Well,

Yeah, for sure. Listen, roll with me on this one for a minute. I hope this works out okay. Here's a question, and I hope this analogy comes out right. Have you ever found yourself like 20,30 some odd pounds overweight, like fat and sassy? Just give me a yes or no.

Nice. That's amazing. So like, listen, I have two. So here's what's happening. When you look at yourself in the mirror every day, you don't see the half a pound here, the one pound there, the end of the week, you're two and a half pounds up. And all of a sudden, you know, six, eight,12 months later, you're 25,30 pounds overweight and you don't even realize it until you see a photograph or someone you haven't seen in 12 months is like, bro, what's up? The hamburgers, you need to line up on those hamburgers and fries, right? Yeah, this is what's happened, right?

Okay. Yeah. So this is what happens. This is what I believe happens to so many people. We get caught in this trap. I got caught in this trap. Number one, I did the same thing. I got married. We had these big dinners every night. We watched movies. We got fat together. You know, a contractor in the beginning, most of the contractors that are coming up, a lot of the entrepreneurs that I know that are our peers and our colleagues and in our groups and that we're coaching. they come up by themselves, they get an apprentice, they get things figured out, they're making great money. They're making great money. They've kind of figured it out. But then they get to a point where they need to hire someone. And then that changes the perspective. And then they're still bidding as if they were by themselves. And then they have to have an office manager. And then they take on more expense and they have to get another truck. But they're still going off their gut intuition from when they were solo, when they were a solopreneur. And now, you know, that entrepreneurship. kind of escalates and they start to scale and they don't even realize they're doing it. And the problem is it's happening so gradual and the expenses are hitting their job so gradual that they don't even really realize it. And then they were making 40,50,60% gross profit and all of a sudden they're doing the same jobs and they're making 25,30% gross profit, but they don't even realize it until someone catches them. And says, how much money did you make on that last job? He's like, well, I don't, I mean, I usually do pretty good. Like, well, what's usually, what's pretty good? Like, how much did you actually make? Well, I always, I always make pretty good money. You know, I know I'm, I'm doing well. Like, what is well, what is well, give us the number. Did you make 25% margin or did you make 50? What did you make? Give me the number.

Well, I mean, to piggyback what I was saying is like a lot of these people we've talked about in another podcast is like becoming going from a craftsman to an entrepreneur or a businessman. You know, you're making 25 bucks an hour working for another company. And then you're like, I could do better. I could do this on my own. This is how I want to do it. And then suddenly you're bidding these projects and you're bidding them out at like 60 bucks an hour. And you're like, dude, I'm crushing it. I used to make 25 an hour. Now I'm making 65 an hour. So in the beginning, that really translates well. That does make sense in the beginning. But as that craftsman that turns businessman or woman and suddenly. They need to like add staff or add software, like you said, or add apprentices and buy other trucks and all those things that starts to add up. But it doesn't always translate well in their estimating process. And that's where some of the difficulty comes in. And that's why I was saying it's like, hey, you got the perfect body weight. You feel like a rock star. And then suddenly 12 months later, you're 30 pounds overweight. You didn't even realize it happened because, you know, so many things are happening. It's so dynamic when you're running a business. you know, managing all this stuff. That's, that's what I'm trying to say with that analogy.

Yeah, I was immediately like, dude, I would watch the sunset. I'd see the stars up. I'd look for the North Star and I'd be rolling. I'd be tight. But I mean, that's really what it's all about. Like, you know, so many contractors and it's part of the way, you know, the way I do my estimates and the way I communicate with my clients. You know, I can give a free estimate because a lot of the stuff, because we are niche. And I think a lot of the contractors that we deal with are in their own, in their own areas. But, you know, there's a lot of different ways to build ponds, but we've been doing it long enough to where I can say, hey, this pond is very similar to the Johnson project. This feature that they want to add on is very similar to what we did at the Robinson project. And the two of them combined, you know, and then I can like reflect back. And if I did my due diligence and I estimated correctly on the Johnson and the Robinson project, and then after completion, I job costed and tracked. what I did at those projects and I know where I landed. Did I crush it or did I hit my baseline at 50% where my baseline is or did I run into trouble and why did I hit, you know,33 %? And that gives me my baseline on my future projects when I'm communicating with his clients. And so that's really the reason why it's so important. I mean, that's one of the reasons why it's important. Because if you know your baseline on the projects you've completed in the past, then you can use that as a tool for estimating your projects in the future.

That's awesome.

Well, that's when it starts to be like, okay, how can I outfit my rig? How can I outfit my trailer for some emergency stuff? You know, that's the data that you need to make some decisions on the way you run your cruise. the way you outfit the stuff. So, I mean, that could have been the estimator's problem. Like they didn't estimate stuff correctly. And like for me, you know, for me, we don't run into sprinklers that often, but when we do, I know I need half inch parts, this, I need risers there. I need a new sprinkler head. I need some caps. I need some plugs, you know? So after many times of doing that, now my rig is outfitted for that stuff. So when they run into those problems, the only reason I could kind of do that is because I've evaluated the project. after the completion. And so that's through job costing. You see little pictures like that. But I can't emphasize enough about how stressful it can be to run a business and to be like, oh, well, I got the cell phone and I got the trip to Home Depot and then the Home Depot receipts and then this and then that. It's like, oh, well, I did this on my labor and my payroll and then I had the fuel. Yeah, I had to put gas in the truck and then I had to buy a new tool because of this. And when you have all that on the wall, it's hard to really, you know, you just see all the expenses and the numbers start to blur, you know. And for me, my eyes start to turn white. And I just go, oh my God, I was just spending so much money. But it's like, how much money did it cost? So now when I build a pond for someone, I can sit back and go, it cost me $12,000 to deliver that pond into the person's backyard. It cost $12,000. So it's really interesting because now when, you know, like a friend, you know, hits me up, it's like, hey, dude, I want to get a bond. Maybe you can come and do an event in my backyard and, you know, we'll get some marketing done for it and this and that and the other. And they tell me what they want. In my head, I immediately go, that's going to cost me 12 grand because I've done enough job costing all these projects that I know what it costs me to deliver the product. And again, I can't emphasize it enough. It didn't cost you like. two Home Depot runs and then five man days and, you know, the pond kit and then the stone and then the gravel and then the aquatic plants and then the mulch and then the top soil. Like, no, it cost me $12,000 to put that product in the person's yard. And once I snapped that into my brain, that was a big moment for me. I hope that makes sense.

Yeah, they're proud of those things.

Yeah, that's a big point. I mean, if I'm going to break out my concrete saw to cut some concrete, that blade's $100. You know, so like if I'm bidding a project, I'm going to be like, I need a hundred bucks for a new blade. You know, it's the whole mentality of sharpen the saw. You know, I could probably use the saw blade that I have on there and, you know, it's going to take me longer and the guy's going to, you know, it's going to dust out the area longer because it's going to take, I'm going to get a new blade. I'm going to cut it quick and efficiently. We're going to bang it out and we're going to go. So a lot of times I have, there's certain cleaning supplies that I need for. you know, this expanding waterfall foam that I use and to build waterfalls and so forth. And it's like, you know, it's 25 bucks a can. If I use two on a project, it's $50. And so you got a saw for a hundred, you know, you got a blade for a hundred, you got cleaning products for 50, you know, all of a sudden, you know, all these things start to add up. You got a couple hundred extra bucks on there and you're not tracking that. So, you know, because of job costing. I become really proficient at saying, this is what it's going to cost me to put this product in the backyard from fuel to saw blades to cleaning products. And I'm glad you brought that up, Brad.

And you only figure that out because of job costing, right? You're looking at the receipts and applying the expenses to the project, right?

It's so funny if you were looking at a job and all of a sudden you had a $200 expense for multi-tool blades that you didn't calculate for. You're like, I spent $200 in multi-tool blades on the Johnson project? What is happening here?

I won't. I'm a little archaic. You might even laugh a little bit because currently as it stands, I don't have any crazy software. Of course, I submit all my stuff to my office manager, any expenses. You know, if we go to Home Depot, they write this is the Johnson project on the receipt. In fact, at Home Depot, they won't even give my guys a receipt unless they ask for the job name. So that way I know that it gets applied to the project, right? Some of my vendors aren't, I don't. I don't have that freedom. So I have to watch very carefully. So we would watch that. But I have a job folder, a paper, an actual physical paper job folder for every one of my jobs. And inside that job folder, I have the contract. I have change order paperwork in case something comes up. If an inspector comes by, anything, you know, someone wants to come and see the contract, I have it. If I have to talk to the client, inside that job folder, we track man days. We track daily expenses. So if I have a rock delivery, it would get noted in that folder. You know, hey, how many guys we have on the job? Did we work overtime? Did we do, you know, whatever. And so we track it daily there. Now, for me, a lot of our projects are, you know, three to five days a week. It's pretty rare that we go into, you know, I'm working on a project right now. We're going to be there for three months. But for most of the time, I can kind of keep an eye on it within one week. And at the end of the week, the job gets done. We get paid. And I take all the receipts that are all calculated in there, all the expenses, all the man days, all the hours. And then I just kind of calculate it up. What did I sell the job for? How much did it cost me to put it in the backyard? Hey, it cost me $12,000 to put it in the Johnson backyard. I bid it at $24,000. Hey, we did good. We have a sustainable business.

That's what I'm saying. That's how we do it. We just track it in the papers, you know, like, and then I, then I double check it.

But that is how I track it. Everything's in that folder. So all the content is in that folder. So I just want to be clear. I mean, there's, you know, mathematical problems. You go one way, the other way, you come up the same equation, you know, but the same answer. But all of my expenses, all of my labor, all of my, what it costs me to build is in that folder. I just have to calculate it out and then gauge that against what I sold the job for.

I mean, the formula is add up your expenses and that's, and then what that total is what it costs you. So it's, it's a little tricky. So to break it down and break it out a little farther, cause you're like, don't go too deep in the weeds, Eric, you know, like,

Listen, for me, you know, I, I basically I'm in California, so we get taxed heavily. Right. So. You know, if I'm paying a guy 20 bucks an hour, I have a general calculation that it costs me $10 an hour, you know, to do workman's comp and payroll expenses for that employee. So I know what my average wages are for all my employees, right? So I can track my man hours and then gauge that against my average of how much I pay my employees, add 50% of that for labor and burden. And then I can have like, hey, it costs me you know, $7,000 in labor on this project. And then, so that, that's kind of the basics of it. Cost me $7,000 for my team to be there in that location. And then that's when I go, how much was the pocket? How much was the rock? How much was the mulch? How much was the aquatic plants? Then I total all that stuff up. So it's just tracking those things. And so. For each area that you might be in, you know, you're going to have a different labor and burden, but it's definitely something that you should know. You should have a grasp on that.

Well, that's a little deeper than I thought. I mean, that's in the weeds to me, Brad, just so you know.

Well, I am in California, bro.

No, listen, listen, you're basically like, what gross profit should we be shooting for and all this stuff? And the overhead is important because I think it's important for everyone to realize we're talking about job costing that doesn't really have anything to do with overhead. Overhead's like a different bucket, if you will. It's over here on the right. We're going to go out and build this project and we're going to charge a certain amount of money and we're going to make a gross profit. And then we're going to take the profits from that job and throw it in the overhead bucket and fill the bucket up with gross profit until we break even. And then when we go past that, then we have the net profit, right? So that's kind of how that works out. So I guess it is kind of important to talk about that. But basically... Job costing is not like, well, I have an office girl. What is that? It's like, no, no, it has nothing to do with office. You're going to make profit on this job. If you make $1,000 profit on this job, you're going to use that $1,000 to pay for your lights and your printer paper and your office manager. That money goes to pay that. Now, if you don't have enough money, you better do another job. You need to go do multiple jobs this month to make enough money to pay for the overhead. But the job costing is how much you make per job.

That's it? That's it. That's a wrap?

don't know. I feel like... I don't know if we got the point across, man. I just, people just don't realize how important this is. It's

Now we're starting to talk right now, Brad. Now you're getting, now it's getting sexy. This is like, like, this is probably one of the most important things you can do. And the reason that you might be caught in this position with your pants down and you're not doing it and you feel like, you know, inadequate right now, it's because you slowly put on 35 pounds and you didn't realize it because you put on all this expense. Wake the hell up. Smack yourself in the face a couple times. Pour a bucket of ice cold water over your head and wake up. Start job costing. It's really, it's like the baseline for your future and how you can. estimate projects and be profitable and sustain your business, you know, it's really easy to get trapped in this, in this cycle. And so you're not alone, you know, the best of the best get caught in this. And then you know what they do? They figure it out and they start tracking their numbers. They start figuring out the job costing and they realize if they underbid and they need to raise their next price on the next job so they can make enough money to support and be sustainable. So. It is dire, paramount, important that you job cost every single project.

For sure. You know, here's the thing. I talked to a lot of contractors. I just talked to someone the other day and I was like, what are you making? What's your gross profit per project? He's like, I'm usually making 45,55%, you know, gross profit on my jobs. I'm like, okay, cool. What was the last one? He's like, I'm pretty sure it was 45 or 50. I'm like, you're pretty sure? He's like, well, yeah. I'm like, did you put the numbers down? He's like, well, no. And I'm like, well, then how do you know? He's like, well, I'm pretty sure. I mean, there's the testimony to like. You're going off your gut intuition like you were when you were a solopreneur, like just grinding it out. And like it doesn't work when you start to have employees and all these added expenses. So I'm super glad that Brad said, don't wait for the next 10 jobs. Back it out a little bit. Take a day off. Review the last one, two, three, four,10 jobs that you did and really evaluate it and share it with us. Hop on, send us a DM on Instagram or Facebook and say, holy shit, Brad, you were right. You were right. He hears that all the time, except for his wife. He never hears that from his wife. But I mean, that's a different story. Sorry, Brad.

man. Thank you so much for lending us your attention and ears tonight. I hope you're enjoying the podcast as much as we are enjoying sharing this content with you. Please give us a review. Hit the subscribe button and smash that five-star rating. You know, it helps us in the positioning of the podcast and it helps us so much. Follow us on Facebook and Instagram at hammerandgrind. com and we will catch you on the next download.