How This Contractor Made $200K From Change Orders

0:00 We do about five houses a year and we realize at 200 grand per house and five houses a year that's a million dollars in change orders. We look at change orders like another project. Like it's a it's a separate thing from the house. We collect the full cost of that change order, 100% of that change order immediately. We collect it during construction or we don't put it in. And we we for sure do not put it in ever without being paid.

0:30 You're watching Contractor Revolution, the podcast by Breakthrough Academy, where we systemize contracting businesses for growth. Keep watching to learn how the world's top contractors scale their companies, build killer teams, and make more while working less. Eric Olsen found a way to squeeze an extra $200,000 in profit out of work that he was already doing. His secret weapon, change orders. In today's episode, Eric is going to talk us through the exact strategy that he used to 4x his profits on all change orders.

1:03 Why getting this wrong can leave you with angry customers, frustrated team members, and zero dollars in the bank, and how to get your team actually stoked about this to maximize profit at all levels of the organization. This is a super simple way to make more profit without adding new customers. So, let's dive in. Mr. Eric, welcome to the show, man. >> Thank you. Thanks for having me. >> Stoked to have you. We are going to talk change orders today. You went from making 50 grand a year on these things to 200 grand a year with a few simple fixes. And I'm very curious and stoked to get into how you did this. So, just start with that. What happened? How did you do this?

1:38 >> Yeah. >> yeah. So, yeah, to start, we're we're a custom home builder here in Austin, Texas, and we build some high-end luxury homes in in Austin. And with that comes an assortment of change orders as as a lot of people on here know. And we we've always done change orders and it was this just part of what we do. and we had a project customer name not revealed. but it was a $4.2 million house which was a which was a great project for us.

2:13 Really nice high-end custom house. And that that homeowner added $1.4 $4 million in change orders during the 18month, two-year cycle. And we, you know, we did them as we always do and didn't really mark anything up and didn't know it. And then at the very end of it, we started going through the books and realized on that 1.4 million, we made $32,000 in profit, which is >> not much too. Yeah. Not not worth doing. $1.4 million in change orders. and and added six months to the production cycle of that. you know, the lot of stops and starts and oh, by the way, I had this and he was he wanted what he wanted. Like the money wasn't the issue. It was I want what I want. so, you know, we didn't know it till the end. We didn't manage it. And we realized, you know, 1.4 million in change orders is I mean, in a lot of places, maybe even in Austin, that's a whole house.

3:06 >> Yeah. >> We built a whole ex separate house for this guy and made 30 grand on it. And you know, at that point, the the you know, the light bulbs went off and we decided, you know, hey, we've got to do something. we've got to make a change that this is ridiculous. not only do we add 6 months to it, we didn't we basically didn't make any money. that that house was the revelation. that's that's where we started going, okay, what could we do to to better this bit of this process?

3:34 >> Yeah. Now, you did a talk on this at Winter Summit. and I think just listening to it and going over with some of the members that spoke with you afterwards, there there was some simple little things I want to get into today around this cuz it wasn't like a massive like big complex change that you did on this, but I think all of us listening could probably pick up a few pointers from today. And, you know, it's interesting. You do giant, you know, big projects. Even those who are listening are subcontractors or you're a painter, you're a landscaper, all of us have change orders in the projects we do. And there's a way then think we can approach it, charge it, incentivize our team around it to make good margin on it versus having it be something that kind of holds us back and puts you in a situation where sounds like Eric it barely even covered your overhead.

4:10 Probably didn't even cover your overhead. >> Yeah. Yeah. And yeah, after expenses as you look at that, I mean, between the, you know, renting the toilet or the silk fence or the insurance, I mean, all of it, we actually probably lost money on those. I mean, 32,000 was a, you know, a gross profit number. so yeah. So, as we, you know, had this revelation, you know, we we started talking about I mean, like, you know, what can we do? Can we just we'll just we'll just penalize people for doing change orders, right? That didn't seem to go with >> Yeah. We'll never do a change order again. that that not only is that just completely not capable in Austin, Texas anyway. I mean, people are going to do what they want. They're inevitable. We're not going to stop change orders. So, like we let's figure out a way to manage change orders.

4:50 but we got to realize, too, there's more than just a a financial cost, man. There's construction delays. There's all these opportunity costs, admin costs that go into change orders that we were never accounting for. And we realized we were doing like 50 change orders per house. >> Wow. >> Which I don't know if that's a lot or a little, but it seemed like a lot like 50 different times during the the project we would, you know, hey, let's we need to do this or we need to do that. and and on those about 200 grand on the average, you know, so 1.4 million was definitely like a that was an outlier. I mean, not everybody does a million dollars in change orders, but on the average, we're doing 200,000 in change orders and making less than 50 grand a year on those. Like, you know, 3 2 3 4% whatever it was. But we do about five houses a year. And we realized at 200 grand per house and five houses a year, that's a million dollars in change orders. And we decided, all right, what we're going to do is turn these into to, you know, a money-making process. And we and we started marking a change orders up, which was a very easy thing. But the problem was is that we're, you know, I'm not in the field every day. I've got project managers. And the project managers are close with our customers.

5:59 You know, they love them. They get to be buddies with them. And and the the excuses of why we never charged enough. You know, they're so nice. Or, you know, oh, I'll get it on the next one. I mean, you can imagine how many excuses there were to not charge our customer what it what we thought was proper. >> Yeah. Yeah, we talked about this in our prep call a bit too, but I'd imagine there's just a bit of an emotional component of like, hey, I'm loyal to this customer. I care about serving them well. I want them to be happy with the job. And this is a lot of money. So, if I can save them a bit, you know, why wouldn't I, right? And so, they're not thinking about the bigger business impact. They're just thinking about the relationship with the person that they go spend the next whatever 6 months, a year with. So, >> very much so. And and and we like that.

6:39 We want them to they our guys build about two at a time. So, they do get this relationship with them. So, it's, you know, super easy for me to sit in the the high throne and, you know, cast my wishes down to them. you know, and you, oh, it was an easy change or, you know, I forgot. I'll definitely do it the next time. You know, all those excuses. And it just kind of wasn't working, you know. So, we were like, man, this is this is not working. And having lunch one day, we were sitting around and we said, what if we incentivized our project managers, on the profitability of change orders?

7:10 And that was the that was the bulb. And I'm telling you, it seems so simple. I mean, I don't know why didn't I think of it before. we rolled that out in 2025 and within I mean, like within days, I mean, it wasn't weeks or months by any means, within days, the next change orders that were coming through had we were charging 35 to 45% markup. every one of them, every one of them had had a markup on it. And we started incentivizing them and explaining to them that they're our customers are nice, but we al we we don't get them we don't give change orders for free though either. And and when they started getting incentivized financially on these things changed to the point where we almost don't really have to manage it. It it it manages itself.

7:59 When we started the show, we had one simple goal which was to be a part of helping professionalize this industry. But most importantly, I wanted to give all of you a bit of your life back as entrepreneurs. I never could have imagined we would have reached this many people. We've had our ups and downs and but man, we learned what truly brings value and how to bring the change that so many of us have been working towards.

8:19 So my ask for you today is simple. It's to subscribe. It's the one free thing that you can do to help drive momentum in everything we've been working on. So if you get value from this show and you believe in what we set out to go do, I encourage you to subscribe and be a part of helping us reach the entire industry. Thank you. What was going on with the project managers? I mean, even for them, and maybe you've probably talked to them about this, but like what were they seeing and feeling before? What did they see and feel now? What psych psychologically like what shifted for them?

8:46 >> I mean, psychologically, they all knew we should be making more profit on change orders. >> Yeah. >> Psychologically though, they realize that really only benefits me. >> Yeah. you know, as the owner of the company and you know, human nature is great. Yeah, our company made more money or whatever. there wasn't a lot there for for them financially or any any incentive actually. to to to charge or not do them or whatever. And as soon as we said, you guys get a piece of this profit and some of them are are substantial. I mean, we we have I I kind of printed out some things I was looking at today before our call. where we're making 25 and $30,000 per house on some of these, but we've got some that are $90,000 in profit.

9:37 >> And our guys get 10%. So, it's a $9,000 bonus. >> Yeah. >> Just for doing your job. >> that's a that's that's substantial. So, you build two of those in a row and next thing you know, you're making, you know, well over 10 to up to $20,000 just in profit from change orders on our jobs. >> And I can imagine before too, like they're not making anything off of it, but you weren't either, funny enough.

10:00 And it also probably disrupted the schedule like >> 100%. Yeah. And that was the hard part is we are a fixed cost, fixed fee builder here in Austin. So, I don't do it cost plus. So, you know, these jobs go six months over schedule. Mhm. >> The insurance still has to be extended, the rental toilet still has to be extended, all the all the fencing that goes around. I mean, all you know, you can name all the things. And on top of it all, the opportunity cost of I've got another guy who wants to start a project, but it's across town and we can't do it while we're doing this one and I can't start the next job. So there were a lot of pieces of that that that came into play and in this one change and we didn't even know at the time that it was going to be kind of like you know it's not maybe lifealtering is probably not the right word but business altering. This was this was it and it was it was that financial incentive and you know to a point they started understanding the the books side of it. you know, they all understand the nuts and bolts and how to put a wall system together, you know, plumbing or whatever, you know, all the things that we do, but this was more of like, hey, let's sit down and review the profitability of your job, during construction and at the end of construction. And so, the guys that are excited about learning more about the business, this this was another kind of incentive, for them to for them to do it.

11:24 >> You turn their brains on, they're just like, "This is actually personally going to benefit me. Let me understand the business mechanics behind this. let me actually play this game with you. >> Absolutely. And and our goal is to, you know, try to treat them and teach them the way we do it, but I mean their little their little business we kind of say is your little home building business. You only have two homes or whatever it is, but you're in charge of everything. And that includes obviously the construction piece. That's number one, quality control and whatnot, but the financial side was always kind of missing. You know, that was done behind the curtain and behind the scenes in the office. And this has really allowed us to be more transparent with our team.

12:02 of course incentivize them which is you know the number one thing why I think it worked. It it definitely wasn't because I begged them or asked them over and over that that was not working. It was it was it was the money situation. but there are a lot of other pieces to it as well. >> Okay. Let's get into some of the numbers of this because you're just mentioning them. But so essentially you would do a 35% markup on change orders specifically. Now, this is probably not the markup you would do when you book a project initially. What's the difference and why would you charge more on on change orders and how is that okay with the customer and how did you manage that?

12:35 >> Yeah, so that's a good question. So, yeah, I mean our margins are are less than that. We're we're somewhere in that 16 17 18 19 range. You you know a good project is a 20% margin. but most of the time high teens change orders are a lot of work. I mean that's it. That's that's the sentence that that needs to be revealed. Change orders are a lot of work. we're not going to get rid of them though, right? I mean, so we we know that that both of those things are are can be true are true.

13:05 and our customer they deserve, you know, they deserve a simple and efficient process. They deserve upfront pricing. And so what we decided was they're a lot of work. They need to be we need to charge more for them. and and we have a a funny saying that we always say in the office, you know, somebody says, "Oh, wow. That's more expensive than I thought." Or that that's too expensive. Our first reaction is, "Yeah, that's that's a lot of money. Let's just move on. Let's not do it because if we can move, you know, I mean, we're not in the Our goal is not to encourage change orders, but our goal is to manage them and and manage them with profitability. So, if someone says, "Oh, I think that's crazy. I I'd never pay that." we just say, "No, you're right.

13:47 Let's go. Let's just move on. We'll keep building your house and make, you know, make our margin that we normally do." usually that diffuses that situation pretty quickly cuz, you know, I think a lot of times people think that we're in the the business of slowing their homes down. You know, people, I want you to go fast. Well, nobody wants it to be built faster than me. and so this deincentivizes or kind of maybe deflates that whole, you know, oh, you're this is too expensive. we just say no problem. let's go. So, we we charge more for them because they're more work. And yeah, >> and I like how you keep it a little emotionless, too. It's kind of like, you know what, like this is how we do change orders. They're a 35% markup. If you'd like to do them, we absolutely can. If you don't, it's all good. We're not here to push it on you. And this just is how our process works. They are a lot of work to do. And so, it's not you're not trying to sell it. You're not trying to push it. It's just a part of the process. It's like when I go to Walmart, I can't negotiate on the price there. I know I I buy the things that I buy there versus I go to the flea market and I'm always looking for a deal, right?

14:45 >> Yeah. Yeah. This that's exactly right. There is no haggling. There is no it's it is a kind of take it or leave it approach, but we do give them all the information. You know, we'll say, "Hey, if if this is a multi- a lot of times we have like a multi-step change order, right? You know, there's the we need a framer to come in and we need a new window that we're going to put in and we need new flashing on that. We've got three or four different subs. We'll line that out in the in the change order itself. So they'll have all the the documentation, the verbiage, the pricing of each of those. And we also tell them this is a piece of it. This will delay your project 5 days or 8 days or or whatever it is. So they they do get a lot of information at the beginning of this and it's a fixed cost, fixed fee.

15:26 There there's rarely like an open-ended change order. We go get them bid out or at least estimate them really well in house. but you're right, the haggling piece does not exist. And we just kind of say to people, you know, because I mean, building your home quick with fewer change orders is I mean that that's kind of the goal. You know, this is managing all the the the ancillary pieces. >> And I think it's important, too, when you're managing a team or this like, hey, we're charging this because this is the right number. We're going to talk about this in a second, why this actually is the right number for your company. But it's the customer often just wants what they want, whereas your team sometimes like, I would never spend that. It's like, well, you're also not our ideal customer, right? In a lot of cases, these customers aka like I would be I get work done by our members all the time. It's like I'm too busy to do a lot of this, but I want what I want and so I'll pay what I have to pay to get it done. So, >> yeah. Yeah. So, we do we in our office we we kind of have a another saying we you can tell we have a lot of sayings, but one of them is and we say this a lot is like do not let our millionaire client make you feel guilty about us charging a proper fee for a change order they want.

16:29 >> And we will. >> Yeah. deal. I mean, they guilt you and this and that. I was like, they are building this guy. I'm building a $7 million house on a on a $7 million piece of property. >> I'm 15 million in. Don't if somebody wants to spend 7,000 5,000 bucks on a change order, they'll do it. Don't let them make you feel guilty about them opening up their wallet to pay for something that is, you know, a fair price change order.

16:54 >> No. let's talk about the 35% because there there was some logic behind it, right? It wasn't just let's charge as much as we can and push back on this. Like you actually worked out the math of what you're going to pay out in bonuses, what you need to cover for like why 35%. Why was that the right number? >> Yeah. Right. So that 35% markup comes into about like a 20 what is it? 28% or so margin. you know markup and margin are different and I'm sure you probably had a you probably had a podcast about that. But we we know that for sure.

17:20 and so we wanted that to be and I kind of looked at it as like if I could get that to be 10% more than what we're making on our, you know, what we'd call our standard home. then then that's good. That's that's that's where we want to be. So that 35% was kind of 10% more margin than we currently make on our homes. Knowing that before I even that before any of that drops to the bottom line, my guy's getting a cut of that, right? He's getting a he's getting 10% of that. So, as you as you pull that out and you say, "Okay, you know, I'm looking at one here. We're going to add $35,000 in total profit." they're going to get $3,500 of that. And and I have more to talk about that here in a minute. and it is a way and and I'll say this, we've actually increased our we've increased two things since we've been at the summit. We've actually increased our margin up to 45%.

18:14 But during the summit and while I was giving that speech in the in the ballroom there in Cabo St. Lucas my someone asked me a question. They said what about the rest of your team >> like the office staff? >> And I go what about them? >> They go do they get any of this? And I was like no they don't. And we we kind of had a you know we call it kind of a coming to Jesus meeting afterwards with ourselves and we're like you know maybe this needs to be u spread about and because the team does have a lot I've got people in the office that help prepare these change orders that inter them in the system. I've got one that helps prepare. I've got one that interims into our system. I have one that collects the money. three different people. So what we did is after the summit is we raised our margin on change orders but I now include the rest of my team in the 10% profit sharing of these change orders. And I had people say you know that's really eroding your you know margin on these things. It and and and it is there's no doubt but the way we look at it at our company is it was virtually zero before.

19:25 I mean it was zero. Now, if I could charge 45, it turns into a 30 margin and we give out 10% of that in in bonuses. I'm still making a 20% margin on these change orders even after the bonus where we were making one or 2% before. So, you know what I want to make sure is clear to everyone, this isn't some silver bullet that, you know, solved all the world's problems, but it took us from 1 or 2% to 0% to to at least 20.

19:52 >> Yeah. >> which is is more than we're making on houses. you create an alignment on the team. They get to play ball with you. They get to benefit from the growth of the organization in a good organic way and they can do their part to create that value and not feel like it's just all going to the owner like you said earlier. So >> yeah, for sure. And we celebrated then I one of the little things that was not expected is that when in our sales meeting when we say hey look at you know we finished this job it's 60 days afterwards and we made this much money on this on this project and change orders. I've got bonus checks and you know in front of in everybody gets to see Oh wow. Yeah. And it's all the same amount. Everybody makes the same dollar amount. No one gets more or less. but you you know you hand out checks for like three and four and $5,000 to somebody who >> It's pretty cool feeling.

20:41 >> Yeah, it's a pretty cool feeling. and so in our world, it it doesn't feel like it's coming off the bottom line so much as it's a reward, a profit sharing piece that that everybody gets to celebrate in and I quit making 1% net margins. >> Is it it's interesting I always talk about too is like trying to get the team to come to the owner, not saying I need more money, but how can I bring more value? And in doing that, working together as a company, we can actually give you more money, we can bring more value to the organization, and everybody wins. What's hard is when it's just like every we're all dealing with inflation that seems to never end. And so our teams, we feel it. I'm sure you have it on your team, too. It's like everybody feels it and has felt it the last five years. And it's like you've just created an amazing solution to be like, "Hey, I don't need to just bleed out more to pay you to help you with the standard of living. We can all win in this together." Which is probably the the silver lining in all of this. It's like it's great to make money for the company. It's even better to have everybody aligned in winning on this.

21:34 >> Yeah, that's that's for sure. And and it is you know, it's measurable. I mean, there's real dollars assigned to this. I mean, it's not like, oh, if you do your job well, we get a good survey, you know? It's it's it's more direct actionable items of like, hey, we're about to enter this change order and on the fly and I was just going to wing it because I'm too busy to sit down and like do the real math and put the markup on it. I got a whole team now that says like, hold on, we're all in this together creating this sh. Don't don't start throwing stuff out there that isn't that isn't necessary. Ed, Ed, let's make sure we have proper margin on these before we turn them out to the customer because now everybody now everybody's involved. Yeah. And there's probably people listening too who are just afraid to charge more in general, even just to their customer. It's a very emotional thing. I know a lot of owners that we bring in, one of the first thing I look at is you as a company just need to charge more. But it's like no, but like that's not the expectation I've been setting and that's how I booked so much work. And it's just like guys, like at the end of the day, if you're going to go to produce work like you have, Eric, and it's not profitable, it actually is more costly than just no work at all and just figuring out a way to run the organization without stuffing it full of unprofitable jobs.

22:44 >> Yeah, absolutely. I mean, your profitability, I mean, way we look at it is is we, you know, we had our we've got our core values and one of them is profitability with with a purpose and and what it does, it allows what it does for us for sure. Obviously the financial rewards are great but what it allows us is that there's never an or never has anyway there's never an issue where we are not to the point of profitability where we have to say we need to start compromising our quality you know hey Mr. customer, we're going to use a less, you know, expensive whatever, you know, to save money here there. We don't have to do that because we know that we're profitable. And that's a I mean, that's a real thing, Danny. I mean, like there's a psychological piece that goes to to Joe saying, "Hey, I don't I I don't deserve to charge that much money or I don't deserve it or whatever it is." But I I would argue that anybody that's in BTA and I've been in a year and a half now and they've got to know you know you and lots of people in the organization and coaches and and you know it's a it's a intrinsic value. You know we know that we're providing this really good value to to our customers and in turn you deserve to get compensated for that. It's it's but it is a psychological thing that maybe it takes time or whatever it is, but we deserve it and we surely deserve to get a profitable piece on change orders knowing how much more work they are after the fact.

24:05 >> Yeah. Let's talk about collections. You when we were prepping, you were talking about when you collect like when do you collect these change orders? You know, why do you collect them the time you collect them? Let's just talk about some of the logistics around doing this. Well, >> yeah. So that was a that was a kind of a secondary piece that I didn't get into a lot in this in the presentation and at that's the summit but I got as many questions about that as I did about the actual how we you know how we charge for them. So yeah the we've done it this way a a long time. So we've got a really good process for entering a change order, getting approval for a change order and even collecting money for a change order. we were, you know, bad at making money on change orders, but what we do is we have an online project management software similar, you know, builder trend was it forever.

24:54 We've got a different one now. And that change order goes in and of course everyone knows how that works and and the customer can approve that online. They see if it adds time to the schedule or not and how much it costs, all those things. we collect and this is in our contract and we we actually bring this up in our pre-construction meetings. We collect the full cost of that change order, 100% of that change order, immediately. and I say immediately, it's typically on the next draw within a week or so. I am sending that customer an invoice for that change order. and we collect it during construction or we don't put it in.

25:30 And we we for sure do not put it in ever without being paid. So, we'll try to collect them early and often. And we definitely do not want the scenario and you hear about this, I'm sure you have, and coaches and all kinds of people where somebody waited to the end and they go, "Oh, by the way, Mr. Customer, you owe me $200,000. Your house is done." And they go, "Wait a second. I didn't What do you Yeah, that that framing change order 18 months ago. Yeah, that cost $5,000." I mean, if you think about it doing that way, I mean, not only is that a kind of a bad business model because your customer might not have had $200,000 to give you, but kind of a jerk thing to do to the customer. I mean, like, oh yeah, by the way, a year later, you owe me all this money. So, we've we've kind of looked at it the opposite way of like setting that expectation up front is I'm going to tell you the cost and I'm going to collect it like pretty much immediately, you you're going to know in real time with us if you're on budget. on budget and on schedule too. You had mentioned just something real quick, but just like, hey, this is how it impacts the schedule. You decide if you want to go out 7 days or not. And that's now not on us when we're 7 days past what you thought because you made that decision and improved it and the money's been paid. So there's not there's no like at the end of the project there's no big emotion around it. It's like we decided this 18 months ago was paid for and we agreed on the schedule change. I can I can plan accordingly as a customer.

26:52 Thank God. >> Yeah. Yeah. I mean it I mean it's like I said it's some people say you know I don't want to charge all that money up front. It's like to you're doing a disservice to your customer if you're not charging that money up front because they don't know if they're over budget. They don't know if they've got money that they could go spend on appliances at the end or you know a bigger swimming pool. You know things that happen at the end of construction. they don't know if that money is available or if they're over or under. So like I said we do it early and often is the is the rule in the in our office. And because it's in our contract. we write it in the contract and I go over it pretty extensively in our pre-construction meeting with the customer. you know, it's not a surprise. and we set we and we present it like that of this is this is a favor to you. You'll know in real time >> where we are.

27:38 >> What I've noticed too after 10 years of doing this and working with a ton of contractors actually in in your in area, but also like in every other trade, when you wait till the end to charge, this is the biggest area where you often aren't getting paid. And so when the product, especially like you said, when it's like 200 grand and they actually don't have the money, >> they're just like, I I can't pay you.

27:56 I'm not gonna pay you. And this is where lawsuits happen. This is where people start to get into deep water. And it's beyond just like, hey, I didn't get paid for that job is actually what jeopardizes some businesses because cash flow suddenly becomes super tight. >> Yeah. So for sure, I would say, you know, knock on wood, we've not ever been sued, but lawsuits I, you know, there's a there's a quality of construction, you know, defects lawsuits that I'm sure happen. But I'm, you know, most of our members here, I'm sure, are building high quality homes and that's pretty rare. But yeah, it's this you didn't tell me I don't have 200 grand and I'm moving in my house. Good luck. You know, and what a horrible scenario that what a horrible scenario that that can be. And and you don't want that to happen to you.

28:39 The customer doesn't want it to happen to them. I mean, the only person that makes out in that is the is the lawyer that you know you're going to hire and spend 50 grand to get 100 grand back. So, we we've talked about change orders in general. We've talked about marking them up properly, incentivizing the team to make sure everybody shares and wins in that, collecting them early and often, making sure that it's profitable for the organization to do. It's also good for the cash flow and the customer's expectation is, hey, I've paid for this, it's good. the other thing you mentioned is that you actually track them separately from the job themselves. can you just speak to that a little bit? Yeah. So the software that we use is it it will track the profitability of change orders separately from everything else that we do. So we all we when we you know when I when we did this and then we created this presentation for the summit we like we named it this and we we still believe it. We look at change orders like another project.

29:36 >> Like it's a it's a separate thing from the house. We even build that way. So as we do it in my books, I've got the in our QuickBooks accounts, I've got a budget and a and you know cost for the house and then I've got a budget when there is no budget, but I've got you know actual cost and and estimated customer payment costs budget for change orders. and we do that separately and we do that on purpose. I mean, I want to know you. Yeah, we kind of have to to manage this process. We've always done it that way and that's how we knew we didn't make any money because we went and looked at it and we're like, "Oh god, this is horrible." So, we do and we we we look at it as a separate I mean, it's an add-on business. you know, we we in 2012, we started I'm always looking for this, but we started a pool company. We couldn't find a pool company in Austin that we just really trusted. that was an add-on business. I can build that while the house is going. And that's turned into a great, you know, kind of side business, if you want to call it that. This change order thing is actually more profitable than that.

30:39 and so I look at it and manage it almost like it's a separate LLC. It's not a separate LLC, but we we look at that and say, we already have the project manager, we already have the house, we already have the client, we just have this add-on item, and that needs that needs to be separate. So, we manage it se as a different business. we bill it as a different business. So all of our draws are predetermined before we start construction for the house. You know, you got a million-dollar house and at at site prep you owe me 5%. At foundation, you owe me 10%. You know, and it it goes through those numbers are predetermined and they're all there and we'll send those invoices as those benchmarks of construction come. Then you'll get a separate invoice from us for change orders, >> right?

31:22 >> And so you have two and you know that separates it. If you have a bank loan, you know, the bank says, "Hey, I don't have any money for change orders." You know, that's going to go to the customer, you know, solely and they're going to pay cash for those and and then the one goes to the bank or whatever. But yeah, we actually separate all the billing. We separate everything. And now at the end, it rolls up into one number, right? And we we get a a total of what we made on the job. But I kind of have a a house and a change order that are purposefully separate as the way we charge for them in our program and the way we account for them in our QuickBooks.

31:54 >> I see that this is a massive takeaway for anyone listening. So even if you are not a builder, what you are essentially talking about is measuring your profit centers and by revenue type and being able to really see where margin is made, where it's not made and really getting away from the emotional side of it is like what logically makes sense. So I think in building what you've just spoken to makes a ton of sense. But I think there's also just people that do service work and they do install and they do interior and they do exterior and they do and when you start to see it's like oh our interior work makes us 22% our exterior makes us 35%. This is like say painting as an example or landscaping.

32:24 >> You start to see your profit centers and you're suddenly realizing like why do we brand ourselves this way? We don't even make money on this type of work. Oh well we've been doing it for 15 years this way and that's right. >> Yeah. Yeah. We've all you my granddad did it that way so I'm going to do it that way. Yeah. yeah, I I completely agree. Focus on what you do. Well, and and we kind of look at it too as focusing on stuff that's you know, low overhead, right? I already have a project manager to build my swimming pools, so that's a profit center with very little I mean zero additional overhead. This is the same thing. a whole different profit center with very little overhead versus saying, you know, hey, I'm gonna go start I'm gonna go buy a a steel fabrication company and now I need employees and a welding machine and a a warehouse and and I've got to, you know, I need 500 grand just to get this off the ground. This is the best in my opinion. This is the best way a home builder or really like you said any of these any contractor this is I mean this is the easiest way to make additional money without you know without without starting a whole another business and overhead and all these other things and and we and you deserve it. I mean this is more work stopping construction and trying to figure out how to add 10 ft onto a master bedroom at the back of the house in the middle of construction. I mean, that's a lot of energy and and it's it's probably easier to see it when you aren't the one doing it all, right?

33:49 >> You know, when I was when it was just me and my business partner and I would spend eight hours preparing a bid and you're just like, "Oh, yeah. It's just part of I just work today." But when I see my team go out and spend >> Yeah. >> six hours and this guy spent two hours getting this bid and that guy spent two hours getting that one and you're like, "Oh, wow. We didn't even really do anything today because we were just getting pricing for change orders, right? So, it's easier to see it from that perspective.

34:14 >> Let's talk a bit about scheduling because I know this is also a big problem. It's like, hey, we've just added, well, you said in one instance added a million dollars in change orders, but let's say a $200,000 change order. How do you manage the schedule, make sure that the next project isn't being bumped out too much or if there is overlap that there's expectations set there? Like what how's that dealt with in in a good productive way?

34:33 >> Yeah. So, yeah. So in our program we we literally can add the days to that change order. So you can say it is 5 days and it and if the customer approves it that schedule automatically moves itself out 5 days. So it kind of does it automatically internally. As far as that piece as far as well there's two kind of schedules I look at. I've got a customerfacing schedule and then I've got the real schedule. You know the one that that we use on the internal side.

35:00 Those are different. We don't show our customers the daytoday checkpoints. They get to see kind of bigger, broader benchmarks in our schedule. but to answer that question, we have enough crews where we don't really have much problem with overlap. You know, if I'm like, oh, I've got two electrician jobs going on at the same time and we just added a whole bunch of electrical, which we do almost every project. we usually can handle that without much issue with the subcontractors. They've got enough crews. Usually framing is framing can be a hard one. but the customer expectation I find is the this was this was always the tough one for us and we we think we've solved it or at least we've gotten better at it.

35:43 because we're moving the schedule immediately, you know, we're collecting immediately. We we we we thought, well, why aren't we moving this, you know, why are we not moving the schedule for a month? Like we need to move that schedule in real time. And so that schedule is moved out in real time and it literally has a block in the schedule now that says change order number 47 added five days and the whole schedule just slides out five days. And so as the customer looks at it, they can see, oh wow, yeah, my I I am 5 days behind schedule due to my, >> you know, whatever it is. And it kind of keeps it there actually we have a ticker on the top that kind of keeps a running ticker of like you're you're 5 days behind schedule due to all these change orders. And it keeps it front in mind because I'll say from a practical standpoint, all home builders on this podcast can understand this. If a homeowner does a change order and then a year later the homeowner moves in and goes, I can't believe you guys are two months behind schedule. And you're like, well, hold on. A year ago we moved this, you know, you added and you changed 14 different things in one weekend and yeah, we had to stop construction and they kind of almost forget about it, you know, and it's like, oh, you're just you're just behind. You're just you're you're that contractor that's late. And so we we have accounted for that in a way where you could see it in big bright red that you are now moving that schedule out due to something you know that they did. So we manage that pretty well. As far as the internal side you know most like said most of the crews we have will have multiple crews. The only ones that sometimes it gets a little tough on is is going to be framing.

37:15 you know my framer doesn't have five different crews that run around. He's he's kind of him he and his he his and his guys. that one can be tough. That one can be tough. We have to say to customers, you know, we're going to bounce guys back around and move, you know, shuffle. And that's we explain to people a lot of times, all of the shuffling, all these things that we do and all the podcasts that we listen, this is the reason we have a job, you know, if it was just, you know, call a plumber on Tuesday and he showed up on Tuesday and did all the work and left, you know, I mean, I wouldn't need a job and you wouldn't need to have a company coaching people like me. you know, I mean, the reason we're all here is because that framer doesn't show up and that plumber doesn't show up. So, yeah, that's always a challenge.

37:56 I I'm not sure I've got a I'm not sure I've got the the, you know, silver bullet on that one. >> That's okay. I'll poke you for what I can. What what I pulled out of that is is the big fix is like expectations on the front end of the customer, making it very clear and visual as to what caused this and easily referenceable even a year later. So you can come back and point at it and they're like, "Right."

38:14 Because otherwise it's just a wash amongst so many other things and then it's just their opinion versus yours. Right. Again, you you've made it objective. The biggest thing, Eric, we've been talking about this whole time is everything is objective and everything is kind of emotionless. It's just here's the facts. Here's where we go. Here's what it looks like next. And it's simple, but it's and it's not trying to wheel and deal and get and and convince. It's just this is how we work.

38:34 This is the process. >> Yeah. that I think that's a great way of looking at it is this is emotional enough as it is the home building side of this right I mean it is the biggest expense anyone's ever going to pay you know and so we look in Texas this is part of our pre-construction services this is the largest expense most likely you're ever going to spend on something this something is being built outside in the weather you know not not a factory you get to watch it being built which is you know completely ridiculous no one would let you see your car being made you know and and on top of it all in Texas at least with maybe 50% of the workforce that doesn't even speak our native language right >> like things are going to go wrong and >> this will be fine >> what could possibly go wrong >> and so you know the emotions run high the higher that dollar well it doesn't even matter the dollar4 million to $5 million dependent who it is it's all a lot of money it the emotions run high so we try to our goal is kind of we're diffusing this and and this is a safe. you know, not emotionless, but this is a safe spot. We we have predetermined things that you're going to know way ahead of time and and you you don't have to worry about getting so emotional on this because you've got us, you know, backing you up.

39:49 >> There's a different podcast I ran on just leading teams around just the saying of like clarity is kindness. I'm sure we've all heard that before, but it's just like it's clear and when things are clear, that's that's the simplest kindest thing you could possibly do. than try and be muddled and half halfbaked and reactive and all those things. >> Oh man, I c I couldn't agree more. It is it is really easy to make something muddled and confusing and another band-aid and another band-aid to solve it and another and like you said, why in the world do we do it this way? Well, 14 band-aids later, this is what it ended up. It really takes some effort and some and some time and we we've we have thought through it. It takes some effort and time to try to make something simple.

40:27 >> Yeah. And and and that is that is that is the truth for from someone who's trying to make it our goal is to try to make this as simple as possible and tell people you know you're about to embark on this journey with us of three four $5 million and a hundred selections you've got to make and all these different things and they just you know they go they go blank in their face sometimes. you're trying to you're trying to make this where it's like trust us we have a process and clarity and and simplicity is our goal all the way through. Yeah, that's a that's a big piece of this.

40:57 >> What would you say is some of the biggest like like realizations or changes you've been made? Just you you've been with BTA for a little bit now. What are some of the big simple quick wins? We've talked about change orders, but overall when you look at the business, what have you actually been doing with us for the last year that's made the biggest difference for you? >> Yeah, that's that's great. a lot. We've been in we've been in business 19 years, starting our 20th year. which is pretty rare for I must say I don't know if it's rare but I I bet you don't get a lot of people that start with you 20 years you know into it or 18 years into it. and we knew we needed systems.

41:34 >> I mean that was it. I knew it. I knew it as a business owner growing and getting bigger and you know we're doing 10 12 15 million 17 million a year. but we're doing it because I'm at the office Monday through Sunday. I'm there every day all the time. And we knew we had we we I couldn't keep doing that. It was just not feasible. I also knew that if I had another 10 years, I probably could figure it out. But, you know, that was not what I wanted to do. we found BTA and and so what we've done a few things, but number one is financials and we didn't have any financial controls. We didn't have budget. We didn't have any of that before we started. we know our budgets inside and out.

42:12 We know our income statements. We know our profitability per job per month. we we are granular on our financials and it took a little time to get that right, but that was that was huge. We we do not wait till the end of the job to know if we're successful or not. We like we know it month by month by month as we go, including these change orders. Those are monitored monthly. that's number one. the system part though is is number two. we have systems now for just about everything. SOPs for everything and you have to have those as you grow your team. we didn't have them.

42:46 I I just did them, you know, and there all the SOPs are in my head. now we have more and more people. and so SOPs and systems have been probably our our second thing that we have done. And then our third is how to hire. My gosh, because we need more people. we've actually been using a a a vendor that was referred to us through BTA. And it's been I mean, you know, life-changing for me anyway because I'm now instead of working 80 hours a week, I'm probably down to 50 since I started with BTA.

43:18 >> So, I've saved 30 hours a week. And and and by the way, we're getting more done and we're getting it done better, you know? I mean, I I'm not managing our social media. I mean, I'm I'm a 51-year-old finance major. Like, I don't need to be doing our social media. I have somebody doing that and I have someone doing accounting and and and so we we really have it's changed how we run our company in in such a good way and and I think the I think I don't know if it was you that was was the running the podcast at the time but a guy named Dan Martell >> Yep. Yeah.

43:52 >> wrote a book called I think it was called Buy Back Your Time or whatever it was >> changed us. I mean, I read it and I reread it and I was like, "Oh my god, you don't hire people to grow your company. You hire people so that you can go grow your company and they can run all the things." And so I've learned a little pieces as we go. You know, you know, Cameron who spoke at the >> Cameron Herald >> at the summit. Yeah. Yeah. he had a he had a great statement. I I use this phrase all the time. He's like, you know, was like the public school system kind of like ruined us of saying like, "Oh, if you were bad at math, you know, what did we go do? you you went and got a math tutor to try to be less bad at math instead of like if you're really good at English instead of just saying hey let's focus on English and be like do what we do well and go run with that and hire people to do things that they do well that you do not you know not as well. So, we've been, you know, I I kind of take these speakers and these books and different things that that that come across our plate and piece them into our job. You know, that's kind of an organic way. But, but yeah, man, it's changed it's changed how we run our whole operation.

44:57 >> Yeah. I mean, today was a cool example like a simple understanding of I need to charge out 35% markup on my change orders and so that I can basically give a bonus out to my project managers and my team and see a better margin come in for our entire organization. Given all of that, there was background work that we didn't talk about the whole time, but you're bringing up now, which is, hey, we started to get to actually know our numbers so we could identify these types of opportunities and issues. We started to document the processes along the way so it's clear to our customer and to our team and so there's no emotion around it. And then we started to bring in good people to kind of manage the process and get all of us aligned. It's people, process, and profitability. And it's the the backend work sometimes doesn't always get talked about, but it's that 18 months that I think really led to this win. And I think we can share it now and everyone can use it. But I think everyone listening too just know that like it's more than just adding 35% to your to to your change orders. It's it's thinking through the people, the process and the profitability element of your organization and then making those little dial tweaks to really optimize.

45:51 >> Yeah. Yeah. Nail nail on the head. I mean that is that is it. And and I feel like we're getting better, you know, each week, month that we go by. you know, it's they're small incremental changes and but we are we're getting we are getting better and and you know, I'm in the pro group, so I kind of have like I kind of think of my pro group as like my board of directors almost. I mean, we we know each other's financials. We know that they should, you know, oh gosh, I've got to get rid of this employee or I got to hire this one. And we meet, you know, two weeks later and >> I mean, the very first question is, have you done it yet?

46:26 >> And and they and it comes right back to me, too. of like, hey, you you've been talking about this stuff for, you know, this all this BS that's coming at you, but like, are you really going to and some some accountability, I think is is pretty cool. it's it's a little scary at first until you realize kind of everybody, you know, is in the same boat. We're all nobody's nobody's got it, you know, completely figured out.

46:46 But, it is it it there's some really cool stuff with that accountability piece in there, too. But, yeah, people, process, profitability, man, that like that's that's it. And knowing I mean I if anybody's listening to this Matt Risinger is a good buddy of mine and he said the other day he's like if you feel like you come home from work and at 9:00 you feel like you could go back to work and work four more hours >> you got to >> you got to make we got to make some changes. You got to get people in there.

47:14 And sometimes you you don't want to hire until you get the volume or the revenue. But I argue that get somebody in there so if you are the sales guy like I am in my company I don't have to create those financial reports anymore. I have somebody that does that. I go get to sell which will generate more revenue which will definitely pay for this new employee you know multi times over and yeah it's you by by doing this I have reduced my workload by 20 to 30 hours per week.

47:42 >> That's amazing. And and it's a good principle. It's like a lot of people would say do we hire first and then get the work or do we get the work first and then hire and you're setting yourself up for a little bit of a mess. you might feel safer about it, but if you go get the work and then hire reactively because you got to still train, you got to develop, you got to make sure the right processes. A lot of times it's stuff that you've done yourself. So like it's not well documented because you're the entrepreneur. You just did it your own hairbrain way. And so take I would encourage everyone listening to this like just realize take a little bit of risk in your organization. Realize that when you bring good people in, they can actually be a big part of driving the future growth of the organization. Even if they're not directly tied to revenue, it opens you up to be able to do the things you're supposed to go do. And Eric today was a great example because it's not just selling more jobs and getting more leads. There are like 50 dials we can turn to optimize things and this was a very simple clear one today.

48:28 So >> yes. Well, thank you very much and I hope it made hope it made sense to everybody. >> Yeah, I think it I I think it did. Any final thoughts? Any final words of advice for everyone listening? >> Yeah. Yeah. I I would say the two things that we took away from this and I keep preaching it to my team and I'll say it here again is the customer deserves that clear, you know, here's how much that change order is and I'm going to collect it immediately and we deserve to get paid. They're a lot of work.

48:53 >> Yeah. Yeah. Believe it or not, we do we we we are worth what we do in this industry and actually if anything we're largely undervalued and we undervalue ourselves and it's our own affliction I think a lot of us need to kind of get over. You know, I I know that everybody has a different ideal customer, but generally with most of the members I work with, I'm like, look, your customer is hiring you because they make more than what they're, you know, they're paying your your team to go do this project. You're better equipped. You have more experience and you bring the tools and and years and years of background to be able to do this right once. Well, you can charge for that and they will get tons of value from it. And you need to see the value that you bring, not just the cost that you're charging. So, >> that's right. That's Yeah. Couldn't have couldn't couldn't have said it better myself. Cool. Eric, thanks for your time on this. everyone listening, go make some change order changes. And, if you're not in home building, I hope you got something from this because there's so much for all of us. Whether you run a small service company or you do roofing or landscaping or painting or renovations, all of us could be billing properly and understand our profit centers and increase our margins and include our team in a lot of this so that there's more energy than just us dragging the ball ourselves.

49:56 >> Okay. >> Absolutely. Thanks, Danny. >> Okay. Talk to you later, Eric. See you. >> Byebye. As we all know, AI is monitoring even the microclicks we make in these platforms these days. And YouTube has just updated its algorithm to recommend videos like this. it'll be different for everyone, but it'll know exactly what you're looking for next. So, if you click here, you'll be happy that you did.