Profit Killers: 10 Ways Waste is Hurting Your Bottom Line

🔗 LINKS

Join the group coaching program and Master Construction Cash Flow with Profit First

Visit the episode page at for more details and a transcript of the show.

Get Profit First for Commercial Construction--OUT NOW!

ℹ ABOUT THIS EPISODE

Your invoice shows 14% profit, but your dumpster tells the real story. Wade Carpenter and Stephen Brown reveal 10 ways waste is silently killing your construction profits. 

From literal material waste to scheduling disasters, learn how to spot profit leaks and implement systems that protect your bottom line. Discover the power of dumpster audits, better scheduling, and why your back office might be your biggest profit killer.

Subscribe to get notified as soon as new episodes go live.

⌚️ Key moments in this episode:

• 00:20 Identifying Waste in Construction
• 01:14 Common Sources of Waste
• 04:27 Managing Labor and Equipment Efficiency
• 11:25 Back Office and Scheduling Challenges
• 14:24 Strategies to Reduce Waste

Join the Profit First for Construction community!

Find all episodes and related links at ContractorSuccessForum.com.

Join the conversation on our LinkedIn page: https://www.linkedin.com/company/CarpenterCPAs

FIND US ONLINE
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

Wade Carpenter: [00:00:00] The invoice said net Profit 14%, but the job site said otherwise. Because no one making 14% fills a dumpster with brand new material. The math may be right, but the habits are killing you. Welcome to the Contractor Success Forum. I'm Wade Carpenter with Carpenter & Company CPAs, alongside Stephen Brown with McDaniel Whitley Bonding and Insurance.

Today we're exploring waste in your company that may be killing your profit. It may be literal waste, it may be metaphorical, but we're gonna kick that around. Stephen, can you kick us off on this? What are your first impressions on this topic of waste killing profit?

Stephen Brown: Well my first reaction was just a dumpster with extra material, broken material, new material on a job site that just got tossed. That was my first reaction about the topic. And then I was thinking more along the lines of what your construction company's doing that literally wastes money for you.

Wade Carpenter: Yeah, there's a lot of ways we can [00:01:00] approach this, and a lot of times there is waste on a job that does actually literally end up in the dumpster. Sometimes people are ordering things that you may already have sitting in the warehouse or maybe you had extra. But we're gonna kick some of those ideas around today. So,

Stephen Brown: I think the first thing that pops into my head waste wise is lost and stolen tools on a job. That's one of them. I know as an accountant you're thinking more of things not being billed properly or cost coded properly, or estimated properly.

Wade Carpenter: One of the things I was thinking about as we were putting this together was more of actually maybe literally going to your dumpster, your job site dumpster, and seeing what's thrown in there. Have we got things that were overordered or waste that people measured something wrong or they cut something wrong? And there's gonna be mistakes, there has to be mistakes. But are there habitual mistakes that we keep seeing that are costing you a lot of money? That's what I'm thinking.

Stephen Brown: Every contractor in the world bids a job with profit in it and wants to bring [00:02:00] it in more than that Profit. Lot of times they'll consider if I bring it in at the profit margin that I anticipated it wasn't a good job, because I wasn't able to squeak enough extra profit out of it. But how you squeeze that extra profit out of your bid is different animal from actually doing it.

Wade Carpenter: Squeezing the profit out of that bid, sometimes you may be leaking some of that profit and it may not just be literal waste but, are you over ordering things for your job? In construction things, as we were saying, things are gonna happen and things get cut wrong, things get broken. Things sometimes disappear.

If you're just over ordering just in case and you end up with a whole bunch of materials left over that never get used, can you take it back? Is it just a habitual thing that you don't wanna be held up on something that is critical to the job?

I know we just did a episode on the materials and supply risk, that kind of stuff. Is there a point where you're just making sure that you got way too much, and is profit [00:03:00] leaking there? Or could you maybe take some of that material back? That's just my thought.

Stephen Brown: No, that's a good point because now some materials are hard to get a hold of, most people are gonna overorder them just in case. It's not like you can just take that material back like you can to the Home Depot and get a refund For the materials you didn't use. But again, you can, with so many vendors, you can do that.

Wade Carpenter: Another way I was thinking that we might be losing some money on our jobs, whether it's waste or whatever, we got wrong measurements. I was talking to a glass glazing Contractor today and, he was talking about some of the problems he had with a general Contractor that has openings for a window or a door or something like that, was not measured properly by the general contractor or the architect when they framed it up, so it doesn't fit.

He's talked in the past about, okay, you go out there and you measure it wrong. But are people habitually measuring wrong, that ends up taking extra time to order something like glass or whatever the part [00:04:00] is? Then you have to go back and order some more and it delays the job and maybe you got the equipment sitting on a job.

The longer you sit out on the job and you got the people out there, it's just costing you more and more money. My thought is, can you standardize your measuring process? Can you take that extra step to make sure that they're measured right? There's gonna be mistakes, but can you systematize it so that you make sure that more times than not those measurements are actually gonna be right?

Stephen Brown: That's a good point. And speaking of measurements, how do you measure the performance of your labor force? How busy they are, how effective they are, how much production they get done. A project manager, you set that before the day starts and that could be a waste because you have to plug in your labor in your bid to get the job, right?

Wade Carpenter: That's another avenue we could take is the labor, and properly managing them. Because I was actually having a conversation with one of our contractors in the last two weeks, that very thing that they had a highly paid project manager that was supposed to be out [00:05:00] on a job. This was a custom build. And he did not schedule his subs properly. Out of a 22 day month, they didn't have anybody on the job site 11 days of the month.

Stephen Brown: Wow.

Wade Carpenter: It was just so poorly mismanaged. I guess another example of waste, do we have the labor that is poorly managed? It may not be in your dumpster, but it is going down the drain.

Stephen Brown: Yeah, that's a good point. There's definitely something that AI could simply and easily help you with your scheduling.

Wade Carpenter: In her case she had the wrong person on the job, and had to make a replacement.

I have other conversation with contractors where they end up staying out on this job, and I already said it on this one, but one of their biggest problems is they rent equipment for the job.

If it sits out there another week or two or three while maybe GC is slowing them down or whatever. Every week they're out on that job, that equipment rental is leaking more profit out. You may not think of that in your dumpster, but metaphorically it is going down the drain [00:06:00] again.

Stephen Brown: Absolutely. I was thinking about our listeners that might do a lot of contracting, that's unit price based. They're like I don't have waste. The customer orders X amount of units, I deliver X amount of units. But at the same time, I've had customers where those units were delivered but delivered to a different job site and stolen by the project manager and other people, sometimes in cahoots with the supplier was this situation I was thinking about.

You have to track the actual units that were delivered. You have to be able measure them and know that's accurate, and that they were on that site. There's a lot of waste involved there. Because if you're not measuring it, you just don't know.

Wade Carpenter: Yeah. Definitely, we've already talked about that, but maybe partial products, you got a half a bucket of drywall, if you just toss it just because they don't wanna tote it back to the shop. There's a point where maybe it's too easy to go just get a brand new tube of caulk or whatever it is. I guess that's where I'm going, did you use part of the product and could [00:07:00] you still use it on something else?

Stephen Brown: Sure.

Wade Carpenter: Also another thought that I had that sort of leads into what we've already talked about is like death by delay. Do we have delays that are people sitting around idle or whatever, waiting for materials? Or do we have people that we don't have the materials on site, so they're making 10 trips to Home Depot during the day. You don't wanna spend all that money to keep it on the truck. But if you ever think about how many times they go back and forth to go get supplies, that's not just costing them the time on the job. What is that really costing you in their labor and the productivity and their ability to generate more revenue?

Stephen Brown: As an accountant, you can tell exactly what that's gonna cost them. What elements are in place that cost you? It's just like I tell people when you have a workers' comp injury, it's not that workers' comp just pays for the injury, but you have lost productivity because they're not doing the work they're supposed to do and someone else has to quit work to take them to get medical help. There's a tangible way you can [00:08:00] measure the most simple loss of time, isn't it?

Wade Carpenter: Absolutely. One of those things that I think really slips through the cracks a lot of times, this back and forth shuffle, whether it's to Home Depot or to the doctor to take somebody that's gotta need some stitches or something like that.

Just a couple other thoughts I had on this was, mobilization, those kind of things, are you taking things once to the site? Are you returning multiple times to bring stuff out or whatever? Are you efficient in doing mobilization?

That's part of another back and forth shuffle that contractors end up doing. If you took a little bit more time to plan, had a checklist or something like that would say, okay, we need all this, especially if you're doing a job that is across state lines or not right in your backyard, if you're driving an hour each way or something like that, it's costing you a bunch of time as well as money to go back and forth.

Stephen Brown: Talk about driving an hour back and forth job site that seems standard with every contractor that they drive a lot. Also that the vehicle's parked and running, [00:09:00] lot of contractors never turn off their vehicles. Project managers, everyone have their way of staying comfortable and their way of doing things. But if they're not directly paying cost of doing it that way, then you've got to change that.

Wade Carpenter: Yeah.

Stephen Brown: Wade, you were talking about checklist, for example, for mobilization and utilization for a job. What would that checklist look like?

Wade Carpenter: Well, obviously it would be different for every type of industry. If you're a heavy equipment guy and getting an excavator on the job, that's one thing. But do you need extra hydraulical? I don't know. Do you need spare parts? Do you need certain supplies? Again, it would be different for every industry.

Some of my other thoughts on this, they all interrelate. Misaligned scheduling, do you have waste because you had two or three project managers and they all expected the equipment to be on one job versus another job, or one crew and you're fighting over getting people to the particular job?

The material not getting to the job site by the supplier? Is there some kinda misaligned scheduling that you really need to do? And [00:10:00] again this is not necessarily something you're gonna see in your dumpster, but it is something that is leaking these Profit out every single day.

Stephen Brown: So in the Profit First for Commercial Contractor system, how would you use Job Ex as an indicator that you might have some waste?

Wade Carpenter: That is a great way to figure out from the top level, if you say you're making 30% on your margin, you know you're bidding that way, but you can never actually pay your job expenses from your job expense account, if you're constantly running low and it's costing you, you're really making 22%, but your bids always say 30%, either you are not bidding your job right or something else is leaking.

This is actually a classic thing that I hear a lot of times when I'm working with people on Profit First is that they made X amount, but they can never actually hit that marking.

When we start looking at why, it's okay, we had this equipment sitting there, we had all these extra travel expenses or per diem or those kind of things that are really not taken into account. [00:11:00] So sometimes it is a process of looking at what happens from a cash standpoint. I'm glad you brought that up. Thank you, Stephen.

Stephen Brown: Sure. We're talking about waste, right? And we were leading into different directions and causes of waste. For example, we were talking a lot about scheduling conflicts. Waste with subcontractors, waste with timing, waste with labor, waste with waiting for materials. All has to do with scheduling. How would you do an audit of your back office, for example, for waste?

Wade Carpenter: I think you'd need to take the different functions. Somebody that does the purchasing, how do they do it? What is the process for doing that? Are they getting the estimate from the project manager, but they've been yelled at because they got short or something like that, so they end up tending to over order something?

Stephen Brown: I definitely get that. I also see contractors, if they think someone in their back office is not busy all the time, then they try to load them up with more work and responsibilities. That just might be a function of there not being [00:12:00] a lot of work going on. Then when work starts back up, they're overwhelmed, and then efficiency is wasted.

Wade Carpenter: You're talking about the back office stuff, that just brings to mind some things that I hear. For some contractors, the idea of a purchase order system, if I say PO, some people like run screaming the other way. But, a lot of times I also see that people just have a PO number and there's no real checking to that.

So even though we said it was gonna cost this and all this stuff, the bill came in, but the PO said it was gonna cost X amount per unit but it actually costed 20% more. The pricing that they quoted was not in there. And that's where we put some systems in place for some of these contractors where part of our invoice management stuff, we will check the PO so that we can spot these problems.

When a human's doing it, a lot of times they're just trying to do as best they can. But, sometimes the back office in a contractor's office, they're just overwhelmed and overloaded with things to do. [00:13:00] And part of it is going back to the system, having a good system that's set up that can find some of this waste.

Stephen Brown: That's absolute fact. And having an organization that can be helping you do this and not you having to wait until you're not busy to implement these sort of things.

Wade Carpenter: Yeah. I guess another way, and I don't see this a lot, but it does happen, i've heard of it happening, is we worry about not having enough supervision on a job sometimes.

I've also heard stories where the project manager wants to make sure everything is absolutely perfect, so they start over inspecting and they start micromanaging waste. And sometimes that leads to, okay, just stop and we're gonna take all this extra time. It ends up pushing the timeline on the job. So there has to be a happy medium between having good supervision on the job versus going the other extreme and just micromanaging.

Stephen Brown: Yeah. Good project managers, it's certainly an art form. It's not just about scheduling [00:14:00] and it's about implementation and making sure your finger's on the pulse of what it takes to get each face of the project completed in the timeframe that's been set for you to get that done. A lot of time with project managers, that's more important than the cost issues. Maybe they're managing a project and they didn't do the estimating.

Wade Carpenter: I know you already started this, we talk about a few different fixes, profit saving moves, some of this stuff to address this. And the first of which is it probably sounds stupid, but a literal dumpster audit. A weekly check, photo evidence of what's thrown in the dumpster. You don't really wanna go dumpster diving, but you go in there and take a picture of it, take it back to the shop.

And again there's a point where people are just gonna be wasteful, because it's not their money. Sometimes, we have extra on the job, we have some kind of return policy. Can we actually take it back and get some kind of credit or reduction on the bill?

 Some of these other things I guess, it's just some kind of incentive for the crew to not waste things, maybe some bonuses. Some kind of [00:15:00] training on material handling, training on things like measuring, we talked about discipline about scheduling, inventory. These are just a couple of ideas I had to address some of these issues. Any other thoughts on that?

Stephen Brown: No. Great ideas.

Wade Carpenter: Well with that, hope our listeners think a little bit more about where Profit may be leaking in your organization. Take a deeper dive and walk through it with your team and see what's going on and literally as I said, go do some kind of dumpster audit and see what's going on.

We appreciate you listening to us. We do this every single week. If you've got any thoughts or comments, throw them in the notes below. We'd love to hear it. Again, we do this every single week and we will see you on the next show.