How to Stop Losing Money on Jobs (Part 2)

Last week we showed you why you keep losing money on every job. This week, we show you how to stop it.

In part 2 of this two-part series, Clark and James get fully practical — five systems, real language, and the exact processes they use to protect every dollar on every job. No theory, no fluff. Just the playbook.

They cover:

• Fix #1: How to turn your estimate into a scope fence with exclusions, not just inclusions
• The line every estimate needs: "This does not include…"
• Fix #2: How the CEA sets the culture on day one and trains your client before a hammer swings
• Why telling your client to "be a Karen" with your scope is the smartest move you can make
• Fix #3: The work order rule that protects you from disappearing change orders
• Why charging for change orders isn't greedy — it's accounting for the real cost
• Fix #4: How to hold the line on a change order without losing the client
• The silent death of clients who love you but never refer you
• Fix #5: The bank line item — Clark loves it, James doesn't, and you get both arguments

If part 1 made you realize how much you're losing, part 2 is how you stop the bleeding.

If you're doing $350K–$2M a year in revenue, coaching pays for itself. A 5% efficiency gain alone covers the cost — and that's before we even talk about growth. 

We help contractors stop losing money on crews, change orders, and inefficient operations — and start scaling. 

Ready to have the conversation? Set up a free call at contractorcuts.com

Contractor Cuts is a weekly podcast for contractors who want to build a better business — covering sales, operations, hiring, finances, and everything in between.

🔗 Book a free call: contractorcuts.com 

🔗 ProStruct360 software + coaching: prostruct360.com

Transcript

Why Scope Creep Keeps Happening

SPEAKER_02 0:01

Welcome to Contractor Cuts, where we cover the good, the bad, and the ugly of growing a successful contracting company.

SPEAKER_00 0:13

Welcome to Contractor Cuts. My name is Clark Turner. And I'm James McConnell. Thank you for listening. Nailed it. We are on week two of Scope Creep. That's right. Today we are talking about the systems that kill it for good. Last week, if you didn't listen, we covered everything that can happen and that causes scope creep. There's really four types that we covered last week. It was the good intentions, where on a job site you absorb change orders and just do stuff because you're trying to help the client out. And then all of a sudden that scope creep happens where you're doing extra work for no extra money. So the good intentions are number one. Number two is assumptions driven. We uh myself and the client have two different assumptions of what's actually happening. Um, I'm assuming that we're not painting the closets when we're doing all the bedroom painting. They're assuming that the closets are being painted. There's two different assumptions, and we don't know who's right or who's wrong. So now who's going to pay for it? Uh the third thing is gray area. Um, when I'm broad on my uh unclear scope language on the estimate, um, where I, you know, I have two broad, undefined stuff of what we uh of what we do. Um, paint interior of house, what does that mean? Trim, wall, ceiling, or just the walls, or was that include the basement that's halfway finished? Dental molding. That's right. Mullions. Good job. Judges paneling. The fourth type is client-driven. Um, this is uh this is scope creep where the client has a hundred thousand dollar budget. Um, they can't go over that. That's all the money they have. That's right, we're right under their budget, but we're maxed out of what they've got. All of a sudden he really has to have that one little thing that adds eight grand to it, and they put it on their credit card and she really needs to upgrade those countertops, and they call their parents and borrow some cash. Now we're at 115,000 on the scope. And then something happens, and I forgot to put X on the scope, and I, you know, we got to add that on if you want it done. And they're like, we don't have the money. We don't have the that's eight grand extra to do the tile. We don't have the money for that. And I said, Well, I didn't, I forgot to put the tile on the scope. We got to pay for tile somehow.

SPEAKER_02 2:31

But as you know, we told you from the beginning we only had a hundred and now we're at 115.

SPEAKER_00 2:36

No, now we're yeah, now we're at 130. Well, yeah, because you want to upgrade a counter type.

SPEAKER_02 2:41

Like you uh you understood from the beginning that we only had so much money.

unknown 2:45

Yeah.

SPEAKER_00 2:46

So that was what we went over, kind of those four types of scope creep, how they happen, how we react, the psychology of it behind uh behind our um decision making today is gonna be 100% practical. Systems, language, the the processes that we use to solve this. Uh so let's dive into those. So we have we have set up about five fixes um to solve this permanently in your company.

Fix 1 Build A Scope Fence

SPEAKER_00 3:15

Number one, the estimate is your scope fence. Um, we're gonna write exclusions, not just inclusions. And I think, James, you have you taught me this pretty like you did this really well in writing scopes. Um Thank you, Michael. The the line I want you to use on most line items in the description is this does not include blank. Um so when we are saying paint interior of the house, this includes one coat of paint, one and a half coats of paint, and all of the walls. This does not include trim and ceilings. Um, this does not include upgrade of paint, or this does include Sherwin Williams ProMar 200, or you know, the inclusions and exclusions of what's not covered in this. Install hardwoods. This does not include quarter round. Yeah.

SPEAKER_02 4:07

This does not and little, little fun just side side bit. When you have the pre-built line items, you can have your paint line that's your standard. Yeah. Includes these things, walls, ceiling, trim. Exclusions are all of the following dental molding, crown molding, judges paneling, mullions, blah, blah, blah, blah. You can all of the things that are not included, you can list them out. And what you can also do is on that line item is put what it actually would cost per linear foot to include those things. Yep. And you can delete all of the pricing out, or you could leave the pricing in. When you're every time you're putting a scope together, especially if you've got project managers, this is a way that you can have these pre-built line items that satisfy all sorts of caveats within that line item.

SPEAKER_00 4:58

A demo line item. And at the bottom, we have pre-built on that line. This does not include haul off.

SPEAKER_02 5:04

Or this does not include protections. Maybe we have a separate protection line.

SPEAKER_00 5:07

Yep. And so even though it says demo, this does not include haul off in the line item, and I forget to put a dumpster or haul off line on that scope. I can then go back to the client and say, hey, see right here it says it doesn't, and I forgot to put a line item for that. We gotta, we gotta do a CO for $800 for a dumpster and blah, blah, blah. Right. And so there's that conversation that, oh, that's right. It does say that you're right. It doesn't include that. Now, if it's just demo, they expect you to haul that stuff off. You're demoing and getting rid of it all, right? Yeah. And so if it, if that exclusion is on there, it covers your butt for if you forgot something. Uh, so number one is that also we need tight language.

Tight Language That Blocks Gray Areas

SPEAKER_00 5:47

The the no-gray area for free work to sneak through is is so difficult. This is the art of estimate writing. Um, but having really tight language that is uh not limiting, but also um really refining what is and isn't going to happen. Yes, the inclusions, exclusions. But um, I think uh you had a great example we were talking about about like uh the slope with the flooring. Um I think that's a that's a great example of of how to write the line item as a marching order, not a description. Um why don't you the example with the leveling of this?

SPEAKER_02 6:25

Uh yeah. So this is actually a a coaching client. There is a a the scope was written to say we're gonna level the floors in these certain areas of the house. And so now it's a little bit of a gray area because the client is actually assuming that they were gonna level the whole home, like found from a foundational level. From a foundational level, leveling the home. Whereas the estimate was like five thousand dollars and they replaced all of the the floor joist and the the subfloor, and there's still kind of a slope. And so what is he liable for here is the question. And so are we can we float it and do a self-leveler and get that that little those down corners just up a little bit and everything's good? That's probably the direction I would go, but I also would need to show them, hey, this is what actually leveling this place would be $20,000, $30,000. I'm I was charging you five. So my bad for being a little bit too ambiguous with the scope, but I think you can see in all honesty, I wasn't planning on leveling your entire house. We want to get you to where you could uh things aren't gonna be rolling around on on the floor, and that's the goal.

SPEAKER_00 7:44

Yeah. Uh and I think it's it's a you have to have a lawyer's mindset when rereading your scopes to where how how is someone going to use this against me? How is that going to be how could they take this the wrong direction? How can what am I saying? Can this be construed some other way? Um, that's something great once you are more than a one-man show that you can help each other out. And that's why we have a head of construction over our estimators, um, because he second set of eyes on every estimate to pinpoint and pick those apart to where we can really define some of that stuff. But if you don't have that, if you're a one-man show, I'm going to, after the estimate's written, print it out and look at it like I'm assessing it for somebody else. Um, where can I find the holes? Where can I shoot in this the ability to harm myself as a as a the contractor who's signing

Write For Client Crew Future You

SPEAKER_00 8:40

this? Um every line item needs to be in marching order uh that to where you know the ProStruck 360 software, you write your estimate and then you create an estimate from the scope, and then you create an invoice from the scope and you create work orders from the same scope. So the line item of what we're doing for demo, the client signs off on, and the exact verbiage of that goes to the crew. And so what we're trying to do is not get stuck between what we're telling the crew and what we're promising the client, because that's where I have to pay the money. Because the client, I've promised one thing and the crew, I'm not paying what I am paying them for is not what I need done. So I need more cash for that. And that's where we get get get hurt. So when you write your line items, when you write any sort of description, I'm writing it for three different people to read it. I'm writing it for the client to read it and make sure that they that we agree on the scope being exactly what they want. I write it for the crew to read it, to that they can execute the job by doing exactly what I have written in here. And the third person is for myself in two months to read it and remember exactly what we're doing and not doing. So there's three different audiences that we write every sentence on the scope to, every line item, every detailed uh in the uh in the description. And so that means I want to write marching orders for the crew. I want them to know we're doing this, this, this, this, and this, not just a broad thing that I've got to then explain in person. And you'll you'll realize if you're doing it wrong by how often you've got to explain what you mean to the crew when you're standing there. If I if every single job I got 50 calls, well, what are you supposed to do about this? And what do you want to do here? And are we doing this? Do you are we do you want me to buy green board for the bathrooms? Are we just doing standard sheet rocks? I think we should like all of those type of questions that the crew starts having for me. That's what you need to be keying in on, like, oh, I needed to find that in my scope. Oh, I need to find that in my scope. Oh, I need to, and start going into your software, into your line items, and start rewriting them, deleting old ones out and putting a new one in there with these things answered automatically. Um, like James was talking about earlier. I can build out each line item to where my tile line item has this includes red guard, this includes backer board, this does not include tile materials itself. This does include like I can have all of that every single time to where the crew knows what's included, the homeowner knows what's not included, and we're all on the same page. So the estimate scope is our fence. Everything that's gonna happen is on that. And if it's not on that, it's not gonna happen. And so we got to define what that looks like.

Fix 2 Set Culture With CEA

SPEAKER_00 11:17

Fix number two the CEA sets the culture on day one. Our client engagement agreement. It is probably the most important tool in your toolbox. Uh, it changes the culture of the job, the way you're viewed by your client, the way you operate everything starts with the CEA. We want to introduce the CEO process before it's ever needed. And we talk about that during the CEA. In that meeting, we want to be talking about how COs happen. And most importantly, um, you know, I want to say when something comes up outside the scope, I'll bring it to you with a price. That's how we stay on budget together. I want to let them know if it's not on the scope, it's not happening. I I every single time during the CEA, uh, there's one line item in it that that's talking about the scope and how if it's not on the if it's not on the scope, it's not getting done. And I look at the client every single time I say, hey, listen, this scope, me and you walk through the house and you were saying stuff to me that you want done. If we were walking through the house and you say, also, Clark, with this kitchen renovation, I want a new roof put on the house too. And say, cool, we can do a new roof, no problem. And I forget to put the roof on the scope, that doesn't mean I'm doing a free roof for you. That means there's gonna be a change order, even though we talked about it on the job site, on the wall, on the during the estimate. I use roof because it's obvious that I'm not gonna give you a free roof. Yeah. Um, and that's why it's always my example. Like that makes so much sense sitting here at the CEA. And say, so I say to the client, I say, so if it's not on here, you're it's not gonna get done. And I look at them and say, I need you to be a Karen. I need you to be the problem for me before we get started.

SPEAKER_02 12:55

My mother was a Karen and her name was Karen. So that hurt my feelings.

SPEAKER_00 13:00

I know your mother, and it is not Karen. Uh but I'm gonna look at look at them and say, I need you to need you to be annoying for a minute, and I need you to take the scope, print it out, and make notes on it to make sure that you understand exactly what's happening. And if we talked about something and you don't see it written on here, ask me to add it. That would be super helpful on my side. But your responsibility as the client is that you can read the scope and everything on here is what you want done. If it's not on here, it's not getting done. And I also explained to them how our work order system works. And I say, listen, whatever happens on the scope, whatever's written, I take that and I make a work order out of it. And the price that's on here is for the written words that are on here. And so there's something that's not on here, but you just like, ah, they'll do that part of that. It's not money.

SPEAKER_02 13:45

Don't assume it.

SPEAKER_00 13:45

I don't have money set aside for that. So I, every single CEA look at the client and say all of what I just said, and they get the they understand I got it. And sometimes they don't even do it at that point, but fast forward two months and they're like, hey, um, when are you guys gonna replace the toilet? What do you mean? Uh I thought y'all were also replacing the toilet in that hall bathroom. Remember, I told you it was it was running and it wouldn't stop running and just want a new one. Oh, that's right. I never put that on the scope. Oh, I thought you were gonna do it though. Remember, we talked about it. It's not on the scope. I don't have money built in to pay someone to do it. Yeah. Right. And they're like, oh, that's right, that's right, that's right. Okay, cool. No, that's fine. How much would that be? Right. And so it as opposed to we talked about it, you gave me a price, it should get, it should get done.

SPEAKER_02 14:30

Yeah, you're the construction expert.

SPEAKER_00 14:33

I didn't know that. Uh, so that's that's fix number two is the CEA sets the culture on day one before a hammer even swings. Fix number three, change order culture mid-job. No work without a work order, even on a $150 change.

SPEAKER_02 14:50

Seriously, guys. Seriously, guys. Work orders. Work orders.

SPEAKER_00 14:56

Documentation email. X needs to get done. It's $500. I'm absorbing this one, but want you to know. This is something that we talked about um the uh last week of um bringing up the even if I'm gonna eat something, I want to name it and put a dollar by it and put it on the scope at zero dollars and write in the description five hundred dollars comped by Clark Turner. Put my name in the description that I am approving that. Or if I've got a head of construction, I put his name on and say, hey, James approved it, so we're good to go. So like they realize for me to do something free for even $500, I got to send it up the flagpole and get everyone to sign off on this.

SPEAKER_02 15:38

Yeah. At least get the social capital. If you're gonna eat it, at least get the social capital of the client knows that you're doing them a solid.

SPEAKER_00 15:47

It's like in basketball where there's a possession arrow. Like, all right, you get the ball this time and I'll eat. But next time, the possession arrow is on me. And so next time, you got

Fix 3 Work Orders For Everything

SPEAKER_00 15:57

to pay that extra $500 because I ate the first one, right? And so we're sports. Um how would you understand? How to explain this? Let's say you were gardening.

SPEAKER_02 16:07

Yeah.

SPEAKER_00 16:07

Um so the change order culture mid-job, number one, is that no, no work happens without a work order. This is this is something big because what happens with the work orders? This is a real reality of a job site, is I'm standing in the bathroom, um, or my crew calls me and they say, Hey, there's X, Y, and Z needs to happen. I'm gonna need an extra 400 bucks if you want me to fix this. I say, Cool, let me talk to the client. I call the client, I say, Hey, X, Y, and Z needs to happen. And they say, Oh man, let me let me talk to my husband. And the crew's like just gets going and they start doing the work because I was like, Cool, sounds good, but I didn't tell them, wait for me to get a change order written. And so what we do with the the crew starts doing the work, the homeowner says, actually, let's not just not do that. So who's paying for it now? Right? The crew did 400 bucks of work and the client doesn't want to pay for it because they never approved it. I need to set in a an in stone with my crews, you do not do work unless you have a work order. And we say this, you know, it helps with us head of construction because they sit down with the crews with the project manager when we're onboarding crews and we say, listen, your job as a sub is to make sure whatever you're doing, or whatever dollar my project manager says he's gonna give you, you have paperwork to back it up. Because if he gets hit by a truck tomorrow and he's promised you a thousand bucks, I'm not giving it to you unless you have a work order.

SPEAKER_02 17:34

Because number one, I'm grieving. And number two, there's no paper trail.

SPEAKER_00 17:42

I'm crying over here because I lost my project manager, my good friend. You don't have a work order, though. Uh, but no work order, no work without a work order. And so we put it on the crew. And I say, listen, I want you to stand on the job site, say, James, I hear you. I will love to do that. Send me a work order and we'll get started. And force my project manager to get in his truck, pull his laptop out, and send you a work order before he leaves the job site. So you have it in writing. And that way, if I put the impetus on the crew, it's keeping my myself and my project managers accountable to where there's that clarity to where they say on the site, hey, it's $400. It's like, cool, sounds good. And I go to talk to the client, but they think it's an approval. They say, Hey, Clark, will you send me that work order for $400? Then I say, Oh, no, I wasn't approving. I just said sounds good. Let me get it approved. I forgot to tell you that that must have been a miscommunication on my part. We're not approved yet. Don't do that until I get approval. But them asking for that work order is defining that clarity. And so, no, no change orders, mid-job without work orders, without changes in the scope. And if I'm even doing it for free, I'm still documenting it.

SPEAKER_02 18:49

Yeah. And this is not a it's frustrating. No. It is really frustrating to stop what you're doing and generate a work order and have to send it to the crew and do the whole thing. And that's why you should charge for change orders. It's it is a pain in the butt. It's going to cost time, it's going to cost actual money. It creates confusion. You're going to have to edit a lot of random things. So keep that in mind as you're trying to play the nice guy with your client. Like, change orders are not just what they are, they're all of the moving pieces around it that you need to charge for. It is part of managing a project.

SPEAKER_00 19:27

I've I've got to call three crews to rearrange their calendar for the next two weeks. I've got to go in and rebuild my Gantt chart. I need to change around how and what I'm invoicing. Like, there is a lot of that. One big, big miss also, even if you're charging a change order, is not marking it up. Don't just charge what it's going to cost you because you're trying to do it for as cheap as possible. All the stuff we just listed, you're working for free now. And we lost three days at the back of the job because the whole job push, and that's three days I can't invoice the next job. And so those are just lost invoice days where I'm working for free.

SPEAKER_02 19:58

And then to compound the issue, when you don't keep the client informed about these changes, another thing in the CA, it says any change orders will necessitate a change in the Gantt chart at one day minimum. Yeah. Because changes increase the time on the job. When you don't keep track of your work orders and you're not keeping track of the Gantt chart, two months into the project, you've lost two weeks. Most of that is because clients have been changing things and you have been keeping them aware. And then you send them the updated Gantt chart and they're like, why are we two weeks behind? Now you have to go backwards in time and explain to them the things that they have done to make that timeline increase. And now you sound you're on your back feet. You're on you're on your heels now because they're like, this sounds suspect. Like I think you're not.

SPEAKER_00 20:47

Remember that time three months ago when you wanted.

SPEAKER_01 20:50

What? What is it about you? Two weeks? Well, I don't know if you recall. There was a time when you guys literally stopped work, right? You still want to come quickly.

SPEAKER_00 20:59

Let me find the text. Hold on. You're scrolling through your phone looking for their text. Uh it's in here. You text you asked me to stuff to pause on the whole.

SPEAKER_02 21:06

It gets tikky tacky. I'm like, there's no way for it not to sound tikky tacky unless you keep up with it. Yeah.

SPEAKER_00 21:11

And three days here, two days there, five days there. It doesn't take two days to go get different tile. Yes, but my tile guy had to leave. And then when I finally got the tile, he he came back the following day because I didn't know if we were gonna find it. Right. Okay. Yeah. If you're getting in those conversations, it's too late. Like you're you're already too far down. You've lost the social capital. Yeah. And if I'm saying it beforehand, hey, we got to pause. There's not enough tile here. Even if it's my fault, um, uh, you know, there, I I thought we had enough tile. There's not. Um, we're gonna go buy another 30 square feet. Um, it's I need to find out which floor decor has it in stock still. So I'm gonna send my tile guy home. We're gonna lose two days on the on the Gantt chart. I'll send you a new one on Friday, but uh, I I gotta go hunt this down. Uh, and so I'm letting them know I'm sending them a new Gantt chart. That feels like a lot of extra work, but those two days are now accounted for. So at the end of the job, three months from now, it's just pushed and there's no conversation in three months as to why we're we're behind the timeline.

SPEAKER_02 22:10

And just a little uh free nugget, I don't know if this exists on the CEA or not, but um one thing I always tell clients when we're going through the CEA is in regards to the Gantt charts, I always say this is a tool. It's not a promise. Yeah. It's going to change, it's going to be modified throughout the project. It's not a promise that this is when your job is going to get done. What I'm trying to do in saying that is stop the weaponizing it. Stop weaponizing the the Gantt chart against me because then I'm going to stop wanting to send it. Yeah. I'm going to stop wanting to update it because if it's just going to be an argument every time, why would I do that? Yeah. So setting it up on the front end as this is a tool. It's going to change. Projects always do this. This is our best attempt at mapping this out from where we are right now.

SPEAKER_00 22:59

Yeah. Uh a good one too is I can build these two different ways. I can build it where there's a lot of fluff days, so I can make sure I hit all these, or I can give you the real one of what I think. But, you know, as long as you're construction-minded, are you like, do you understand how is that cool if I send you like the really tight one that's going to move and flex and all that stuff, or would you rather kind of have the safe one?

SPEAKER_02 23:18

Well, my father's a builder. Perfect. I'll give you the safe one. I'm excited to meet him here.

SPEAKER_00 23:28

He'll be here every Monday. Uh all right. So that's the change order culture mid-job. We we need to make sure. And I think honestly, like, I don't know, all these are pretty important with the scope being being your fence and the CEA. But I think uh oh that that having a written change order for everything that happens is meticulous and gets skipped the most by guys. Yeah. Because it's like, I don't got time for this. I don't have time. And you you don't have time to not do it because you're right. Six, seven, eight times out of ten, it's not gonna come back and bite you. So you just skip it and do it. And then the time that you skip it is that the big one is the time that you get burned by the client. And they they they will burn you. Um all right, fix number four. What? And they will burn you, they will crucify. They will burn you. Fix number four, holding the line without losing the client. So one thing, uh, this one is I want to take care of you. We gotta do this, but we gotta do it the right way. Um, when change orders happen on the fly, there is usually a time crunch because if this change order happens, it has to happen right now, or we're gonna lose a lot of time. And so in the minute moment of uh something coming up, a crew calling you, a homeowner saying, hey, we got an issue, we just want to expedite it and get it done. And that's the wrong way to do this. We need to slow things down and do it by the book the same way that we do everything systematically. And so, what that means is I'm gonna speed is the answer to pushback. I'm going to get a fast CEO turned around and do it right now, slow things down. Let's get the CEO done. I'm gonna do it right away. I'm gonna pull my truck over and then pull up my laptop and we're gonna get a change order written real quickly. But let's fix this issue before the end of the day. Um, let's figure out the cost, figure out the change, send it to the client, make sure we're signed off, and we're good to go to keep keep moving. What usually happens to guys and where they lose

Fix 4 Hold The Line Fast

SPEAKER_00 25:27

their money is the client says, Hey, can we also do this? Yeah, there's gonna be a CO with that. Um, but I got to keep the guys rolling. Uh, we'll can we can we talk about that when I get there on Monday? Yeah, that's fine. The guys do all the extra work. You get there next week, you forget to talk about it three weeks later. They forgot about the change order. You are just realizing where's all my money? Oh crap, I need to do a change order. How much was that? How much extra do I got to pay you for what you did? I need an extra two grand for the amount of work we did. Okay, cool. I'm gonna go to the client, $3,000 change order. And the client's like, for what? It's like for the thing you asked me to do. You said it'd be a little bit of extra. I thought that'd be $200. The client's like, I'm not paying more than $200. I would never have approved $3,000. And so now we're three weeks down. They're holding my money hostage. We're arguing over the difference of 3,000 and 300. They approved it. We did it, but we didn't stop and work it out that day before doing the work. And so this happens so much, so much. And so this is something of I want to approve it. It goes along with the work orders, the culture. I'm gonna send a work order to my crew before they're allowed to start doing it. I know we're gonna miss some time because we got to do this. I'm gonna be the bad guy and we're gonna not, I'm gonna send my guys home until we figure out the actual plan and the price. Yeah. I need approval.

SPEAKER_02 26:47

You know what I hear a lot of times, and it scares me when this conversation gets brought up is guys say they're really understanding clients. Like they're really, like, I don't think it's gonna be an issue. That's great. There's always there's always that one line that you you can reach the line and like now they're not reasonable anymore. Yeah. So it you you are only exposing the the total amount that you're exposing yourself to is not just the cost of what you have to pay your crew to do that change order, it is your relationship with the client.

SPEAKER_00 27:23

Yeah.

SPEAKER_02 27:24

So have the hard conversation so you don't have to have the harder conversation later.

SPEAKER_00 27:29

Well, uh, and exactly what you're saying, uh we've had project managers that clients love. And they do this stuff and we don't see it. And the client loves the guy but doesn't love him as a project manager, but they love him, right? And so what happens is the client smiles when you call them and this and and he's not following your systems, or you don't have systems set up with change orders and work orders and how to do this and training and accountability. If you don't have all that stuff, the client's just looking at your your uh project manager saying, Yeah, that's great. Thank you so much. And then they go home and they sit at dinner and they talk to their husband and say, He is so sweet, but I don't trust him. What like I'm not I'm not happy with what's going on. Yeah, like I love him to death, but I don't like. And so when they start saying that behind closed doors, that's the worst because A, I don't know about it. I can't solve it, they're not reporting it to me. They don't want to get him in trouble, but they're not gonna refer to anybody. They're not giving me a five star, but there won't give me a one star because they're just gonna go away quietly at the end of the job because they don't want to burn your PM that they love, right? And so all of that type of stuff starts happening that that's out of your control but ruining your reputation. Yeah. And so the more that that happens, even if it's you by yourself, they won't, they might love you. They might be a very non-confrontational person, and it either boils up at the end and they explode on you and they come out of left field like I thought we were we were buds, and all of a sudden you're yelling at me, or they the worst, they never yell at you. They're just don't like you and your company, how you operate, but y'all are buds, and so they just pay you to go away and they'll never suggest you to anybody else. Yeah. Right. So it's you're losing even when it feels like you didn't like they weren't complaining, so we're good to go. Yeah. The soilent death, we call it. Yes. The fix number five is a controversial one. James and I debated this one. Um, we we have different differing opinions. Uh mine's right, and uh we'll start there. Um, we're we we do, I suggest though you can't even get through it.

SPEAKER_02 29:31

You're so not sure about it anymore. It's really affected you.

SPEAKER_00 29:34

You've not, you've not at all. Uh fix number five, adding a bank line item. Um, what I like to do is add a line item to the bottom of every job, and I'm add, I check the box and the preset. So every time I add it, it's already checked, which says hide line item from client. And then you can title it bank, or if you want to be safe, and in case you accidentally click that off, you can title it money owed. But what we do in that line item is we keep track of how much money I have to burn, how much I have in the bank that I can lose and not lose on the job. And so let's say I've budgeted five grand for paint. I'm assessing it, saying, I think, I think this could be painted for four grand. Well, I'm gonna take $1,000 off that work order before sending it. I'm gonna put it down in my bank. I'm gonna say paint $1,000. Up on the paint line item, I go from $5,000 to $4,000. So my cost still stays at $5,000. But

Fix 5 The Bank Line Debate

SPEAKER_00 30:33

now $4,000 is for the line item of paint and $1,000 is in my bank. When I send a work order, the cruise gets a work order for $4,000. Now they might come back and say, hey, I need $4,500. I say, cool, I got you. I got you on this one. I can do $45. I'm gonna go to my bank, I'm gonna change the $1,000 to $500, and I'm gonna go to the work order line item for paint and go from $4,000 to $4,500. So I've got the extra in my bank that I know you can spend. I don't, you know, do whatever you want with it. Burn that money because I still hit my profit percentage because I'm bet, I'm banking on spending that and it's coming out of my profit. So my profit at the bottom is still stays the same, no matter if that that dollar is on the paint line or the bank line. At the end of the job, if there's money left over, I'm gonna buy the homeowner a really nice bottle of wine with it, and then I'm gonna delete that line out. And all of a sudden my profit jumps from 36 to 39% because I ended up not spending that money. That bank line item is the buffer to allow you to negotiate and also have a ceiling in those negotiations. When the crew comes back, I'm like, four grand, no, I need 5,500. I can look at and be like, I've got a thousand left over in this job, you can have it, but I can't go to 55. Right. And so I've put myself on a budget that I can only spend this amount and now I got to negotiate around that. But I'm also not being so cheap that that thousand dollars in my pocket, I'm not gonna budge on it. And even though I was originally willing to spend it, now I'm now it's just kind of off in the ether as extra profit that I don't want to burn through. Um, that's my bank line item that I love. Um it protects against margin, it can save the relationship and it allows you to throw money without just paying money out of your pocket. James, the floor.

SPEAKER_02 32:14

Yeah, well I I would argue initially it's all money out of your pocket anyway. Um what I don't what I think is a fine process is having the bank to begin with as you're in due diligence and you're doing your negotiations with your crew. But before the job starts, all of your negotiations are done.

SPEAKER_00 32:34

Yeah.

SPEAKER_02 32:35

All of your crews know exactly what they're being paid. And the only thing a bank line item is doing sitting on your scope is it's a little grenade just waiting to be unclicked and accidentally sent to the client. Yep. So if it's you, if it's just you and like you feel really comfortable with that, great. If you have project managers, you're I think you're exposing yourself to too much. The way that I would look at it is great, use the bank as during the negotiations process. But once the job starts, that line item gets deleted. Whatever money is in there is deleted and the profit percentage of the job increases. And so as you are going through the project, instead of saying, Well, I've got this much to burn, you're just looking at your profitability. Am I still in my profitability? Great. We want to be at 40%, and right now we're at 42.7. That's a great spot to be in. We got a little bit of wiggle room, but I don't, I'm not just wanting, especially again, if I have project managers, I don't want them to think, oh, I've got this much to burn. Yeah. I've got this much that I can just throw in the toilet. No, I would like to gain, if we were talking about losing $1,000 on every job and that tallies up if you're doing 150 jobs a year, it's $150,000. Reverse that. What if my bank is $1,000 on every job? And instead of incentivizing people to throw it in the trash, just make it part of your profitability. And when we go into the job, we see we're at $42.7. Yeah, great. I got some money to, I can buy them that gift at the end of the thing. Or we've we know we have a mistake potentially down the road. Great. We've got a little bit of a buffer for that.

SPEAKER_00 34:14

Yeah.

SPEAKER_02 34:14

But it's not specifically tied to any one thing where it's like, I got $500 left in paint, and the crew is like, uh, great. I'll give you $500.

SPEAKER_00 34:24

Yeah.

SPEAKER_02 34:24

It's like getting ready to spend it.

SPEAKER_00 34:26

Well, uh, I would I will agree with you on one thing.

SPEAKER_01 34:30

One thing only I'm sorry. Can you say that again? Holy shit, people. I don't know if I'll ever heard you say that.

SPEAKER_00 34:40

You're right about one thing, James. Uh I will say there's a difference of being a one-man show and running project managers as a head of construction. Um, when I'm a one-man show, I look at that bank and I'm like, oh, I could take my wife to an ice steak dinner with that money. Oh, I can do this with that money. Oh, I can do this. That's man, $400 is a lot of money if I can save that this month. Um, you know, the the $2,000 in the bank right now, I can take my kids to the beach for a couple days. Like, that's quantifiable in my life as a one-man show. And so I protect it differently. Yeah.

SPEAKER_02 35:18

Project managers never send it. You'll never accidentally send it because you're looking at it as a you're looking at the money just like everything else. You're looking at it so differently than the people you employ.

SPEAKER_00 35:30

And project managers see the see money as tools to get their job done. And so if I can throw in, I got extra money to throw at someone, I'm gonna, I'm gonna spend all of my budget. Um, as opposed to as an individual, I'm not going to. I think at best case scenario, if you're a one-man show, start with the bank and train yourself on how we negotiate and how we try and save money and how we do that. And if you take it off when you when you start working, when you hire a project manager, then your job is, like James said, we're using the profit percentage as our motivator, not that bank line item with cash down there. You can see the profit went from 36 to 39 because the bank line's not there. We got to keep it at 39 now. That's your new bar. So uh I agree with you when you have employees, it's a harder thing to do. Um, it's gonna be personality-wise. I I've I've had employees that view the money like it's their own and they're not gonna spend that unless they have to. And I have other employees that will spend all of that and then borrow a thousand bucks from another bank on another job just to burn through this job and get it done with. Uh, and so that's there is a a gray area when it comes to that. But I think if you have an issue with starting the job at 36% and finishing the job at 28%, this is a great place to start, to start limiting and training you on how to negotiate with crews um to where I this is all I got. This is what I got left in in my in my margin. Take it or leave it to the crew. Um so, anyways, you've heard both of our arguments on that one. Do with it what you will. Choose your battle. So those those are our five fixes. I I think a lot of this, if we were gonna sum it up, is the scope has to be defined. We need exclusions, inclusions, and make the scope the most important thing on the job. Then we do the CEA, where we do a client engagement and set the scene as to what change orders look like, how they happen, what the scope should and shouldn't be, what their responsibility is, um, everything that needs to happen to where there's no surprises along the way. And if there is, they already know the rules and they're cool with losing because that's part of the rules. Uh, and then once the job starts, work orders for every human on the job site. If they're going to the job site, they're getting a work order with scope and payment. Um, doing those phases, the estimate, the CEA, and work orders once the job starts swinging hammers on it, though that is how we really start honing in the savings on this. This is how we start making you as a coaching client super efficient with your dollars, is that we want to protect your money and use all of this paperwork, the CEAs, the subagreements that we have in place, all of that stuff to start saving you money. Like I said, that's one of the biggest arguments

Three Phases To Protect Profit

SPEAKER_00 38:23

of why you guys come into coaching is if we can, you know, you're doing a million dollars, if I can save you 5% by by enforcing some of the stuff and training you on these processes, that's $50,000. That's way more than what coaching is. So, you know, the the reason to come into coaching is that we will pay for ourselves by making efficiencies like this. Uh, and then on top of that, you get growth and we grow you to the next level and you get, you know, we can increase your revenue after these processes are in place, uh, which is just ROI on the coaching. So if you've been giving your work away for free, if you've been doing this, I'm gonna challenge you. Those three phases that we talked about is is what I'd like you to try on the next job starting. I want you to next time you're writing an estimate, I want it to be detailed. Now, if you haven't listened, go back a month or two. We did a podcast on um uh on doing uh from intake through signature, uh, the front end of how the estimates go. And that's something that you know we don't have time to today to dive into, but that's something to where um what we want you to do is refine the scope as you go along. So your desk estimate is gonna be broad. You don't need that detail. Site revisions will be pretty close to you know 90% detail. But then we're gonna do the final revisions that are going to be high, high detail that'll be every every I dot and every T crossed. Uh, and so we're not giving that level of detail where we're doing a 12-hour estimate on day one before we even know if we've got it. But during pre-construction, post-signature, we need to make sure that it's super refined and all of that details captured, as opposed to I got a signature or let's start start swinging hammers. So start that way. We want to next estimate that comes in, we're gonna go back and do those estimates that way, but we're going in pre-construction, make sure the details are perfect. We're gonna do a client engagement agreement. If you're in coaching, you're going, you you already have that in place. If you're not in coaching, talk to us, come set up a free 30 minute. I'd love to have that conversation. And then from that CEA conversation, we're gonna start the job and we're gonna make sure on that one job that we're doing this way, every crew has work orders and every change of scope is documented and written and priced either at zero dollars or at whatever it costs and sent to the crew with new work orders. If you can do those three things, those three phases, you are going to be saving yourself a lot of money starting now. Uh, so just try getting those. System isn't hard. The habit is, right? It's not difficult to implement a system. The difficultness is how do we create a habit around those systems and hold ourselves accountable to them? Again, coaching, that's the accountability side of it. Um, we'd love to talk with you. Go to contractorcust.com if you want to have a conversation with James or I. Uh, you can literally schedule directly on a My Calendar uh if you want to have a conversation about what coaching looks like for you. That's it. That's our two-part series on Scope Creek. Beautiful. Beautiful, Clark. Beautiful. Um, next week we're talking about subcontractors. And uh it's gonna be a good one. Um, we've talked about how to onboard them, how to fire them. This is how to make them true partners in business. Uh, it's a really good one. So catch us next week. Uh, and thank you much so much for listening. We'll see you next week. Bye. Bye.