Construction companies have interesting needs from other companies if they're to become economically and personally sustainable.
It's hard to reach operational freedom from their business. Russ Stephens is going to help us understand what a construction company has to do to become successful, sustainable, and ultimately sale-ready. Join us for this great conversation.
Russ Stephens is co-founder of the Association of Professional Builders, a leading business coaching company dedicated to improving the residential construction industry for both builders and consumers.
Since 2014 he has been helping builders double the size of their businesses through profitable growth. The Association Of Professional Builders excels in providing cutting-edge systems, world-class support, and sales & marketing training to the construction industry.
In today's episode you will learn about:
A guide to optimizing your sales process
Marketing: 5 tips to doubling your growth
Turn opportunities into contracts without reducing your margin
Increasing margins through supply and demand
Narrator: Welcome to Cracking the Cash Flow Code where you'll learn what it takes to create enough cash to fill the four buckets of profit. You'll learn what it takes to have enough cash for a great lifestyle, have enough cash for when emergency strikes, fully fund a growth program, and fund your retirement program. When you do this, you will have a sale‑ready company that will allow you to keep or sell your business. This allows you to do what you want with your business, when you want, in the way you want.
In Cracking the Cash Flow Code, we focus on the four areas of business that let you take your successful business and make it economically and personally sustainable. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he's learned through his 40 years of owning, running, planning, and thinking about what it takes to make a successful business sustainable and allow you to be free of cash flow worries.
Josh Patrick: Hey, how are you today? This is Josh Patrick. And you're at Cracking the Cash Flow Code.
My guest today is Russ Stephens. Russ is an Aussie. So, as we bring him in, we're going to see that he's the founder of the Association of Professional Builders, but it's not the Association of Professional Builders in the United States, it’s the Association of Professional Builders in Australia.
He's also a consultant. He helps people build great businesses who are in the home building area. And I love having guys like Russ on because we can talk directly to blue‑collar business owners and some of the things that you're going to be facing. And I hate to tell you guys, but whether you're a home builder, a commercial contractor, a manufacturer, or distribution thing, your blue‑collar workers have about the same issues. We're straight across the board.
So, instead of me just yammering on, which I have a bad habit of doing, let's bring Russ on.
Hey, Russ, how are you today?
Russ: Hey. Fantastic. Thanks. So excited to be here. Thanks for the invite.
Josh: Yeah. It was kind of a long way around to get you here, but we finally did get you here. So, I'm excited to have you on.
So, let's start off with something which most contractors absolutely have nothing of which is a sales process. But I would call it more of a sales mess - the sales process I see for most contractors. So, if you're in the contracting world, what do you need to do to have a great sales process?
Russ: That's a great question because that is the Achilles’ heel. And I'm sure it doesn't just apply to the construction industry either. It applies to a lot of businesses.
But sales process is probably the number one thing that's missing from most small businesses. And that's what led to the foundation of the Association of Professional Builders because we realized that these building companies did not have a documented sales process. And that was the first thing that we set out to correct by documenting the entire sales process for a custom home building company which is a very long process which can span six to nine months, that sales cycle. So, we set out to document that and then to share that with the industry so that builders could have a documented sales process.
So, I guess, to answer your question that it really is the first step is to document your sales process because you already do have a sales process, you just don't have it documented. That is the main problem.
Josh: So, do you have a suggested sales process that high‑end home builders should be using?
Russ: Yes, absolutely. For high‑end home builders, it's a very consultative approach because they are dealing with consumers who are about to make the biggest purchase of their life. And there's obviously going to be a lot of nerves and in trepidation about that. So, they have to come from a position of trust. So, the sales process actually starts with the marketing process. And the reason that's so important is so that you can attract the right clients towards you, the people that are going to be your ideal avatar, but also to set the expectations as well as you go through the sales process because, if you can imagine, when your sales process is six to nine months long, you don't want people to be dropping out of that funnel because that is a lot of time that you’ve invested.
So, when you are setting up a sales process. It is a case of starting at a high level and just getting clear on what are the steps in your sales process. So, for custom home builders, for instance, first of all, there's the qualification process where they need to understand that they've got a good fit there for what they are doing. The next step is to get that ideal client into the design process. That's the first big step, really. From the design process comes the preliminary process where the job can be costed, engineering can be done, and full construction drawings, before finally moving on to the contract signing itself. So, it's getting very clear on those high levels and then filling in the gaps for each of those stages.
Josh: So, for a sales process that's six to nine months long and could potentially even go longer, what should a home builder do to make sure that the client doesn't forget about them in between steps?
Russ: Yeah, that's a really important point there. And it's something, especially in the construction industry, that we see builders falling down on all the time because they do not follow up. And a lot of the time, I think a lot of business owners have this mentality, “I don't want to appear desperate. I don't want to appear pushy.” Certainly, in the construction industry, that is something that's very prominent on builders’ minds. They don't want to appear like salesmen. Yeah, there's a lot of negative connotations with salespeople which aren't correct but nonetheless that's how they feel. And they're keen to avoid that. And, as a consequence, by not following up, by not asking for the sale, by not showing that you want this client to come on board, you can even be perceived as a bit arrogant and nonchalant. So, it is very, very important to follow up.
Josh: I would say that it’s absolutely crucial because if you give me a proposal or we do something and I give you some information, and I never hear back from you again, until three months from now, I'm not going to believe that you're very interested in doing my job. And if I'm going to spend in US dollars, you know, a half a million to millions of dollars, you better be pretty much on it and be, you know, holding my hand all the way through the process or you're going to find out, you're not going to get much business.
Russ: 100%. And it comes down to speed and frequency. The speed of the response, the initial response, is incredibly important to give that first positive first impression. And we measure it in minutes, even seconds in some instances because, too many times, the initial response gets pushed back because they don't want to appear desperate. So very, very important to act quickly.
And, interestingly enough, this is one of the main reasons that we hear from builders that believe their leads that are coming through their inquiries are no good. They're time wasters because, when they leave it too long, and they finally get back to that consumer, the consumer says, “Oh, no. I was just looking. Or, I'll get back to you.” What's really happened is another builder has come back to them quickly and serviced that inquiry. And now they're locked in with one of your competitors. And they don't tell you that. They tell you that they're just looking and you believe that these inquiries are simply no good. But, really, there's someone else eating your lunch.
Josh: Yeah. The truth is, when someone's looking to do a major project, even a minor project, they're going to contact three, to five, to seven people to do the work for them. And those who respond the fastest with the most complete information about the problems they’ve solve and not the stuff they do are likely to become the choice that the client wants to go through.
Russ: Absolutely. And this is a big problem in the industry, the typical process that a consumer may follow is to go to an architect or a designer, get their designs drawn up. And the next step is to go out and contact three, four, maybe even five builders and get them to put a price on that design. And the problem with that, at that point, the builder has simply become a commodity. They're going to be judged purely on price. And as we know, in business, you can't make money doing that. So, what we teach the builders is that that should not be their sales process. Their sales process needs to start way before that design is being drawn up. They need to be bringing the potential clients on board at the design stage. They need to be the trusted adviser, the fiduciary, through the design stage because they can actually enable this home to be built on budget or, you know, to actually create a design within their budget because in vast majority of cases, designers and architects, as talented and as great as they are, they're not familiar with construction costs. And a builder involved in the design stage can make simple adjustments to the design which is not going to affect the overall look or feel of the property and save tens of thousands of dollars in structural components. So that is why it's so important to bring a builder on. But builders are not very good at conveying that to consumers. So, we teach them how to market themselves in a way that enables them to be brought in as professionals at the early design stage.
Josh: So, it would seem to me that, if I was a high‑end home builder, I would actually want to be a design build shop and not just a build shop.
Russ: Absolutely. 100%. That is exactly the model that our members follow. Quoting plans that have already been drawn up is a terrible way to run a building company because when you're a commodity, the margins are gone and you're constantly on the hamster wheel. So, they have to reinvent themselves as design build companies.
And even if they don't put a designer on staff, that doesn't matter. It can easily be subcontracted out. But they have to be getting the consumer, that potential client, at that very early stage because then they can build the relationship through design. And what happens, in over 90% of cases, is the consumer doesn't go out to five other builders when those designs are completed looking for the cheapest price. They understand.
Josh: There's actually a good reason for that is that I'm assuming, in the design phase with a design builder, they're charging for the design.
Josh: So, they're already getting fees before they’ve cut the first piece of wood or put the first hole in the ground.
Russ: That's a very important point, you've changed the relationship by bringing them at design stage because you no longer have a prospect or an opportunity, you have a customer because there's been an exchange of money. And that's very, very powerful.
Josh: Yeah, it is. It makes people very sticky, actually.
So, let's talk about marketing for a little bit because this is something that-- one of my favorite marketing people is a guy named Michael Port. And Michael always says that the purpose of marketing is to create awareness. And I've added the purpose of sales is to create a customer. And they’re two very different things.
So, when you are coaching your home builders on how to market their services, what kind of advice are you giving them?
Russ: Yeah. One of the most important components of our coaching is teaching builders how to become content marketers because the bigger the price point and, as builders, they have the biggest price point out there for consumers. There has to be a lot of trust. There has to be authority as well. And, eventually, there has to be rapport which, obviously, comes as part of the sales process.
But in the marketing process, content marketing is a game changer for builders because 10, 12, 15 years ago, we saw the whole sales process turn on its head. You know, before then, you know, if you wanted to buy anything, you had to engage with the company or even the salesperson. And that person drip fed you the information. They were in control of the relationship. They had the power. But these days, everyone goes online to do their research. They are researching products, services, and companies way before they ever have that initial conversation.
So, if you are not online getting that attention, then you're not even going to be in the hat. So, the way to get that attention online is through content marketing. And that is providing useful, valuable information in the form of blog articles and videos that people are searching for. You know, builders don't understand how much information they have about their industry that is a value to consumers. They can really help consumers at that early stage, while they’re in the research phase.
Josh: Yeah, there's two pieces of content which I would highly advise listeners to take a look at. One is Donald Miller’s StoryBrand where you can learn about how you have to talk about solving problems and not all the stuff that you do. And everyone talks about the stuff and they forget to talk about the problems. It used to be known as features and benefits in the world.
And the second is a book by Marcus Sheridan, who’s one of the HubSpot’s top agencies and it’s They Ask, You Tell. It's a strategy he used when he had his pool company. Very simply, you’re just answering videos, all of the questions that customers ask you, so they're coming into your world educated and ready to have an intelligent conversation. Does that make sense to you?
Russ: Yeah, I love Donald Miller's book, Story Brand. It's required reading for everyone that comes on board as part of the APB. It’s certainly required reading for the marketing and the sales teams. And, yeah, we love that book. We've even sent it out to a lot of our clients. And we certainly recommend it to all of our members,
Josh: Yeah. It's really important for folks to realize that there's a transformation that goes on when you build your house. And that transformation is what people are actually buying or, at least, that’s why they're going to get interested in you. So, it's really important for you to know that.
So, let's talk about a little bit, we'll do a little pivot here, if we want to increase our margins through supply and demand, how do we go about doing that?
Russ: Yeah, supply and demand. Probably, the most important formula in business. And I think, as business owners, we end up a little bit too close to our own businesses and we tend to forget this important fact but never more important than in the construction industry with the sales cycle being so long. So, one of the most important principles that we teach our members is restricting your supply. Too many building companies, they tend to service their demand and grow their supply in line with their demand. And, of course, we know what happens in construction industry, with great regularity, is there is always a crash. There is always a lull there, every eight years or so. And that leaves a lot of builders struggling with cashflow.
However, what we teach our members is a process of planning out their supply by using construction slots. So, these are available start dates that they would plan in advance. Once they have their supply figured out and planned, they can't deviate from it. They can't just take on additional jobs. Now, what that allows them to do is then structure their companies professionally and plan out their resources so that they can service all of those builds they've committed to.
And then, the other side of that coin is creating twice as much demand as they need. Now, for the custom home builders, their sales process, the final step before signing the contract is the preliminary building agreement where they will go out to all their subcontractors in order to get quotes for all the different components. They'll get quotes from all their suppliers for the materials. As well as those tangibles, there's a lot of intangibles. It's part art, part science quote in a custom home. So, that will take four to six weeks. So, the builder’s started to put that together.
And the problem is most builders bank on 80%, 90%, even 100% of clients that are at the prelim stage go into contract. And that simply doesn't happen because, when you do get one or two drop out, it then puts pressure on their business because they're chasing cash flow in the delivery side. So, we teach our builders to create twice as many opportunities, at the prelim stage, as they need in the contract stage. That gives them the ability to offer their construction slots on a first come first basis which creates both urgency and scarcity in their sales process. It also allows them to choose their clients. And, of course, by having more demand than supply, it allows you to increase your margins.
Josh: So, what happens when they have X amount building slots and they’re filled, but they've been working with somebody for four or five months, getting them ready to the point, and that person may have even paid some money to have a design done, do you show them into the next year or do you just annoy them and tell them to go someplace else?
Russ: Yeah, the key part of this and something, again, that builders aren't always the best at is communication. And that's not just communication through the build process. That's communication all the way through the sales process, the design process. So, the builders will be communicating to these clients on the way through. “We have this build slot. We need to get to this point, so that we can get you booked in on that build slot.” So, they'll never end up with a situation where they will take this consumer on a journey only to find out that “we can't start your job for another year,” because they would be informed all the way through.
Now, in a lot of cases, you have people get busy. They don't manage to get back to the builder with answers. And this whole design process typically blows out three times longer than it needs to be. However, when the consumer understands that every time they delay a decision by a week that is going to have an impact on their potential start date because maybe they're not going to get to the finish line, you know, in front of the other consumer that's also looking to get their house started before Christmas. As long as they understand that and that is communicated, then the next available slot. It's just business, really. It's all fair. Everyone knows where they are. But it's very good point you bring up. And communication is key to servicing that.
Josh: It seems to me that there's an opportunity here for many more touch points than you would normally see in the process from these folks. So, what size builders does this work for? Is it any size? Or is it once they have four or five crews? Or, you know, where are they as far as sizes go?
Russ: Yeah, it's very interesting. There is a perception that the Association of Professional Builders deals with small builders. And that's because our average building company that we deal with is typically between $4 and $6 million in annual sales. However, we have a lot of clients that do $50--, $60--, even $70 million a year in revenue. And, equally, we have people that are just coming into the industry and want to do things correctly from the start. So, they will be at zero or even just a million dollars a year.
But interestingly, the thing that we do find is that we've worked with builders running companies of $6 million that have worked with us for four or five years and have become very slick and operationally excellent. And we’ll work with a builder doing $60 or $70 million and the difference is quite staggering because the larger building companies do tend to be less efficient. And it's almost like they've been successful in spite of themselves. And they're the ones typically that could benefit so much more. But, yeah, there is this perception that the Association of Professional Builders is for smaller companies which it's not.
Josh: So, too many builders I know do nothing about as far as building dashboards so they can track what's going on in their business. Can you talk about that a little bit why they need to have dashboards and what sort of KPIs might be important for them? KPIs, by the way, are key performance indicators or numbers that will tell you what's going to happen in your business.
Russ: Absolutely. You're talking my language now. This is something we're very passionate about. Every private client that comes on board with the Association of Professional Builders gets their own dashboard which is online and shared with the executive coach.
And what that does, by measuring their key performance indicators, their KPIs, we look at the lead indicators and the lag indicators. So, the lead indicators are basically the numbers that are going to tell you what's going to happen in the future. So, we're looking at things like advertising spend, leads generated, how many of those leads were sales qualified, how many concept design agreements were signed up, how many preliminary agreements were signed up, and even how many building contracts were signed up and what's the average contract value. So, we'll be studying those as lead indicators.
We then have an intermediate KPI which is called workflow. And that is the total value of contract signed less the value of the work that's already been completed and invoiced. And what that does, that gives the builders a good intermediate number of guaranteed cash flow, really, because this is work that's subcontract. That's a very important barometer. That enables us to keep a close eye on whether this company needs to be scaled up or scaled down.
And then, we have the lag indicators. This is really what your accountant tends to look at and give you advice on. It's what's happened in the past. And we know, from the financial world, that's not necessarily a great indicator of what's going to happen in the future. So, we'll be looking at revenue, we're looking at gross profit, gross margin, fixed expenses. We look at fixed expenses as a percentage of revenue. It tells us the efficiency of a company. And then, of course, net profit. The very important calculation for builders which is work in progress, which is a complex calculation that not a lot of guys understand. But that is a hidden liability for a custom home builder, so we ensure that that number is calculated correctly along with the bank balance to ensure there's enough money to cover that figure.
But it's not just about the KPIs, it's what we do with them because we are passionate about data‑driven decisions at the Association of Professional Builders. So, a lot of the time, in consulting your work with a client and the typical approach is, “So, tell me what's happening in the business. You know, what challenges are you having?” And the business owner will describe the challenges they're having. And the consultant will go to work on solving that challenge.
Now, we've found, through using KPIs, that when you take that approach, invariably, you are working on the wrong problem. You solve a problem for a client and they tend to stay focused on making that even better and honing in on that problem again. And through using data‑driven decisions, we always tend to find that the real problem in any company is not what the owner believes it to be. And we can get them focused on solving the real problem in their business rather than the superficial one.
Hey, Russ, unfortunately, we are out of time. And I'm going to bet some folks listening might want to find you. So, for those who are not watching Facebook Live or YouTube Live, where can they find you?
Russ: So, if anyone would like to find out more about the Association of Professional Builders and how we are helping our members, they can Google Association of Professional Builders or simply go to apbbuilders.com. And, on there, you'll be able to watch a demonstration of exactly what happens behind the curtain inside the Association for our members.
Josh: Okay, great. Thanks so much. I really appreciate your time today, Russ.
And I have two things I would like you to do. One, please go to wherever you're listening to this podcast. And I could say please about 9000 times. So, please go and give us an honest rating and review. If you love us, say you love us. If you hate us-- and I hope you don't say that, but if you do, you can say that too.
And the second thing I'd like you to do is I have this thing I put together several, several years ago and it started as a joke but it’s actually a pretty good tool. So, we call it our Periodic Table of Business Elements of strategies and tactics that you can use to make your business more sustainable and, ultimately, sale ready. And, again, it's really easy. You go to www.stage2planning.com/periodic. That’s www.stage2planning.com/periodic.
This is Josh Patrick. We're with Russ Stephens. You're at Cracking the Cash Flow Code. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You've been listening to Cracking the Cash Flow Code where we ask the question, “What would it take for your business to still be around a hundred years from now?”
If you've liked what you've heard and want more information, please contact Josh Patrick at 802-846-1264 extension 102, or visit us on our website at www.sustainablebusiness.co, or you can send Josh an email at firstname.lastname@example.org.
Thanks for listening and we hope to see you at Cracking the Cash Flow Code in the near future.