If you're doing over a million dollars in revenue and you're still wondering where the hell all my money went, stick around because in this episode, I'm going to be breaking down the seven biggest places contractors lose profit without even realizing it. Hey, welcome back to the show. I'm your host, Brad Hebner. I'm a licensed general contractor, author of The Contractor Profit Blueprint, and also a business coach who helps contractors who are overwhelmed make more money and get more freedom in their business. Let's get into the show. Today, we're talking about seven areas of your business where you're losing profit and you don't even realize it. A lot of us think that revenue is a sign of success. And honestly, it's not. Revenue is for vanity. Everyone online wants to talk about revenue this, and I built the $10 million company and $20 million. And I built a million dollars in one year. And they talk about revenue, revenue, revenue, because it's all vanity. It makes it sound really good. It makes you sound like your business is doing well. I can't tell you how many contractors I talk to that are doing seven figure businesses, million, two, three, four, five, six, even 8 million. They have no idea how much money they're making. They don't even know where the money is going. They have no clue, right? And they may even be losing money and not even realizing it. We can't use the Santa Claus accounting methodology. You know, we can't wait until the end of the year and figure out how much money Santa Claus brings us. That's not a reality. We have to know where it's going. So here's seven. areas, you're losing money and you don't even realize it. Now, before we get into that, revenue is not the same as profit, right? Everything I talk about is profit. How much money are you actually making? We talk about gross profit and talk about net profit. Gross profit is the easiest thing to measure to determine whether or not you have a healthy business. Now, you can make a lot of gross profit, but if you have a very inflated overhead, that's going to remove that, right? But generally, the simplest, easiest thing to measure to determine whether or not we're doing well is our gross profit. But let's talk about net profit for a second. Because you could have a $750,000 revenue business at a 15% net, and that equals $112,500 in net profit. Now, this example is not telling whether or not the owner is making money. The owner may be making $100,000, and the company is making $100,000, $112,000. That's great. But you could be at $2 million in revenue and only have a 3% net profit, which is $60,000. And again, I know a lot of contractors in this space. I know contractors making multiple millions of dollars, multiple seven figures, and they don't actually pay themselves anything. Now, they may take money out. They may take draws out to pay bills. They may take draws out to pay for a little bit of things around the house or whatever. But they don't actually have a salary. They don't actually have a set amount of money they're making. And at the end of the year, when they do their draws, they're still not even drawing out that much. They're drawing out the minimum amount required for them to live. There's no point in owning a business if that's what your goal is. If your goal is to just take out the minimum amount of money that you need to live off of. The goal of the business is to provide financial freedom for you and give you more opportunities. So link number one. Right off the bat, bad pricing. You're just simply not charging enough. You're not estimating enough, right? I know people that sell jobs that are unprofitable before they start. Remove all of the production side of it. The job was unprofitable before they started because they don't know their numbers. They don't know that they need to have, you know, they need to make $800 a day just to cover overhead. They don't know that they need to. sell $2,500 a week just to cover overhead. And they're selling jobs with materials and labor for like $3,000 and the labor is $600. Like they've lost $100 and they make no money because they don't understand their numbers. So right off the bat, pricing is the number one thing that's gonna cause you issues in your business. It's also the number one thing that I fix in contracting businesses is pricing. By far, the number one issue is pricing. You need to fix your pricing correctly to be able to make the right amount of money, right? So underestimated labor, bad material markup, missing overhead, pricing based on competitors. I hate the word competitor. Guys, you don't have competitors. I'll fight you to the death. You do not have competitors in your markets. You are the competitor. You, you're the competitor to yourself because your limiting beliefs are what's thanking you. It's making you think that you have to compete with other people. You don't, you don't, you do not compete with other people. There may be a small percentage, like very, very small, like 5% where competition matters. It's nothing nowhere near the, where you think it is. It's not 50%. It's not 80. It's not a hundred. It's like 5%. that competition matters. So for this purpose, competition doesn't matter because 5% is negligible. It's not enough. It doesn't matter. So pricing based on competitors, discounting out of fear, huge, huge. I don't have any work, Brad. I had to give them a discount. No, you didn't. You don't know that you wouldn't have gotten that job if you would have stuck to your pricing, but because you're scared. You discounted out of fear. And now you got a job at a discount that you don't want to do for a rate that you don't want to do. And you missed out on an opportunity to sell a job that you would have gotten profit on. So fear helps or keeps a lot of people from being able to price jobs correctly. You cannot outproduce a job you sold wrong. Let me say this again. You cannot outproduce a job that you sold incorrectly at the wrong price point. I don't care how efficient you are. You cannot outproduce a bad job, a bad sold job. You cannot. And a lot of you are stuck in six, seven, eight months worth of bad sold jobs. Not days, months. Some of you have six months on the books at bad sold job prices. And now you have to fulfill those. So for the next six months, you're not going to be making any money. That's a terrible place to be. Do not do that, guys. It's far better to sit at home and lose money watching TV than to go work 40 hours a week and lose money. Far better to sit at home and do nothing. Don't sell jobs out of desperation. Number two, labor. Your fully burdened labor rate. Most contractors do not have a fully burdened labor rate. I have a labor burden worksheet you can purchase. It's $39. You can go and get that off the website. it's well worth it. It will tell you exactly what your cost is. It tells you, you know, if you have vacations, if you have training, if you have meetings, if you have uniforms, cell phones, vehicles, all the things that you don't consider that should go into your labor rate, it will help you figure all that out. And so a lot of guys, you know, they have a $30 an hour employee and they think, you know, they pay them 30 bucks an hour and they go, oh yeah, we know we have FICA. We have to pay the, you know, insurance and all that stuff for government. So it's like $36 an hour. That's not what your client, I'm sorry, that's not what your employee is costing you. Your employee costs more than that. Just simply meetings. If you have one weekly meeting for an hour every week, right? Say two weeks off for vacation. So 50 meetings a year times one hour, that's 50 hours. That's not time accounted for. So if you have a one hour meeting every week for one employee, And you're paying him 30 bucks an hour. So 30, right? Times 50. That's how much money you've lost just in meetings. $1,500 just in meetings for the year. Then you have other things to add on top of that. It adds up quick. So the worst thing you can do is have a under, you know, not have a fully burdened labor rate. So your labor rate is not fully burdened. And so you're charging, you know,40 bucks an hour, but really your employee is costing you 45 bucks an hour. So you're losing five bucks an hour on one employee. If you have 10 employees, that could be hundreds of dollars an hour because you're not factoring in their fully burdened labor. The labor rate sheet, the fully burdened labor rate sheet, we'll fix that instantly. It's worth every penny. It's $39, guys. It's nothing. Go to the Hammer and Grind website. We'll put a link in the show notes. You can get it. If 39 bucks, it's worth every penny. If you don't think it's worth it, let me know. I'll give your money back. Number three, leak. Scope creep. Here's where all my people pleasers come in. And I have several clients in the profit club that are people pleasers. And we talk about this a lot. Matter of fact, they're like 930 at night last night. They were texting each other in the group chat about, you know, opportunities where people wanted them to cave. And my people pleasers stood up for themselves, right? Because we work on that in there. We work on not just business stuff. We actually work on... personal things on, you know, making you better as a human being and as an owner. So scope creep, you know, the old while you're here, Brad, everybody gets those while you're here. And then you, you know, the people pleases like, Oh, I want to make the client happy. Let me do this thing. Guys, super simple. I'm going to give you a super simple way to solve this right now. When someone says, while you're here, would you be able to do this, this, and this all you have to do? Right off the cuff, not even think about it. Absolutely, let me get you a price for that. That's it. That's all you got to say. Absolutely, let me get you a price for that. Oh, you mean you won't do it while you're, since you're already here, you can't do that for me? Well, I would love to do that for you, but that wasn't part of our original estimate. So let me get you a price. It'd be much cheaper to do it while we're here, for sure. Just give me a minute, I'll get you a price on that. That's all you got to do. They're either going to value your time or they're not. And as soon as you say, oh, yeah, it's only going to take five minutes. Let me take care of that for you. Boom. You just open the door. Now there's three other things, five other things they want you to do while you're here. You have to learn how to say no. You have to learn how to value your time, guys. Also, scope creep, employees giving away work. Your employees doing that. It's one thing as an owner if you do something for free. It's another thing if your employees are doing stuff for free. Well, you know, we're, it was only going to take five minutes, boss. And, you know, they were really nice and we wanted to take care of them. You have to, you know, you have to have that culture in your business and your standards and make sure they understand that undocumented changes or change orders or not documenting change orders. I know some of you will do a change order, right? Let me get you a price on that quote, a change order for 500 bucks, right? It's going to be a $500 change order. You don't document it because you're quote busy, right? Or you'll do it when you get back to the office, which you won't because you'll forget. And then at the end of the job, that change order never got put in and never got created. And now you lost $500 because you didn't actually do the change order. You didn't document it right then when you were supposed to. So that's part of scope creep because you're not documenting that, right? The small extras compound guys, they compound. Five minutes here,20 minutes here, an hour there. At the end of a three-week, three-month project, it compounds into hundreds and thousands of dollars, right? It's one thing if you're there for a day and you spend an extra five minutes, not a big deal. If you're there for three months and you spend an extra 10 hours, that's a big deal, right? Small extra things, small extras compound the difference between intentional generosity and accidental free work. You can be generous. One of the things that we would do is fix things. So like, I don't know what the percentage is, but an overwhelming majority of homes, their front doors or back doors or garage doors don't lock very good. You know, you got to wiggle them or you got to pull them out just enough, a quarter inch so you can lock the door or push it in super hard. Like there's some kind of, you know, it's settled, it's changed, whatever. It doesn't work very good. We would spend an extra, you know, a couple minutes to fix their lock. We wouldn't tell them. This is a generosity thing. Also, because it makes our job less annoying. If we're going in and out of a door a hundred times a day and we got to like mess with the stupid door lock to get it to close and it makes our job more difficult. So a lot of times we just fix that. It takes a couple minutes or so. We fix it. We don't even tell the homeowner. It's like a little Easter egg for them. That's different. That's a generosity, intentional generosity versus doing accidental or free work, right? We don't want to do that. If you're giving something away, know exactly what you're giving away. Like if you're going to give something away, you should know the cost of that. And it should weigh against your overall price. You should know what that is. So most of you don't even know what you're doing. You don't even know what your employees are giving away. All the little extras. And this isn't about nickeling and diming people. It's not what we're talking about. We're talking about you had a clear scope of work. You gave a price. The scope of work wants to change. They want you to do extras. Now you're going to charge them for that, right? That's different. We're not nickel and diming people. All right, number four leak, callbacks and rework. You know, sometimes we cut corners. We got to quote, get this job done because we undersold it and we're over on time. Happens all the time. So what do we do? We create a shortcut. We shortcut it and then we got to come back and fix it. because we shortcutted it. It would have been cheaper if we would have spent an extra hour to finish it. Now we got to come back and fix it. So, you know, callbacks are not just labor and materials. That's not the full cost. You have truck fuel, scheduling disruption, opportunity costs. They're over there doing this five hour repair when they could be doing something else for five hours, making money. You have office time. Who's going to deal with all that reception or I'm sorry, reputation, customer experience may take a hit. which can cost you thousands of dollars. You get a bad review. We don't think about those things. That's a hidden cost. You shortcut something, you have to go back and fix it, and maybe you don't fix it right, or maybe they got to pull your teeth to get you to fix it. They have a negative experience. They go out and tell 10,15,20 people, don't hire you. Even if they never leave a bad review, they go tell people, don't hire you. That's 10,15,20 people that you missed out on. That one shortcut, that one... rework or callback could potentially cost you hundreds of thousands of dollars that you don't even know. You'll never know it because they won't tell you. So callbacks and rework are a big leak. Leak number five, overhead. So I was talking earlier about, you know, you can have a good gross profit percentage and then like not have any money left over because your overhead is bloated. So sometimes, and I did this early on, I went to hire my first employee and I was like, oh, he's got to have a vehicle. He has to. To be professional, he's got to have a vehicle. So I went out and bought a vehicle that was used. You know, spent a bunch of money on my credit card, getting the racks and stuff built in there, buying all the tools. So, you know, I spent several thousands of dollars on a credit card for all the tools and stuff to get the vehicle equipped. Then the van had a bad lifter. And like, I don't know what it was, a year or two later, it blew the engine. So then I got to replace a new engine. All of that came out of the fact that I thought I needed this van right away. And so I bloated my overhead. And what it did is it sucked all the cash flow out of my business. I had no cash flow because all of the extras was going towards these equipment and things that I thought I needed. Hey, just a quick time out from the show. If you're a frustrated contractor who's dealing
