Now let's get back to the show. And I see, I know this because I work with a lot of contractors and we have to work through this and it always creeps back up. I can tell you right now, I have a, one of my clients is dealing with this right now. The customer is refusing to make payment. Because of some things that weren't really his fault, but that happened on the job site. And they feel like, you know, they should get more things or it should be better or whatever. And my client is like wanting to try and, you know, make them at peace, like try to do extra things. And you just can't do that. Also, once you give one time, then you've opened the door. So don't give one time. So scope creep is, like I said, it's not always a customer's fault. So sometimes you created the scope creep. Like I was mentioning earlier, you have a bad estimate, you have vague scope, you have poor drawings, you have missing selections, you have sales or sales team promised something other than what was put in the estimate. This happens very, a lot whenever you have a sales team and like an estimating team and a project management team, like you have three people in this process that can change. or promise or forget things in that, right? So it's very important that like your sales team is documenting everything, is talking to the estimator, is talking to the project manager if you have those things, those jobs, that means, sorry, those positions. This is really important because, you know, it's like the game of what, telephone? You know, where you have a string or whatnot, that's a different thing. Where you tell somebody one thing, And you go down the line and by the end of the line, they're repeating something completely different than what the first person told them. That happens if you don't have a very good process for documenting for everything you do. So sales promised something, production interpreted it differently. It says clear as day on their demo bathtub and they interpret it totally different, right? Like you put in there, like take out the tub, they interpret it like take out the entire walls and everything around the tub. Maybe there was a platform, maybe it was a whirlpool and the tub is sitting in a platform and you're going to replace it with another platform tub that fits in there. They put on their demo tub and they interpret it as like the entire thing and platform. So what do they do? They tear everything out and you show up and you're like, where's the platform? What do you mean? It said demo the tub, right? That happens all the time. Specific is terrific, guys. Specific is terrific, especially when you're doing handoffs. A lot of you guys that are growing don't think about this because you're the one doing the sales, you're the one doing the estimate, you're the one doing the project management, and sometimes you're the one swinging the hammer. So it lives in your brain. It doesn't have to leave your brain and go to three other people. This is where you get trapped. As you grow, you have to start having processes that people follow. It requires more effort, requires more time, requires more detail. The way I interpret things, the way I write, the way I think is different than the way the project manager thinks. The way the salesperson thinks about stuff is different than the way the estimator thinks about stuff. So you have to make sure everyone's on the same page. You have to have a really detailed process for handoffs and how you do that. And then also, like I said, a customer legitimately thought something was included, which does happen too. And that's not always necessarily a change order. Like these things are not necessarily change orders. That could be just an estimating or processing problem, right? The way you do it, like I said, information changes hands, things get missed. That's not a customer problem. That's an internal process problem, okay? So anytime you're doing estimates, your scope, your scope of work is your first line of defense. So I've said this before, very detailed scope of work, lump sum pricing, right? One price. very detailed of what they're getting. So your scope should clearly define what you're doing, what you're not doing, what are the materials and selections, what are the quantities, what are the allowances, what are the assumptions, what are the exclusions, what are the inclusions, what are the customer's responsibilities, and what happens if something changes. You should actually have in your estimate what your change order process is. Because it is a process and it's probably going to happen. So the more ambiguity that you give to everyone, the more arguments you're going to have during production. So the more vague you are in the beginning, the more problems you're going to have at the end. This right here is a prime example of how you're the arsonist in your business, especially if you're doing the sales. You're the arsonist. You go out, you take measurements, you talk to the customer, you don't write anything down. You try to go off memory. You go back, you put the estimate together. You're in a hurry. So you do it super vague scope of work. You send it over, right? Customer approves it. You start the job, realize, oh crap, I forgot to put, you know, I forgot to add two by fours in there. Stupid me. I just got in a hurry and I forgot to add them. Well, that's not a change order. That's your fault. Don't go to the customer. Hey customer, you got to pay more because I didn't add them in there. No, that's your fault, right? You messed up. So you were the arsonist. In that scenario, you didn't have very clear scope of work and your guys demoed out the tub and the surround, right? That's your fault. You were the arsonist. You created that or the salesperson or whoever it is. That's how you create fires in your business. So if you can't clearly identify what's included, it's going to be very difficult to identify what's extra. If you can't identify what's included in your, in your estimate or your scope, it's going to be very difficult to identify what is extra and what's not. Cause you can think in your head, Oh, I, you know, I, I've, I was including a paint, you know, you put on there paint, paint the walls. And in your mind, you're like, Oh yeah, well, obviously, you know, it's, it's common sense, Brad, of course we're including the paint. So you show up, right. And then maybe the customer already bought paint because they didn't know or vice versa. Like you, it isn't saying the estimate that we're including the paint. The customer always pays for the paint. Now that's an extra $300 for paint. Like all that stuff happens all the time. It's funny saying it because I've, I've done this and I know it happens all the time. And then people are like, I don't understand. I don't know where all my money goes. It's right in front of your face. If you would just job cost your job, it would tell you job cost your jobs. It will tell you where these profit leaks are every time. Here we go. Have a change order process. All right. You got to keep it simple. And when something changes, this is the most important thing. When you have a change order, you have to stop work. You have to fill out the change order. You have to get approval. And I highly recommend that when you're doing change orders, you get payment, full payment for that change order right then. So if you have a thousand dollar change order, you write up the change order. Customer signs it, and then you collect the full $1,000 right then. Don't add it to the end. Collect it right then. Are they exceptions? Sure. Some major thing, it's going to be a $20,000 change order. Of course, we're not probably going to collect $20,000 right then, but you can collect some kind of deposit. But anything that's under like five grand, you should be collecting that change order amount right then. Once it's approved, agreed upon, approved, signed, and paid, then you can continue the work. But Brad, if I stop work, I'm going to lose money. Not if you include it into your change order, right? If you open up a wall and there's termite damage and you can't go forward and you're going to miss out on a day because maybe you can't do it or maybe you got to hire a termite company to come out and treat it first because it's active. Whatever the situation is, you put that in your change order. You know, termite companies not going to get out there for two days. There's really nothing else we can do until they're done. Maybe you pull off. Maybe you can't. There's nothing else. You could put that in your change order. Lost work. I'm not going to lie on that. but I may factor in, you know, four hours of lost work. That's not your fault. That's not your fault there was termite damage and that there's live termites. That's the customer's problem. Again, we're not nickeling, diming. Why would we assume all of the costs whenever it's things that we're out of control, out of our control? So make sure you define it, give the price, approve the document, you know, then produce the work, right? It's very important. Stop work, do the change order. Now with things. software like job tread or others, you can just literally do electronic change order right there, send it to the customer, text it to the customer, have them sign off of it. You can have everything approved within like three minutes, right? But if you're old school and you're like, no, Brad, I'll do everything with a stone and, you know, etch it onto a stone. Well, then you're going to have to stop work, leave your job site, go meet the customer or do whatever else you got to do. And then, yeah, it's going to cost you a bunch more time and money. So this is one of those places where you can use technology to your advantage. Here's another thing you can do is just track the free work that you've done. Even if you're not going to do a change order and you're just going to include it, track it. Do a little exercise where you track how much free work you've done on one job. And you can even go to your team and like, listen. We're going to be changing a couple of things with change orders. But for right now, all I want you to do is anytime you do anything extra, I don't care if it's just, if you go to the curb, you know, you're walking out to the truck and on the way back, you grab the trash can and pull it back up to the door. I want you to write it down. Now that doesn't mean that you're going to charge a customer for that. I'm just, you want to like write down anything extra you're doing. One, it's going to tell you change orders too. It's also going to tell you where you guys are wasting time. Like maybe it's not a change order. Maybe it's just dumb crap that. they had to do because you didn't estimate something correctly. So you need to track it regardless if they, if you do a change order and then at the end of the job, job costs, it, see how much of that affected it. Okay. So at the end of the project. You should know what the original contract amount was for, what the paid change orders were, what the completed, or I'm sorry, the comp changes were. Like if you comp something, you did something for 10 minutes, you should put a dollar amount to that. Hey,10 minutes, X amount of dollars, you comped it. Unplanned labor, unplanned materials, actual gross profit. And what you may discover is that like, hey, you're giving away $2,000 on a kitchen remodel on average. If you do this over multiple jobs, you might find out like, hey, man, the last five jobs that we did. You know, we average giving away $1,500 for miscellaneous crap. Well, if that's your average, then just add $1,500 to your total and that should cover it. You know, we can get super granular and be like, oh, I'm going to track every penny. I'm not too worried about pennies, right? Unless there's a thousand pennies, you know, unless there's 10,000 pennies, I might be concerned. This isn't about like nickel and diamond and having complete control of your entire business and knowing every single aspect. That's not what this is about. This is about plugging the hose, the profit leaks in your business. And there's lots of them. So, you know. If I can reduce churn on my profit leaving, you know, let's say over the course of a year, $40,000 is going out the door to free change orders. If I can reduce that to like $5,000, I'm pretty happy, right? I mean, I would be pretty happy with that reduction. If I can get it down to like only losing $1,000, I'm really happy. The thing is, this stuff's costing you way more than what you think. You also have to remember that the customer is not your enemy, right? I just told you that earlier, like they're not the enemy. They're just your business partner in this interaction. So it's not their responsibility. This is very important. This is probably the most important thing I can tell you. It is not your customer's responsibility to protect your profits. It's not your customer's responsibility to protect your profit, nor is it their responsibility to even care about your profit. It's not. I know like, well, they're just, no, they're just humans. Why would they care about that? That's your job. You're supposed to know your profit. You're supposed to factor all that in, right? It's not their responsibility to protect your profits. All right. How do we respond? Absolutely. We can do that. Let me get you a price for it real quick. Absolutely. We can do that. Let me check with the boss. See how much it's going to cost. I'm not sure if we can do that. Let me check with the project manager and see if we have time on the schedule for that. Well, any of those are acceptable, but it's like, yes, we can do it. Or, you know, maybe you can't do it, but yes, we can do it. Let me get you a price. Let me check. It's never, yeah, we can take care of that for you. No problem. Okay. Being professional. Doesn't mean doing whatever the customer asks. You're not the customer's employee. I've talked about this before, you know, being a business owner versus being an employee. Stop being an employee in your own business. Act like a professional. Professional doesn't mean doing whatever the customer asks. It means having a process for handling everything that happens in your business. That's what professional means. If you're in a situation in a job and you're like scratching your head, I don't know. I don't know, customer. I really don't know how to handle this. It's never happened before. I just don't know how to handle it. That's not a good look. Even if you truly don't know how to handle it, I'm not going to tell the customer, I don't know how to handle it. I might say, you know, this is a first for me. Let me put some thought behind it and figure out how we can make it happen or how we can fix it. There's lots of ways you can attack stuff like that. I know it's a little tangent, but all right. So here's the assignment for you guys. Go back to the last five completed jobs. Like I mentioned, what work did you perform that was not in the original? And what did you charge for? Like maybe some of it you charged for, some of it you didn't. How many labor hours did it consume extra? What materials did we give away? Hey, I got a bunch of casing in the shop. Customer A already paid for it. No big deal. Giving it to customer B. That's given away. Even though it's already paid for, you're still giving it away. Did employees approve extras? Did I personally give away anything? Was the extra actually scope creep or was it in our original scope? But it wasn't included, like it wasn't written, right? And what would those extras have sold for? So then calculate how much free work did you actually perform? And you know, you might, you might not like the answer, which is a good wake up, but that's what we're trying to figure out, right? We're always trying to solve problems in our business, moving towards a better business, a better future. So don't just sleep on this stuff, guys. This is important stuff. It may not seem like it's a big deal. I'm going to guess that most of you are not aware how much scope creep affects your, you may know that a scope creep, but I'm going to guess that you, most of you do not know how much. Like it's way worse than what you think it is. And that could be where all of your profits are going at the end of the year. It could very well be just in that one thing. So make sure you do this. Okay. So we started this series with where did your profit go? We've been doing kind of this follow-up series here. And the answer usually isn't one giant catastrophic thing. It's the little leaks, the profit leaks, right? And so that's what we're trying to plug. All these little profit leaks. So you sold the job wrong. You missed costs in the estimate. You didn't know what your employees actually cost you, your labor burden. And then once production started, you gave away labor and materials and free work. And then here's a few hundred dollars here, a couple hundred dollars there, a couple hours later, you missed costs, one free extra, all this stuff. Nothing by itself seems like it's a big deal. But then once you add it up and then you multiply that across all the jobs you do throughout the year, that is how a million dollar contractor. at the end of the year can be like, where's all my profit? I don't understand. I'm doing a million dollars and I have no money left over. It's probably in one of these things that we've covered. If you haven't listened to the other episodes in the series, I recommend you go back and listen to all of them because we break out each one of these. Make sure you go and listen to those. And then go and apply it to your business. You listening to me doesn't do anything if you don't actually go and apply it to your business. Like actually apply things to your business. You really shouldn't listen to another podcast. You really shouldn't read another book until you've applied what you heard. Because then all you're doing is collecting good ideas that you're never going to implement on. Don't be a good idea collector. Be a good implementer. And I'm telling you, you're businessful. Go take you places you never thought possible. All right, guys, that's the end. You know where you can find me. Good things I want to mention real quick. We've been working hard on creating a new community. And so we've actually just launched school. We moved everything over to the school platform. And you can get in there right now. There's just this week of recording. It should be next week of you listening to this. You can still get in there. So what we're doing is the first 100 people that sign up, and it's free. There's a free community part of it. The first 100 people that join, you'll get my ebook for free, absolutely free. And you're going to get my labor burden worksheet for free. I mentioned in a previous episode that you can buy it for $39. We're going to give that to you free as well, just for signing up, but it's only for the first 100 people. We got to migrate thousands of people over and it's probably going to take a minute, but we want to populate the community as fast as we can. We're going to be adding lots of extra things in there. The reason why we moved is because it gives us more opportunity, more flexibility, and more benefits, like going live and doing things like that in there that's easier to control. So make sure you jump in there. We'll put the link in the show notes so you can get there real easy. If not, I'm pretty sure it's school. com forward slash hammer. I'm sorry, forward slash contractor profit blueprint. That's the name of the group, contractor profit blueprint school. com forward slash contractor profit blueprint forward slash about. But I'm pretty sure you'll still get there if you leave the about off. Like I said, we'll put links in the show notes and hope to see you in there and start working on your business and building something amazing. Thanks for hanging out, guys. And remember, until next time, profit is not a dirty word.
