Greg Wilkes (00:01):
The construction industry can be a tough business to crack from cash flow problems. Struggling to find skilled labor and not making enough money for your efforts leaves many business owners feeling frustrated and burnt out. But when you get the business strategy right, it’s an industry that can be highly satisfying and financially rewarding. I’m here to give you the resources to be able to create a construction business that gives you more time, more freedom, and more money. This is the Develop Your Construction Business podcast, and I’m your host, Greg Wilkes.
Greg Wilkes (00:37):
So hope you enjoyed last week’s podcast with Tim Charles. We only covered a few of those seven tips, so we’re just going to restart the podcast where we left off and let’s continue with the seven tips to grow a profitable construction business. So what’s number four, Tim? We’ve done three out of seven. What’s the next one?
Tim Charles (00:55):
Yes, number four, we’re looking at increasing customer retention so that you get more frequency from the same customer, and you’ve just mentioned that know, like, and trust. So if someone has given you a job to do and you’ve fulfilled that job, done a good job for them, they know, like, and trust you and they say it’s seven times easier to sell to an existing customer. That is to find a brand new customer. So for example, I’ve had a loft conversion done, but my driveway’s not been paved yet and I don’t have a porch. So that if my builder had come to me and said, would you like me to give you a quote while we’re here for doing a front porch view or for doing a side extinction if I didn’t have one or things like that, then as we say, seven times easier to make that sell. And you again also get to work with a customer that you like working with.
Greg Wilkes (01:45):
Yes, that’s absolutely key, isn’t it? So this is easier for some industries than others. Now, some of these, it’s just a no-brainer. So for example, if you were a plumber and you’ve gone and installed a boiler for someone, then what would you say, what would be the best tip for a plumber who’s installed a boiler for someone as a one-off job? How are they going to increase that sales transaction frequency?
Tim Charles (02:07):
Do you know one of the best things they could do is there and then book in a service of that boiler and say, “Look, if we clean the MagnaFlow, if we do a service on this, it’ll run so much more efficiently,” and just book it in there and then.
Greg Wilkes (02:24):
Exactly. Yes, that’s absolutely key. And I’ve had plumbers before doing stuff on some of my personal homes and all of a sudden I get an automated email a year later saying, oh, just to remind you, you are boiler in servicing again now and it’s great. I wouldn’t have remembered and I’m naturally going to give them the job again because they’ve done it last year. So they’ve increased that sales transaction frequency and that spans across all industries. You could do it for electrics if you’re working for landlords, things like that. These reminders, again, we could use a CRM system to do this or just put a note in a calendar just to remember to chase people up again and it’s going to be much easier than to sell to those people.
Tim Charles (03:05):
It can be helpful if you’ve built up a relationship with your customer. There’s a quote I saw, it says, find out what they want, go get it and give it to them. So if you’ve built up a relationship with the customer and the conversation is flowing, then you can start to find out the things they want and then provide a service for them to give it to them. So even if you have done the £100K extension, there’s bound to be other things that they would like to do to their house or they may have other properties or they may have family that need work done as well. So trying to build up that opportunity to sell more to the same customer.
Greg Wilkes (03:40):
Yes. And it might just not be the right time for them. Obviously, they’ve spent all the money with you on that extension, but they might be doing the driveway a year down the line. So I’d always encourage you to have, we call it long-term nurture sequences on emails. So I can’t remember if we touched on this on the last podcast with Ernie, but you can set up a campaign where you just send an automated email every month say, or seasonally that goes out to your customers and it’s going to be really quick to type in 12 emails that’s going to last you a whole year’s worth of content. But what happens is you drop into your customer’s inbox just at the time when they’re thinking about having it done. So it might not be now they want the driveway done, it might be in a year, but all of a sudden you drop into their inbox, start talking about some of your services, and a light bulb goes off in their head and they think, “Oh yeah, I need to contact Greg or Tim to get that job done.”
So that can be really useful. Some other things I encourage people to do as well, if you want to stay in your customer’s minds is thinking about doing a newsletter that’s not too difficult to do. You could drop a newsletter out every quarter again, just to stay at the forefront of your customer’s minds, let them know what you’re up to, what projects you’re working on, new staff that you’ve hired, that sort of thing, any new reviews that you’ve got. And what that does, it’s again, you’re just dropping in their inbox at a time when they may be thinking about having an additional service done or they’ve just been out to coffee with their friends and they’re asking for a builder and they think, oh yeah, I forgot he did that. I can recommend him. So a couple of things to think about there.
Tim Charles (05:11):
Ask your customers to follow on the socials and if you can regularly put pictures up on there. Most people got Instagram, so they might not be following you, so ask them to follow you so that they regularly see the latest jobs that you’re working on. If you just put pictures on all the jobs you’re working on, then that is key to everyone, you and everyone’s mind.
Greg Wilkes (05:30):
That’s a good point. Yes, I haven’t talked about that one. That’s really good. Okay, so that’s point number four. So number five out of seven is increasing that sales transaction value. So this is really key because what we want our customers to do is obviously spend more money with us if we can get that out of them, because as we said, it’s easier to sell to them once we’ve had them once, but we want to increase that transaction value. So, there’s different ways of doing that. We’re not talking about just increasing your prices because obviously, you need to stay competitive, but what about doing upsells and adding more value to the job? Can you think about how you might need to do upsells? So can you give customers a range of options? Oftentimes you see it where a quote goes over to a customer for say an extension, and it’s just the quote, that’s it.
They’ve got the option of 50,000 pounds for your extension and that’s it. But what about upgrades to that extension? What about upgrading the flat roof from a felt flat roof to a GRP flat roof that’s going to have a 20-year guarantee or upgrading the boiler to you’re going to put this combi in, we’re going to put this super duper combi in that’s going to do this or that. So there’s loads and loads of opportunity to think about upsells, but people often hold back on that on their quotes for some reason. But we know it’s a tactically works, isn’t it, Tim? I think we do it all the time. I know when I’m on a website and I’m about to buy something, you always see that opposite and you think actually, yeah, let me just pay a few hundred quid more and get that one.
Tim Charles (06:59):
I mean, I think McDonald’s nailed it. They was everything you buy, do you want fries for that?
Greg Wilkes (07:03):
Tim Charles (07:05):
And it’s not, we’re just trying to get more money out of our customers. In the example of the flat roof, if I know my builder, he did a felt flat roof for me, but if he had to give me the option and say, look, it’s an extra three grand, you can get a GRP roof, but it’s got this extra benefits, I’d want that. So it is not just a question of extracting more money from your car, it’s actually providing an enhanced service so everyone wins.
Greg Wilkes (07:33):
That’s a good point. So don’t presume your customer knows all the options. They might not and don’t take your customers at first glance when they say, I’ve only got this much of a budget. It might be the case, but sometimes when people really want something, all of a sudden they manage to find that extra bit of money to have a little upgrade. So give them the choice. That’s the point we’re trying to put across there, is at least put it in there as an option and you’ll notice your transaction value increasing. Okay, so that’s step number five. So Tim, what’s step number six?
Tim Charles (08:07):
Yes, looking at number six is something I said right at the beginning about how important your gross profit is, how important your margins are, and of course, you’ve got your sales figure at the top. And then minus from sales is your direct cost. So your cost of sales, which is essentially for the construction businesses, how much is it costing you to buy your materials and how much are you spending on labor for your subcontractors to do that job? And they say there’s five margin killers and I’ve got these margin killers here. So it’s having the wrong costs, the wrong systems, the wrong products, the wrong customers, or the wrong price. So if we looked at a couple of those on this heading there, having the wrong costs and the wrong products. Now some of the easy ways to say reduce the cost of your materials, you could say, well, just to shop around. And again, someone would say, I don’t have time to shop around for materials. But again, think of those three words who not how so again, you can use a, if you don’t have an assistant working for you or someone that has the capacity to do that, you can use a virtual assistant like the Moneypenny service and they could do the shopping around for you. You just say, right, these are all the things, all the materials I need for this job.
What was the best price you can find for all these materials? And they’ll do that for you and for the amount of money that you would need to pay the VA, they would make that back for you in the savings. And it is, like we said before, the savings might be small, but they all add up across the whole job and across numerous jobs. So shopping around for materials, it sounds like an easy thing to do. And most builders, as far as I know, they tend to have their favorite build and merchants that they always go to, which is not necessarily a bad thing because if you can use your bookkeeping software and say, wow, look at that, I spent a hundred thousand with that timber merchant. Let me go back to them and say, look, I spent a hundred thousand exclusively with you. What can we do? Can we get a better deal on this? But not to just continue going to the same old supplier, paying the same old price, either negotiate harder with your supplier or open it up and look for other suppliers.
Greg Wilkes (10:15):
Yes, this is such an important point because just putting this in real terms, if you are listening to this, you’re a million pound a year company, it’s very likely you’re probably spending about 400,000 pounds on materials. It’s about 40% on average. So just think about that 400,000 pounds materials if you can just negotiate a 10% saving across the board on your materials, which isn’t a lot, it’s really not a lot. You think ordering something for a grand and you get a hundred quid off, that’s quite common. You can often do that and maybe a lot more, but that 10% saving, you’ve got 40 grand there potentially that you’ve saved. And what’s it going to cost you for a year to have a VA just phone around a part-time VA getting materials for you, 10 grand, 15 grand. So there’s some real
Tim Charles (10:58):
Greg, I think a lot less than that because you might just need someone a few hours a week. They’re normally around the 25 pound an hour region. So it might be you just need to pay someone to do four hours a week for you, a hundred pounds, and they can save big money for you. And not only would they be paying to shop around to get the better price of materials, but the same person can also be doing those outbound calls for you, as we mentioned earlier on about following up on leads.
Tim Charles (11:28):
So, it doesn’t have to be a lot of money at all.
Greg Wilkes (11:31):
No, that’s a really good point. Yes. Is there any other ways, Tim, that people could think about reducing those costs? So we talked about materials.
Tim Charles (11:39):
Yes, I guess on the other side of that coin, you’ve got how much you’re paying your laborers. And I know when I’ve had jobs, jobs done here at my house, you often see the laborer disappear around 10 o’clock. They go for breakfast or they say, I’m just going down Selco, and they disappear down Selco for a couple of hours. I’m not saying it’s easy, but I know that some builders managed to switch from rather paying a 200 pound a day rate for a carpenter. You say, look, you’ve got to hang these five doors and give me a job price for doing that and then working on the job price so that you can put the pressure on the subcontractor themselves that if they’re wasting time, actually they’re wasting their own time. On the other side of that, you’d need to be very careful about quality control because there’s no point just knocking up five doors that are hung that are not hung very well. But moving away from that, paying that day rate, which has been very traditional in the building industry to moving onto the job rate, I appreciate that It’s easier said than done.
Greg Wilkes (12:43):
Well, it is, and it isn’t, to be honest, Tim, because for example, obviously I had a construction company and I’ve done both. When I first started out, I had a real problem with giving people jobs on price because I thought, well, they’re just going to inflate the price, obviously it’s always going to cost me more on price. So there was this mindset and for years I was in this mindset of don’t give things out on price, just get people on day rate and just drive them to do it as quickly as possible. But when I made the switch and eventually I realized that wasn’t working and it wasn’t profitable for me to do that, I had a lot of guys on day rate at one point, I can’t remember if it was 30 or 40 potentially on a day rate, and we switched to price profits immediately transformed. But then you’ve got the other problems that Tim mentioned. You’ve got to have quality control and you’ve got to be able to control those subcontractors so they each bring their own problems. But if we’re talking about purely from a profitable standpoint, I would just say to people, really consider giving your jobs out on price because there’s a lot less stress for you as a business owner. Not constantly having to drive and go, what have you done today?
And you can fix in your margins before you start that job, you’ve got a price guaranteed and you can almost predict what profit margins you are going to get if you can give those packages out on price before you start. So something to seriously consider there if you’re not making the profits you want at the moment.
Greg Wilkes (14:03):
Alright, so there’s a few things we can do there with subcontractors and other things. Just trying to think of some of the other things that we could talk about here on finding decent people for a decent rate. Any other tips on, because it is always a challenge to try and find a good tradesman at a reasonable rate. Any suggestions around that, Tim?
Tim Charles (14:27):
I remember we were talking about this before and if you think of, I mean I know your dad and a lot of, they’re almost like master builders. They can do a lot of different skills, I mean I’ve had your dad do work in my house and there’s practically nothing he can’t do.
Tim Charles (14:45):
And they’re in that sort of age bracket of the sixties sort of age bracket. And there’s a lot to be gained from asking these sorts of older tradesmen to be on site. They can be a good guide for the younger guys on site as well. And they’ve got so much experience and so much knowledge and of course they tend to be more sort of settled, rounded people at that sort of age. So you can get some good quality work if you’re looking at the age, older age bracket trade.
Greg Wilkes (15:13):
Yes, that’s a really good point. Yes, that’s good to have in mind too. One of the things that often comes up when talking about the cost of decent people is when businesses are expanding, they need to think about getting contract managers on boards or project managers. And that can be a really big expense for many companies thinking, how am I going to afford a project manager’s wage? Because in London you could potentially be looking at 50 grand or so for a decent project manager, maybe more than that. So one of the tips I’d give, I’ve done some videos on this before about this, but think about who you’ve got on your staff at the moment and can they be upskilled? Now it doesn’t mean you can do that with everyone. You might have a carpenter there that you’re looking at, you think he’s an absolutely great carpenter, one of my best workers.
It doesn’t mean that he’s got the ability to be a project manager by any means because some people just can’t. They haven’t got that skills transfer. But oftentimes people can be upskilled and they just need a little bit more responsibility, and a little bit more training. And you can often upskill some of your workers that you’ve currently got and they would jump at the opportunity of potentially being a site foreman or a project manager and you’d get them at a cheaper rate. And it also breeds loyalty to your business when other staff see that and think actually there’s potentially movement in this business for me to progress my career. So that could be another way of potentially saving yourself a bit of money by training and upskilling those in your workforce to step up to leadership roles later on. So that’s point number six. So the last one we were going to discuss was reducing overheads. The seventh tip, reducing your overheads.
Now as you’re expanding, it’s really easy, and we see this all the time, it’s so easy for your overheads to creep up. What happens is your turnover starts going through the roof and it just feels like you’ve got a lot more disposable income there each month. So naturally you think, oh, I’m go and get that office now and I’ll go and buy myself that new truck and wherever it is and your overheads before you know it, it can become quite high. So what can be really frustrating for many is that they expand their business, their turnover’s going up, and they’re really busy. And then as Tim mentioned earlier, you look at that bottom line and it’s not where it should be and you think, I don’t get it. I’m delivering my projects on time, I can’t pay my guys any less, but I’ve got a really great gross profit margin, but I’m not making any money. And oftentimes that’s because overheads are just too high, you’ve got too much going on in the overhead. So we want to operate that business as lean as possible if we can create a bit of a cash buffer in the business because we’re generating so much in profit. What are the sorts of mistakes people make, Tim with overheads? How does it gradually creep up? What sort of things do they do wrong?
Tim Charles (18:13):
Yes, I don’t want to teach anyone anything basic here, but just to quickly explain. So we’ve got sales at the top, then you’ve got your direct costs and that gives you a gross profit. Then you have your overheads, which give you a net profit. So we’ve looked, we’ve been looking at sales, haven’t we? We’ve been looking at direct costs. So let’s say we’ve nailed all that in the first six steps and as you’d say, you’ve got a good gross profit and then it all disappears in your overheads.
So one of the key things to do, and hopefully you’re working closely of your accountant, is to review your profit and loss account on a regular basis. Because in the profit and loss account, you do have a breakdown of all your overheads, so what your telephone costs are, what your motor expenses are, all these overheads. And if you review them regularly, then you’ve got an opportunity to say, wow, this is really high. Is there anything we can do about that? So if you are a construction business and you have an office, I can recommend, there’s a good app. It’s called Reducer. So just as it is a Reducer app. And that plugs into your software, say using Xero or QuickBooks or something like that. And it analyzes all your costs. So it could be, I know gas and electric have shot up recently, but analyzes all your different costs and looks at your different expenses and makes suggestions on where you can make savings.
But just regularly reviewing your overheads I think is a very important step because sometimes you can take out a subscription to some, say you took out a subscription to some software and you weren’t using it anymore and you were using something else, and sometimes these softwares, they can all add up the different subscriptions you take out and some of them you’re not even using anymore. So just regularly reviewing, I think is one at least vital step.
Greg Wilkes (19:57):
Yes, it’s really important because it does creep up all of a sudden. Like we said, you get an office, you get admin employees, like we talked about getting VAs earlier, but you can become a bit top heavy with virtual assistants or admin employees, or you may go and get yourself a lockup or storage unit or I see this all the time actually builders getting workshops because they want to do some joinery work in a workshop and they pay out for all this machinery and a big workshop and it’s costing a fortune this workshop. And you think, is that actually delivering you? You’re not in there all the time, so is it really delivering you value for money? So got to be really careful of analyzing this and…
Tim Charles (20:35):
Yes, another thing I’ve seen is if you need to get those storage units and you’ve got these storage units, sometimes it can add up to quite a lot of money every month these storage units. And if you look at how much you paid for that storage unit over a year, and then look at what’s actually in that storage unit. I mean it’s often the case that there’s quite a lot of rubbish in there and the amount you’re paying is actually worth more than the stuff you’re storing.
Greg Wilkes (20:59):
It’s true. Yes. See you’re just paying to store rubbish. That is so true. And I’ve certainly been guilty of that with some of my lockups in the past. So yes, that’s a really useful point. So that’s really good to think about. And as Tim said, the key to this really, if you can have a regular meeting with your accountant, maybe at the end of every month he sends you that profit and loss report or sends you a bit of a management report on how things are going and he can just highlight those key figures that Tim mentioned that’s going to be really useful for you just to get your eyes open and see what is going on, what’s the nuts and bolts of my business and how’s it working? There’s a saying that you always use, Tim, I’m just going to see if you remember it, about how we can monitor our numbers and I make this same off you now. You always use it. What’s that saying?
Tim Charles (21:48):
So what gets measured gets managed. So it’s the same. The principle, the best way to lose weight is to basically count your calories because if you have no idea how many calories you’re consuming, it’s impossible to manage that. And it’s the same with your business. And so many business owners, they have a really good handle on their top line. They know how much their sales are. I think most business owners know how much their sales are, but if you start asking them, well, what’s your gross profit margin? How much are you spending on X? How much you’re spending on Y? A lot of guys don’t have much of a clue. And if you are just looking at a set of accounts that are prepared annually by your accountant, well by the time they’re prepared, they can be like 18 months out of date. And that’s only useful for the tax man to know how much taxing you pay to actually be making decisions based on accounts. You really need to start looking at monthly and quarterly accounts. Hopefully, you are on Xero or QuickBooks and that information is there and review it regularly with your accountant because I love that expression. What gets measured gets managed, and unless you are regularly measuring it, it’s impossible to manage it
Greg Wilkes (22:56):
And not just measuring it. I mean, often people say you’re looking at a P and L, you’re looking in your rearview mirror all the time, which is important. It’s important to look back and learn those lessons and see trends. But it’s really important to forecast and think about what is the next year going to look like. If you want to double your business, you’re at £500K and you want to get to a million, get that down on a spreadsheet and what does that look like? What will your overheads look like? Who are you going to need to bring on at different points to cope with that increase in sales revenue? And then you’re not just looking behind, then you’re looking forward at potentially what’s going to come up and hopefully, they bite you then and you’ve got enough to cope with it.
Tim Charles (23:32):
Having those targets, it’s like playing a game of football but not actually having any goals to score in. And if you’re not measuring your performance, it’s like not keeping score. So everyone’s having a fun kick about, but no one knows who won. No one knows how many goals are scored and it’s not really a proper game of football. So I think you need to have targets, which are your goals, and you need to keep score of how you’re performing.
Greg Wilkes (23:54):
Yes, that’s really important. Thanks for that, Tim. So we started this podcast off talking about marginal gains and those 1% improvements. There’s another guy, if you’re listening to this, a guy called Alan Mills, his name is, so if you Google him, he’s got a book that’s called, I don’t know if he’s got a book, but he’s got a process. I went on one of his training workshops, it’s called The Power of One, and it’s a really valuable lesson, but it’s the same as the Marginal Gains. But he says how a 1% change the power of one, that 1% change in one of these areas will have a significant impact on your business. And he talks about managing levers and pulling that power of one and seeing it change. And I remember he did it at a workshop I went to, we were dealing with as a company with bigger numbers, but just that 1% change. You just move a lever up, we saw the change, and all of a sudden you look at the bottom line and think, oh wow, that’s really significant actually. And if you can do that with a few levers, that power of 1% across a few areas of business, like we’ve said today. So we’ve talked about seven things here. If you can do 1% across those seven areas, is that a 7% improvement? Is it?
I don’t know, I’m not going to go down that route. But yes, it’s going to make a big difference in your business and ultimately you are listening to this because you want to grow your business successfully and transform your profits and be successful. So I hope that helps and is useful for you. And Tim, I just want to thank you so much for being generous with your time today and providing so much value for the listeners.
Tim Charles (25:26):
Thanks for having me. It was great to be on.
Greg Wilkes (25:28):
Yes, nice one. So thanks everyone and all the best. See you in the next podcast.
Greg Wilkes (25:39):
If you’d like to work with me to fast-track your construction business growth, then reach out on www.developcoachingco.uk.