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July 22, 2025 • 46 mins

Jake Bruton, from Aarow Building, talks about the painful $180,000 lesson that forced him to completely rethink his construction business pricing model. Learn how moving from fixed fee to cost plus saved his company, improved client relationships, and created a more transparent, financially sound business approach. This episode is a must-listen for builders looking to protect their profits and build trust with clients.

https://www.aarowbuilding.com

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Episode Transcript

Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to another episode ofbuilders, budgets and beers.
Today we are joined with JakeBruton of Arrow builders, out
of Columbia, Missouri andrecently expanded into the
Kansas City Market. For those ofyou that don't know Jake, he is
a part of the build show livewith Matt Reisinger, and he is a
total wealth of knowledge thisepisode, specifically, we were

(00:22):
talking about what motivated himfrom moving to a fixed or from a
fixed fee model into a Cost Plusmodel. And the real motivator
there was in 2015 he had nearlya $200,000 loss on a project
largely chalked up to poorcommunication and poor
documentation. This is anextremely tactical episode, even
going as far as how Jake isverbalizing or communicating a

(00:45):
change order as an an Awa,additional work authorization.
It took me a minute, but I gotit. This is the type of stuff
that builders need to know, andI think Jake does an incredible
job at via storytelling,articulating why they made these
moves. So if you want to hearmore, let's go ahead, go ahead
and jump in and we'll get to theepisode with

(01:14):
Jake. Alrighty, we're live.
How's Jake brutons? World,busy. Yeah, that's why we had to
reschedule thisthree times. Good. Do not, do
not worry about that. I imagineyou're busy with building and
all the stuff you're doing atBuild show. We're stoked for
Dallas. Me too. Yeah, we're weactually, we just committed to

(01:34):
the underwriter package. Sowe'll be underwriters for your
guys's for your guys's session.
So, all right, cool. Okay, I'mThank you, yeah, of course,
dude, of course. We're, um, sojust even, like, little
background what I'm doing now.
So obviously, like, I was moreon like, so as a first sales
hire, I sold directly to yourteam when they were at JLC. Yes,

(01:54):
and, and now I'm head ofconstruction network. So really,
what that is, is us leaning intobuilding more long tail
relationships, more community.
And a lot of that is investingin these ecosystems where we
have, like, a lot of really highintent, very serious builders to

(02:16):
obviously network and engagethere, but really start to
uncover, like, what are thesebig pockets of builders that are
wanting these more financiallysound businesses? So that's
where the underwriter packagemade a ton of sense. We're
stoked.
So financially sound sounds likea fantastic idea, doesn't

(02:38):
it? It does. It does well, and Ithink that's what we can talk
about a little bit today. Iremember when we initially
talked about this at JLC, justthis last was it March? I think
it's when it was I thought youhad a really compelling or
really interesting perspectiveon tariffs at the time, right
that was like tariffs were big.
I saw that you guys had done anepisode on tariffs here just

(03:01):
recently. Certainly don't wantto replicate that, but I think
that would be an interestingperspective to hear from you,
basically, how you and the arrowbuilders team views managing a
healthy business througheconomic uncertainty, whether
it's tariffs, whether it's adrop in the market, whether it's

(03:22):
interest rates, whether it'swhatever, yeah. So we can start
there. I mean, I think firstoff, it is important for the
listeners here to have a littlebit better idea of who you are,
if they don't already,obviously, you've got a fairly
well known brand, but go aheadand let the listeners know who
you are and what you're aboutand what you guys have going
over at Arrow. Yeah.

(03:43):
So arrow building is a customhome building firm. We have two
bases of operation. One is ouroriginal base of operations,
which is Columbia, Missouri,which, if you're not familiar,
is smack dab, like in the middleof the state of Missouri. It is
the home of the University ofMissouri, the Tigers, yes, my
alma mater as well. It is, I'mthe second generation owner. I

(04:08):
bought the company from myparents in oh seven and a few
years ago, we expanded into theKansas City Market. Columbia is
only 150,000 people with thestudents in town. Can cities of
500,000 people in the metroarea? Correct
me if I'm wrong, but studentsaren't typically buying custom

(04:29):
homes for buildings.
Are they not in this neck of thewoods, maybe a wealthier
community, but not here? Yeah,yeah. And so it's a small
market, and we were gettingbecause of the stuff that we put
online, because of our onlinecontent, we were getting
requests both from St Louis andfrom Kansas City, great. And

(04:51):
those are the two larger citiesin the state, yeah. And Kansas
City tends to be a little bitmore of a West Coast feel. St
Louis tends to be. A little bitmore of a Keeping Up with the
Joneses mentality. And frankly,if I was thinking that I was
going to have to drive over inthe morning and drive back at
night, I wanted to be headedwest so that the sun was at my

(05:12):
back and then the sun was at myback rather I love the sun in my
face in the morning and the sunin my face at night. And so I
just to go west rather than goto St Louis. So we went to
Kansas City. Ilove that. And I want to make a
little comment, because isn'tit, like, just sometimes, like,
the simplest decisions drivebusiness decisions. Yeah, it's
like, I don't want to be drivingto the sun in my face on the way

(05:34):
home or in this huge, gnarlysunrise on the way
out. I thought, if this is goingto be a thing, I want this to be
permanent. Love it. And if I'mgoing to have to go multiple
times a week on a two hourdrive, I don't want the sun in
my face for four hours a day,dude, I
love it. That's hilarious.
That's great. The self awarenessis great. Yeah.

(05:56):
And so we expanded a few yearsago into the Kansas City Market.
This year, Kansas City office isgoing to surpass our Columbia
office in revenue. We havemultiple employees over there
now, and the bulk of ourbusiness is actually on the
Kansas side. So Kansas Citybridges the gap. It's on both
sides. It happens to be that themajority of the wealth in the

(06:16):
state of Kansas actually happensto be right up against the
Missouri border, and so thatthat's why the majority of our
businesses, on that side, we area cost plus business, which
means whatever your job costs,we add our profit and overhead
too, and then that's how we makeour money, rather than a fixed
fee, which we were for a verylong time. And we actually moved

(06:41):
to the Cost Plus model becauseit made us more cost effective
in the long run. Is more work.
It's a lot more like work on ourpart, because we have to track
every penny rather than justguess at the end on whether or
not we made money. Although wewere basically tracking every
penny when we were fixed feetoo, because we had to know
whether or not we're makingmoney. But we just lumped a big

(07:02):
chunk on the end of every job tomake sure that we were going to
make money when we were fixedfee. And that worked well for us
for a very long time. I mean, wewere fixed fee from 1983 until
2015 probably dang goodrun a very long time. And then I
figured out that it was going tobe easier for us to be cost

(07:26):
plus. And it's been great forour firm. Dude. I love it. So
I do, I want to, I want to giveyou kudos for you know, a lot of
people it's like, what does costplus? Actually mean, right? It's
cost plus a markup. And I lovehow you delineated it not and

(07:46):
you didn't just say cost plusour markup, you said cost plus
our overhead and margin, whichreally is like, what makes up
markup? And I think I just didan episode with another builder,
and we were talking about that,like, if you're bidding jobs
with a 15, 20% markup, thinkingthat that's you're going to be

(08:07):
your take home, or that's yourprofit, you're going to get
scorched. Right? So I think thatwas great that you just like
delineated those two profit andoverhead,
which is, which is also a reallygood point, is that, like in our
in our industry, if you say,well, we put 20, 20% is our

(08:27):
markup, people will look at you.
And even if they realize thatnot all of that is your margin,
they have a hard time thenprocessing that if you were a
waiter, that would be a reallypiss poor tip. Like that
wouldn't be a great tip if youtook part of the business, the
kitchen's money out of it andthe restaurant's money out of

(08:50):
it, and then you also got yourprofit out of it. Like we make
what our profit as an industrytends to be, what equates out to
being a kind of crappytip, super low margin, weight
staff, yeah, totally.
These are not enormous marginswhere we're getting filthy rich,
totally. And I think that'slike, an even better riff on it

(09:11):
is, like, if, even if, if, forthe builders out there that are
kind of, like, balancing theI've been, I've been fixed fee
or fixed price, forever andcost, plus like. It's harder to
sell because you're throwingthis big, like 20% number at
clients, or they don't fullyunderstand what that 20% markup
includes. Just start pitching itas like. It's our cost plus our
overhead and our margin. Andtypically what we see in the

(09:34):
industry, and this is like,certainly, like an average is
like, builders will be runninganywhere from like, a 10%
overhead on their business. Soif they're doing a million
bucks, they've got about 100grand in overhead, and they're
getting about a 10% profitmargin. Obviously you're wanting
to drive that profit margin upas much as you can, because

(09:56):
again, a 10% profit margin on abusiness is not it's. A healthy
profit, like, it's not a bigprofit margin, considering other
businesses, but even just from asales tactic, like, if you are a
listener out there and you'rethinking, like, okay, maybe, do
I do? Do I move to cost plus, ordo I move to fixed price? Or
even, probably more common,there hasn't been much thought

(10:16):
put into the pricing model as abusiness. It's just we've always
done it this way. You can kindof start to think of it that
way.
Yeah, and it doesn't matterwhich one you do, as long as you
fully understand where yourcosts are and where your numbers
are going, you can, you can makeeither one work just fine. We
just figured out that it wasgoing to make us more

(10:39):
competitive, because I didn'thave to leave a big safety
number on the backside when wewere fixed fee, because I was
adding sometimes upwards of 30or 40% on big remodels. Now I
still note that number toclients, but I just call it
contingency budget, and I don'tput it in my contract. I just
say you need to have thisavailable just in case we get

(11:01):
into things.
Okay, explain that a littlemore. Because I think, like,
like, explain, like, what wasthe motivator in 2015 for you
guys to move off the fixed fee?
I think you did it, like, atlike, a surface level there. But
I think this is where I don'tknow if the industry is thinking
about the pricing model andstrategy here as much as they
should. More to your point ofit's just, you can make money
doing both. This is just how wedo it. But what was the driver

(11:23):
for you to make thatpivot? Yeah, so I had one
project that I lost anincredible sum of money on how
much was we're on the buildersbudgets and beers podcast you
got to share. Yeah. Atthe time, my business was doing
about a million dollars inrevenue a year, and I lost 180

(11:45):
grand, dude. That's devastating.
While 180 grand might not be ahuge sum of money to some
businesses at a time whereyou're only doing a million
dollars, it was a lot totally.
And it was money that I owed,not just money out of pocket,
like it was money that I owed tosomeone else, and I went to the
lumber yard and said, I can'tpay this bill. And the majority

(12:07):
of it went to the lumber yard,yeah, and I was very lucky that
I knew the person that owned thelumber yard since I was a little
kid, because I grew up in theindustry. I had worked at that
lumber yard for three yearsduring college. I ran a shift
for them. I had a really greatrelationship with Him. And He
literally said, how long or howmuch do you think you could pay

(12:27):
off every month without it,putting you out of business? I
absolutely could write you acheck for four grand a month
without it, like destroyinganything in my business totally.
And he said, Okay, stop on yourway out and talk to Gail at the
in the accounting office. Tellher what you just told me, and

(12:47):
we're going to put it on apersonal note between you and I
at two and a half percentinterest. Take it off your books
at the end of the day today, andI'll take it off my books. Got
it, and it took me years to payit off. Totally, totally. So it
was a combination of losingmoney on that project, where I
was like, Man, I and it was myfault partially, and it was

(13:10):
partially client fault. Therewas some nefarious actions on
the part of my client, sure, butI looked at everything and was
like, Man, if I was cost plusthat, none of this would have
happened. They wouldn't have hadthe ability to hose me over in
any way. And I could have comeout of this completely

(13:33):
differently, sure, and all ofthose unforeseens wouldn't have
mattered in this way, and Iwouldn't have had and I just
kind of looked at thingsdifferently. And then I started
reassessing everything, and Ithought, boy, I wouldn't have to
put this big chunk of money onthe backside to try to stay
ahead of people. And I bid oneproject as a cost, plus project

(13:55):
in my mind or on paper. And thenI bid it my normal way, and I
just kind of sat and looked atit, and I went, this, this
freaking $400,000 remodel, is a$320,000 remodel, if I don't
have to do it as a fixed fee,where I'm worried about stuff as

(14:17):
much, and I still had somecontingency money in it, and I
went, I'm going to try it once.
And I did it for $328,000 orsomething like that. And I was
like, Yeah, I missed out on thatcash. But then they told me that
I got the job because I waslike, 80 grand cheaper than the

(14:37):
next guy, yeah, well, I wouldhave been the same price as the
next guy, and I might not havegot the job. And so I made all
that profit that I made off thatjob when I might not have made
the money in the first place.
And I was like, okay, I can becheaper and more competitive if
I don't have to build in that,Oh, crap, money totally. So I
was just like, I just have tofigure out how to not. Mislead
people where I'm just like, I'mjust overly cheap for no reason.

(15:01):
And so I immediately juststarted saying, like, Okay, if
it's a new construction I'mgoing to tell people, Hey, we
very rarely have been, you know,10 or 15% over budget. If you,
if you take the number that Itell you for the house and add
10% to it, we should be wellwithin what is perfectly

(15:22):
reasonable to build this housefor you, barring any COVID
pricing, or you going crazyduring the process, which I
don't think of that as over buzzor outside of estimate. I think
of that as you changing things,you move to the goal post.
That's a different that's adifferent conversation, or me
betting it, and then you waitingthree years to build the house,

(15:44):
we obviously have to rebid itright. And then the other one
is, if we're doing a renovation,then that contingency money
scales, basically on age ofhouse scales or innovation. So
sometimes I like if it's a wedid a project for one of our or
for our contract attorney, andwe're about to do another one
for him, and I'm literally goingto say, I need you to add 50% to

(16:07):
this for contingency money,because we've worked on this
house already, and we, one ofour project managers, can hear
me talking, and I can see hishead doing this. He's He's
shaking his head, yes, yeah,because we've worked on your
house already, and we know thatlast time we tore into it, we
found what water damage and firedamage and bats that we didn't
what'd you say? And termites,yeah, and termites that we would

(16:30):
have no idea we're there, youknow? Yeah, yeah, totally.
So no, okay, so I think this is,this is all great. Let's go back
to the the hosing that youtalked about. Because I think,
like for builders to reallyunderstand where things can go
wrong. Obviously you had astrong motivator right to go to
cost plus. But in that projectthat you lost 180 grand of the

(16:53):
nefarious actions, I think, asyou put it, what specifically
was that on the fixed fee modelthat just totally dumped the
project, kind of like an oh shitmoment at the end of the job.
Yeah, so the part the clientsgot one over on me was all the
way through the project, like onday one, we figured out that the

(17:15):
house was actually hollow brickinstead of wood frame, and we
thought all along those plasterwalls with wood frame when we
were doing all of ourinspections, and so, like, there
was a change order, and then itwas kind of that way all the way
through the project. And so whenwe were almost done with the
project, I gave them a bill, andthey were like, What is this?

(17:38):
And I was like, I'm not surewhat you mean, like, this is
just another progress payment.
And they're like, Well, we'rethis bill's for 300 and
something $1,000 and we only oweyou another 100. And I was like,
No, we have all of the otherstuff, like all the change
orders all the way through theproject. Make the total almost
this, plus the other 45 that westill have coming, and they're

(18:03):
like, We What are you talkingabout? And I was like, all of
the change orders add up tothis. And I, like, walked out to
my truck and got my computer,and I was like, all of these
change orders, and they're like,We never agreed to any of that.
And I immediately went, Oh,every single one of these change

(18:25):
order conversations happenedafter hours with just day, and I
on the job site because they,quote, unquote, can't meet
during the day, yeah. And theywere just like saying yes all
along, and I was doing at thetime, we operated for the most
part on a handshake. VeryMidwestern market. We barely had

(18:45):
contracts on stuff, like ourcontract was two pages long,
sort of thing, so we didn't signchange orders. We just discussed
them and kept a running total ona yellow notepad. And then I
had, like, pictures of thatyellow notepad in my computer so
that we would have record ofthem. And they were like, We
never agreed to any of this. AndI was like, Well, hold on, like,

(19:07):
why is your bedroom two feetwider than what it is on the
plans then? And they're like, Wedidn't know it was two feet
wider. And it was like, Oh, youguys were planning on doing this
to me from the beginning, andthey're like, I don't know what
you're talking about. And sothen when I went to their to my
attorney, my attorney said theyabsolutely owe you this money

(19:28):
they cannot claim in court thatthey didn't know about this to
get this 180 grand, it'sprobably going to cost us 40 or
50, and we're not going to getall of it. We're going to get a
chunk of it. And I know thatthis person makes about $90,000
a month worth of income becausehe represented somebody that was

(19:52):
a business partner, and he knewexactly how much the guy made.
Yeah, and they came back andsaid, We will be happy to spend
four. Or five months worth ofincome to keep you from getting
any of this. Dan, I and myattorney said you're going to be
better off to figure out how towalk away from
this dang dude. Like, whatright?

(20:13):
And my attorney said, I knowthat that's not right.
Oh, dude, devastating, yeah.
What was the feeling? I mean,truly, just like just beside
yourself.
I mean, it took, it took yearsfor me to not just absolutely
want to drive my truck throughtheir house, right? You know,
right. It was brutal, damn. AndI had a, I had a project manager

(20:36):
that wanted to quit over itbecause he thought that I was in
the wrong because I didn't. Ididn't just sit him down and go,
Look, they're hosing us. They'relike, I was trying to be the
bigger person over the wholething, right? Eventually, it got
to the point where I had to sithim down and, like, walk him
through everything. And then hewas like, why didn't you just
tell me all this? And I waslike, because it doesn't do any
good for me to sit here andwhine about the money that I'm

(20:57):
losing on the thing. Yeah, like,I just tried to explain to you
that they were trying to rip usoff and leave it at that so that
I could be done talking aboutit. We had an electrician that
was pissed off at us for a yearthat was like, Man, you owe me.
And I was like, I paid you themoney. It took me 60 days to pay
you. It sucks, like I did it asquick as I possibly could, but
I'm out 180 grand. I paid youout of my pocket. Like I know

(21:21):
that sucks. We made the contracttogether, not you and the
client, but have some sympathyhere that I paid you, I could
have went out of businessinstead, like, totally, I tried
to do everything as stand up asI possibly could. And it was a,
it was a horrible, horrible,like, it was one of those things
where, as the business owner,like, it was hard for our
marriage, it was hard for ourlife. It affected timeline of

(21:45):
how our lives went. Everything,totally, totally, damn dude,
that's that's an incrediblestory. Thank you for sharing
that. Um, and even more, justto, like, bring it full circle,
like, had you been on cost plusthat you're saying, it wouldn't
have happened.
Well, effectively, the way ourcost plus contract is written is
we spend the money you owe usfor it now, we don't. We try not

(22:08):
to treat it like that. We don'ttreat it as an open checkbook.
We want the accountabilitythere. But if it comes down to
it, our contract is basicallywritten as if that money goes
into the project, and that wasspecified in any way in the
plans, as long as we're notputting in a swimming pool that
wasn't accounted for. Yep, youowe us for that. Yeah, you know.

(22:34):
And so go ahead. We're we're waymore diligent now with
additional work authorizations,we call them an Awa now instead
of change order, because changeorder, because change order has
a negative connotation. I lovethat. What's Awa additional work
authorization, and that's not aterm that I came up with.
Another builder, friend that Irespect highly, said that, and I

(22:54):
was like, Oh, hold on. We got todiscuss this, because change
order does sound dirty, and itdoes sound like we're going to
try to stick it to stick it tothe client in some way, because
that's the way the industrythinks about it, you know, yep.
So we're way more diligent withthose things now. Nobody's
perfect. We still, every once ina while have something go
through that we're like, holdon, Mr. Project Manager, did you
get this signed or not? Youknow? But we're way better now

(23:18):
than we were, and things don'twe generally don't piss people
off anymore,totally well. And that's where
like, so that makes more sensein terms of like, where cost
plus would have mitigated that.
And I imagine there's acomponent of like, the the
assimilation of cost plus beingopen book, right? It's like the

(23:39):
Cost Plus model poses a muchmore transparent experience for
the builder, and that creates alot more alignment, as I put it,
as like you can't plus what youdon't cost. That's more from
like the builder's view of like,the emphasizing the importance
of tracking every dollar thatcomes through your business.
From a healthy business practicestandpoint, if you're not

(23:59):
tracking every dollar, you'renot making the markup, which
translates into the profitmargin, right? To where, as a
fixed price or a fixed, fixedfee builder, that's going to be
more of like a game of race tomargin, right? And you'll hear a
lot of fixed price builderssaying, like, I don't want to
show my clients our books onthis. I don't want to be
communicating all the costs,because if I the builder can run

(24:21):
a more operationally efficientbusiness, and I can get material
that they want in their housecheaper, then I should be able
to get the upside on that withthat lack of transparency. But I
imagine like in your invoicing,for this specific scenario, it
was just like your scheduledinvoicing, or your progress,

(24:41):
billing, whatever you guys weredoing, and then it was just like
the lack of documentation orcommunication on the change
order side that really got you.
Is that fair? Yep, yeah,absolutely. Damn. Okay, cool.
Um, and you mean trust andhandshake, way that we operated
totally here's the house, here'sthe scope, based on what we know
we can do it for. This price,and then you guys just got
scorched. Yeah, yeah, dang.

(25:03):
Okay. I can't remember if it wasthis conversation or if it was
one of your recent posts, but Ithink you had mentioned that
cost plus is more correct me, ifI'm wrong, but more labor
intensive or more timeconsuming, it requires more
diligence. Let's hear a littlebit about that.
Yeah. Well, if you're, I mean,we send a we send an invoice.

(25:24):
Let's see. I can actually giveyou an exact example. Let me
bring it up. It'll take me twoseconds. Let's see that was to
this client. We sent an invoicein the last, I don't know last
week or so that was for$158,727.76

(25:49):
beautiful. So if you're going togo to the effort of sending for
that exacting amount, that meansthat I have receipts that are
exacting. That means that I'vetracked every hour that every
employee has worked to anexacting point. There are times
where we're entering receiptsthat are $7 for two electrical

(26:15):
boxes or four electrical boxes,where it's like it almost costs
me money to make sure that Ihave all of that included in the
in the invoice. Yeah, we'retracking absolutely everything
that goes into that invoice.
We're processing every receipt.
We're making sure thateverything is accounted for,

(26:37):
because that's the whole pointof being cost plus is that we
have to have absoluteaccountability. We have to know
all of those costs, because it'sreactionary. Totally it is.
Here's what we spent. Sotherefore you owe us, right?
Totally question and you, areyou guys? You guys use adaptive?
Are you still on adaptive? Wedo, yep. Are you using our draw

(26:59):
packages for adaptive we do?
Yes. Okay, beautiful. I wasgonna say because hopefully, you
know, it could have been like anopportunity for you guys get
with customer success andexpand. Hopefully it's not
taking a super long time to dothis, but go ahead. But
if we were just on a drawschedule, it would be like, Hey,
we're done with rocks. And thenthe next invoice Exactly. Just

(27:21):
an amount, exactly, exactly,just we know that we're able to
invoice for the second twothirds when we're done with
drywall. Totally. That's atotally different thing,
totally. If you think there areways to make this process more
efficient, Jake or your team,get on with Dan, get on with our
product team. We'll talk aboutit. But on that point, I'm

(27:42):
curious, are with you guysagain, down to the penny, right?
You're invoicing the client downto the penny. Are you providing
backup documentation? Or do youguys choose not to do that?
Yeah,so they get everything. So every
client gets in that invoice,they get cover sheet that says,
This is where we're at processwise, like, this is how much you
have paid so far prior to thisinvoice, it says this is how

(28:05):
much you have remaining indeposit with us. It also has we
we create through your guys drawsoftware. We also number our
invoices so they know that thisis that was invoice number six
for that project, and then thenext couple pages on that one
talk about where each receipt isand what which one of our codes

(28:31):
that it applies to, whether ornot it's the job site conditions
that includes like the dumpsterand the Porta pot and things
like that, whether or not it hasto do with foundation or
excavation. We're still infoundation on this one, and so
they can see how each oneapplies. They can see who it's
from and a quick note on what itis and the total and then it

(28:55):
also shows what page it's on.
And then there is a copy ofevery single receipt. And those
are just click, not to kiss yourguys, but those are plug and
play click buttons for ouroffice manager to pull all that
over. And so all of that getsexported to them. So that
invoice is 30 pages, great. Andso sometimes that, for some

(29:19):
clients, that doesn't matter atall. They look at the cover
sheet and they write us a checkand they totally care. And
sometimes that's a bank client,sometimes that's a cash client.
It just depends. And someclients like these, this client
has actually said, Hey, can Iget a breakdown of what the
hours were further than whatyou've already provided, even

(29:40):
like can I, can you help meunderstand what the project
managers hours were since thelast invoice? Like, what he was
actually working on, not just atotal of the number of hours
that he's worked? So it's a pushpull, depending on who we're
working with. And it's sometimesit's one way, sometimes it's the
other, but we try to get. Givethem as much information as

(30:01):
possible. I have never had aclient since we started
invoicing this way say, Well, Idon't know you for that totally
beautiful. There's, there's noquestion on whether or not it's
got your address on it. Yep, Ican point at your job and show
you where those materials are.
Or I can call that sub and go,Hey, can you talk to the client
and tell them how you put thisHVAC system in their house? If

(30:23):
they try? You know, I've neverhad anybody go. I don't know you
for that. I've had people go. Idon't have the money to pay you,
yeah, but different storybearing on anything, you know,
right? Well, and, okay, so, butthat like that, this beautiful
way to bring this full circle,right? Like on the job back in
2015 where you got justabsolutely hosed. It really
like, boiled down to, like, adocumentation and transparency

(30:47):
comp, and this is just likemitigating all of that, whether
the client reviews a drawschedule and goes line by line
by line in the budget of whatdid we think this was going to
cost? What it actually cost?
Right? That's beside the point,but at least they have the
documentation. You can pointback on it and be like, Hey,
this is what we provided. Thisis what it looked like. These
are the expectations per thecontract. So, dude, I think

(31:07):
that's great. I think that'sgreat in terms of your and I
think, hey, this has been greatso far. I'm curious not to
totally like spin theconversation or sidetrack the
conversation, but when we wereat JLC, we had talked about, you
know, a lot of concern with thetariffs I'm currently selling a

(31:28):
house, and interest rates are,like, a huge conversation in
terms of, like, what's happeningwith the market, and interest
rates obviously, like, directlyimpact builders. And this, my
question to you is, and let'spick up a conversation on like,
how can builders run moreconfident businesses from a
financial standpoint whenthey're coming on whatever

(31:51):
economic uncertainty it is,whether it is interest rates,
whether it's a colder market,whether it is tariffs, yeah,
I'll let you riff on that. Butyeah, so pricing is pricing
something that's very difficult.
I went to a bank this morningwith a client, because the
clients are going to be askingfor an extension on time and for

(32:13):
more money. We bid the house twoyears ago, and it's going to
cost more than what it was whenwe bid it, and most of that is
price shift, some of that isclient choice, and some of that
is us. We're we're part of theproblem too. In other words, of
course, over budget on somethings, but when it comes to
things like tariffs, that's abig question mark. Nobody could

(32:36):
have planned for that. Andbecause our our markup is based
off of the cost of the item.
There's a couple conversationsthat we generally end up having
with people. One before thetariff, conversation was always
well, what happens if I picklike, a $10,000 bathtub instead
of a $4,000 bathtub? It kind offeels like I'm being penalized

(33:01):
and having to pay more justbecause I picked a nicer
bathtub, but still, you're justinstalling a bathtub. And so I
always talk to clients about itmight kind of feel like that,
but you're paying for mywarranty, and you're paying for
me to burden the risk associatedwith your project, sharing my
profit. That's that's part of memaking money and staying in

(33:25):
business, is me being here towarranty that, or for me to be
the one to move it around thejob site and protect it and
everything. So if I'm carryingthat tub up the stairs and I
drop it and break it, I'm goingto replace it at my cost. It's
not your cost. That's anaccident that I cause. I'm not
going to charge you for that. Sothat $10,000 tub has a higher

(33:46):
risk associated with it, and somy nump, my percentage doesn't
go up, but my risk goes up. Andso therefore you're not being
penalized. You're just payingappropriately for it, right? So
while I don't raise my rate,yes, it does cost you more, so
you're not being penalized. Sowe talk to clients about that,

(34:10):
like if you pick more expensivethings, my risk is higher. So
therefore, yeah, it does. Itdoes cost you more here, same
way as if you built a $10,000house versus a $2 million house,
I would be warranting $2 millionworth of stuff versus $10,000
worth of stuff. And so clientsgenerally don't have an issue

(34:31):
with it. Once we talk aboutthings like that, I don't think
I've ever had anybody reallypush back after we've had that
conversation totally now thetariff thing is like, well, but
I'm putting in the same bathtub,and now, because of some
decision made at a governmentallevel, I'm now paying 15% more
for that item. Well, how's thatfair? It seems like you're just

(34:53):
making, you know, more moneybased off of an arbitrary thing.
Right? And so I kind of lookedat the client and said, Well, I
kind of agree in that sense. SoI'm not installing a more
expensive item. I'm notburdening more risk, like, I'm

(35:14):
not installing something that'sgoing to cost me more money to
replace, necessarily, like itmight if I have to order it from
overseas, potentially. But it'snot a more finicky item, you
know, right? Which, you know, a$7,000 faucet tends to be more
finicky than a sevenwhat? That's a thing. Yeah,

(35:41):
price something from waterworks,and you'll see what I'm talking
about. That's anybody who'sworked with waterworks before
knows, and they also know thatwaterworks, no offense to
waterworks, that they're asponsor or anything. No, no, you
got to figure out how to ship itwith all the screws in it. Next
time they never send you allthis, you're
spending seven grand on afaucet. It Better come with the
damn screws.

(36:01):
It's, that's the boutiquemanufacturer thing, you know?
Yeah, sure. So there's, there's,there is a little bit more risk
on my part, because I'll have topay the tariff if I have to
replace it as well, sure. Butwhat we've decided is, if we can
directly relate the tariff to abefore and after price, then

(36:23):
we'll charge you our markup onthe pre tariff price. You will
still pay the tariff to themanufacturer or the supplier or
whatever. So, for instance, wehave some windows coming from
Europe. The tariff on thosewindows and going to be like
eight grand. We're going tosubtract that eight grand off
the cost of the windows, andthen calculate our markup.
You're still going to pay thateight grand tariff. It's still

(36:45):
going to be in the price of yourwindows, but we're going to
subtract that eight grand off,because when we bid the windows
and when we bid the house and wesigned our contract, that tariff
didn't that tariff wasn't on thehorizon. It wasn't part of the
conversation.
Are those tariffs like clearlyoutlined when you're getting
cost from the European windowmanufacturer.

(37:05):
So in some instances they areand some they're not. So that's
part of the conversation aswell. So that was the
conversation that I had with ourclient. Was I said, if we can
easily figure out that it is adirect tariff cost, I'm happy to
do that, but I'm not going tohave our our office manager or
project manager spend two weekstrying to figure out if the cost

(37:26):
of that light going from 65 to85 is a tariff thing, or if it's
our electrician or ourelectrical supply house trying
to raise rates totally make moremoney. So totally, we have to
know that this is a tariffthing. So the window supplier
that we work with, Europeanarchitectural supply, they put a
line item and said, here's ourpredicted tariff. If it's more

(37:49):
than that, we'll cover the restof it, and we'll charge you that
tariff when they show up if thetariffs in place, because it's
not in place yet. Seaga isanother manufacturer that we
work with. Their stuff comes outof Switzerland, they know that
after this date, if that stayedin place, this is what our price
difference is going to be. Sothere's some simple ones like
that. But when you get intolike, all of our electrical

(38:11):
components that are coming outof China or Taiwan, did,
everybody's raising their rates,even the stuff that's not
manufactured in Chinese, Chinaor Taiwan. And so then there's
this, like, maybe totally, mighthave a harder time determining
that totally,no. I mean, no, I think that's,
like, very tactical. Like,that's a strong takeaway for the
listener in terms of how theycan approach that. This could

(38:33):
just be, like, short sightednesson my end. But like, how real
are tariffs currently? Because Iknow is a ton of buzz like it
was like the sky is falling, theworld is ending, like Donald
Trump's going to ruin theeconomy with all these tariffs.
But it kind of seems like, andthis could just be the media
right shifting, like the focusof the consumer, but how, like
real are tariffs now, and arethey as violent as the market

(38:57):
might have thought they weregoing
to be Yeah. So, I mean, they allexisted before this conversation
started, right, right. There aresome things that did go into
effect, but for the most part, Ithink everything is still on
hold. Everything that we hadreal panic measures about is on

(39:20):
hold at this point. I think theelectrical component side of
things, and then nail and screwand fastener side of things is
probably going to take thehardest hit, because Taiwan and
China are in the like 100 tohigher percent tariff rate,
sure. So that's probably thepart that we're going to see the

(39:45):
worst. But I don't think thatwe're seeing it yet.
Okay, you know, I think it'sstill a
and I could be wrong. I'm not apolitical pundit in any way.
Yeah, I think it was posturingfor negotiation reasons. You
know? I. Tell everybody, we'regoing to charge the hell out of
you, and then you'll come to thetable. That's the theory that's
right or wrong. I don't make a,you know, I don't make a comment

(40:08):
on that. But, yeah,yeah, I completely agree with
you. That's that's been mygeneral takeaway. Just like,
again, going from this, like,create the panic market freaks,
and then it's just like, kind ofcooled off, and there's been a
lot of deals cut around this. Toyour point, China and Taiwan are
still like the concerning ones,kind of a side. Do you have
something else you wanna add onthat? Well, I will

(40:29):
say that when all of it camethrough, I went and looked at
the list of who his thePresident's list of who's
getting tariffs and for what.
And I have to admit that I feellike I'm pretty darn good at
geography, yeah. And I had noidea of where the Falkland
Islands were. Where is that?
Even no idea that we traded withthem. Yeah. Where is it? And

(40:50):
yeah. And then I and then therewas another, I had no idea that
there was another small countryoff the coast of Madagascar, off
the coast of Africa, that wealso trade
with. Is that Seychelles?
What country might be. And I hadto, I had to look it up. And I
was like, why are they at a 200%I think, and I'm guessing what
it was 200% tariff for. And Iwas like, oh, because we don't

(41:11):
send anything their direction.
It's a, you know, sort of like,I thought it was really good at
geography. And there were acouple of countries that I was
like. Number one, I didn't knowthat country existed. Number
two, country existed. Numbertwo, I have no idea where it is
totally, totally side comment.
And you made this with like, youthink, like screws, fasteners
are gonna take, like, one of thebiggest hits. I think there's a

(41:33):
couple other pieces in there.
Just out of curiosity, I feellike screws, and fasteners is
one of those things where it'slike, it's a screw. What does it
cost? Five cents a unit, right?
But then you think about thehouse, are you buying 1,000% so
how much of that actuallyaccounts for your budget? Or,
like, how? Like, if it eventhat's not a budget, maybe.
Like, framing material, butlike, how much does that

(41:55):
actually cost? Yeah, would yousay on a home
you might have a $10,000 lineitem for for fasteners on, no,
million dollar house, yeah,no. So million is like
representative of a market.
Let's go square footage. Like,if you had $10,000 worth of
screws, like, be likeso on, say, million dollar house
in our market, you might have a3000 square foot house, dude. So

(42:18):
few dollars a square foot, forsure,
that's insane. I had no idea. Doyou think that contractors are
pretty good about, like, takingthat into consideration? Or do
you think that they like that'ssomething that tends to get
messed or slept? I think it getsmess. Okay, I actually have a
story. So my dad's a builder.
And Winter Park, Colorado, theybuild custom homes up there. And

(42:40):
he made the comment that theyhad cut a deal with their
framing sub that all nailsfasteners. I would imagine nails
fall in that bucket. Yeah, are apart of their bid, their quote.
Yeah, exactly. And they startedgetting invoices for nails, and

(43:00):
it started to get missed. Andthat was, like, this is a part
of the agreement that they weresupposed to be covering in their
bids. We were like, they werebucketing and budgeting for
that, and then here they arepaying invoices for nails and
fasteners. So I think, yeah,you're probably right. Like,
it's probably one of thosethings that's like, it's such
as, I guess, physically, it's asmall thing, but when you're

(43:22):
talking about numbers andbudgets, it's a pretty big,
pretty big deal. Yeah, well, andif you go
beyond just regular run of themill hardware store fasteners,
when you start getting intothings like exterior insulation,
and you go to something that'sall longer than four or five
inches, if you go to, say, a 10inch long screw for fastening

(43:45):
exterior insulation, okay, well,now we're $8 is fastener, yeah?
And you put 100% tariff on it,yeah. Okay, now we're talking
about really affecting thebudget of a house all of a
sudden. I mean, that $8 fastenerwas already affecting the budget
of the house, and now you've,you know, now you've increased
it. So, yeah,yeah, no problem, dude, it's

(44:05):
crazy. It's crazy. Well, we'recoming up on about 45 minutes
here, so I'll let you get to it,Jake, I thought this was a hell
of a conversation. I thinkthere's a lot of great
storytelling, a lot of greattakeaways for our listeners
here, I appreciate the hell outof you for jumping on the show,
taking time out of your day asbusy as you are, and I'm super

(44:26):
stoked to see you guys in Dallasthat's coming up. It's October,
isn't it? It is. It is October,16, 17th and 18th. You should
sign up for the VIP day on dayone, we're going to have some
really great stuff. Matt and Iare opening the entire show with

(44:48):
a closed door session on like,let's have some 911
conversations, let's talk abouthardships, like we just did, and
let's do some problem solving asa group. So yeah, it's going to
be a really great. The VIPsession.
So, yeah, totally, that's, Ithink, totally. And for anyone
that's here is there, I'll getthe website, I'll do, I'll do a

(45:08):
quick little read on this, guys,so that you have all the
information you need to sign up,not only for Bill show live if
you aren't, but also the VIPsession. When I look at it from
like, a pricing standpoint, Ithink it's like, you guys have
aced the pricing on this. Thisis like a no brainer for people
to show up to, as you call itthe 911, sessions, just to get
real and talk to yourself, Matt,and candidly, it sounds like a

(45:29):
big group. It's like 300builders, isn't it? Like hell of
a networking opportunity.
I think they've, we've convincedmost of the contributors to be
in the room and spread out andjoin the conversation as well.
Totally, totally. I mean, I knowI'll be there, we'll be there,
but no, Jake, I appreciate it.
If there's anything we can dofor you, let us know, and we're
getting ready to roll out thanksfor having me. Of course, over

(45:50):
at adaptive, we are gettingready to roll out some pretty
intense stuff in q3 so stay upto date on your releases. If
your team does need kind of ahealth check or a revisit, let
us know. We'll get you in frontof it.
Okay, awesome. The Oaklandislands are off the east
southeast coast of Argentina, bythe way, southeast coast of
Argentina, far South SouthAmerica, South East, okay, and

(46:13):
Argentina is, or I'm thinking ofChile. Chile is the
long country, right? Yeah.
Argentina and Chile kind of runparallel, run parallel. So it's
on the southeast side ofsoutheast side of I'll pull up a
map. I appreciate you, Jake.
I'll let you get to it, dude.
Have a great week.
You too, man. Thanks. You.
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