As a builder, how do you implement cost tracking to improve your home construction business?
Explore the essential strategies for cost tracking in your home construction business for better efficiency and bigger profits.
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Duayne
When I was doing it, I didn’t value my time, so I probably did a lot of it for free.
The Role of Cost Tracking
Amelia
At Live Life Build, we talk about how numbers don’t lie. Building businesses is full of data. Understanding how to collect and review that data can be incredibly powerful for your business because it gives you the opportunity to track your progress.
One of the things that you talk about a lot with our members is tracking costs on their projects and ways that they can track costs on their projects.
Why do you think it’s so important to track your costs so closely?
Duayne
It’s one of those things that you need to regularly do to improve.
A building business has so much data, and I find it funny using the word “data’ because you think data is not something you would relate to a building business, or you relate it to software or something like that. But the data in a building business is enormous and it’s not a hard exercise to start spending some time and getting your head around it.
Until you start spending time and reviewing your numbers, you don’t know where you’re heading. And this was my problem for 10 years of my business. I had an incredible turnover, but just wasn’t tracking the data, wasn’t reviewing actuals versus allowances, and was just digging a big hole.
Knowing and having a way of tracking your data. We track things, a really big one for me, and this will resonate with a lot of people coming from a carpentry background. On the tools, I was a gun. I could smash it out. I could turn up every day. I’d go to sleep thinking what was going to happen the next day, like how many lengths of timber had to be cut, knobs, window sills, all that type of stuff.
You just knew that when I turn up in the morning, by the time I left in the afternoon, this amount of work could be done. And that’s been a really big one for me to shift my mindset being a builder because, for a long, long time, I was pricing all the carpentry on my jobs as if I was there doing the work.
And that worked well in the beginning when I was still on site with, but as the business has grown and I’ve stepped back from that sort of thing, and we now have teams and employees that do that work for such a long time, it was so frustrating to turn up to the site and things not getting done in a timely manner. And I started wondering what’s going on here. Why is this happening?
It’s funny because I would have been doing the same tasks I was doing when I was on the tools as my team is doing, but I don’t know, there just wasn’t that click to understand, I guess a lot of it was because when I was doing it, I wasn’t valuing my time. I was probably doing a lot of it for free. Well, I was doing a lot of it for free.
Simple things like tracking your carpenters and what they do on-site, getting them to list down because you’ll actually be quite surprised at how many little miscellaneous tasks take up a huge amount of time. Sweeping and cleaning the site, locking the site up, cleaning the outside of the building, builders cleaning at the end of the job, packing tools up, moving materials around the site, and helping other trades. Especially the sites are getting smaller and smaller. There’s nowhere for materials. Moving materials around a site can literally chew up tens of tousands of dollars on a decent-sized project on a small lot.
Detailed Tracking Methods
Amelia
Which, if you haven’t estimated or allowed for that, that’s going to come out of your bottom line as a builder. So timesheets must then be really important in terms of your team actually filling out timesheets and properly attributing or coding the time that they’re spending on various tasks to those various things.
Duayne
Yeah. And so we track a lot. We track everything. We break a cost down. We could break our costs down a bit more, but we only break them down enough to show me what I need to be able to continue to price future jobs accurately.
Timesheets are a really valuable one. I believe timesheets; we did them for a long time until we had enough data, like supervision, for example. That is now a percentage of our job because we tracked it for a few years, and it just kept coming back to this average percentage.
We couldn’t have come up with that figure if we hadn’t tracked it to begin with. So having our supervisor have a timesheet and listing out the tasks he does during the day, our employees on-site, all the carpenters, what they’re doing through the day, and my time, was a big one for me.
Keeping a timesheet and tracking whether I was on site, whether I was supervising, whether I was at design meetings, and then allocating that to the part of the business that it applied to. Because there was so much time there that I was just, I was just doing.
We all get caught up in thinking that, well, we’re the business owner. This is just my job. I just have to do this. But as you and I know now, we go through with our members quite regularly.
You have to pay yourself for the role you’re playing in your business.
If you’re not tracking your data, you don’t know what that time is worth, so you can never employ a person to do that role. Tracking data is really valuable.
Breaking Down Costs Into Detailed Categories
Amelia
One of the other areas that’s really important when you’re tracking your projects costs are all of those miscellaneous bits and pieces. Speaking figuratively and literally like the nuts and bolts of all the parts of putting together a project, you track right down to that level of detail, don’t you? So that you understand exactly what’s going into the home that you’re building.
Duayne
Yeah. I refer to carpentry a lot, but that’ll resonate with most people. We have a subcategory called carpentry and framing. And within that category, it’s broken down into carpentry labour.
We break our frame down into framing, floor system, roof trusses, roof rafters, and flooring. Is there timber decking? Are there deck joists? There are probably 20 or 22 subheadings in that category. As an example, one of them is tied down.
So a lot of builders are probably either not working it out or just throwing an extra couple of grand on top of their framing costs to cover all their nuts and bolts and cyclone rods and those types of things. By us being able to have those categories and then enter those costs into those categories in our accounting software.
Amelia
And tracking this as you’re actually making the project happen so that you can see the actual cost. So, if you estimate it incorrectly, you can catch up with understanding that information as you go through the project.
Duayne
Yeah. So data, in our business, allows us to do multiple things. Probably the two most important ones, I believe, for a building business, number one, tracking your data from your current projects.
The biggest thing it’s done for me is allow me, especially in the current market, we can go back to previous jobs, ones that we’ve just finished, and review whatever rates, products, labour costs against costings that we’re putting into future projects.
That way we’re certain. So you can go back and look at a past project. You might get a set of plans that are reasonably similar and you can go, well, Carpentry on this particular job was $82,360. I’ve done all my workings out. This job is roughly about $80,000. This one got a bit more work in it. I could make this one $90,000.
The Benefits Of Weekly Updates And Real-Time Data Review
You can make educated decisions. But the other thing that it really allows us to do is manage our business. I’m really big on having weekly updates. I’m always checking in with my accounts manager pretty much every Tuesday. I’ll run through it very quickly with her. We track our data so well now. This is the thing with a lot of stuff we talk about. It’s a lot of work to begin with, and then it becomes so regular that it’s just another thing and you get your time back.
Amelia
Just another system that can move through your business quite seamlessly.
Duayne
And that is what gives you the freedom that you should have in a business.
Every Tuesday, we can have a quick run-through. Allowances versus actuals because every week, we’re getting our timesheets in from our contractors, our employees, and our materials delivered in the previous weeks.
My accounts manager can enter those in. So I’m pretty much only always seven days out and I can see in real time how we’re tracking. And for us as a builder, there are always so many different ways to do things. Just as an example, by tracking those costs so regularly, we can make an educated decision.
Well, where are we sitting with this particular product? Or where are we sitting with the framing timber? Oh, look, we’re going to go over a couple of grand there. All right, let’s look at some other options that we can do for scaffolding. Maybe we don’t need full-height scaffolding. Maybe we can get some edge protection, and we might be able to save a couple of grand.
We can make those educated decisions every week throughout the job so that ultimately, at the end of the job, we can make the margins we set out to.
And an important thing out there to remember is in building business, in any market, everything’s always a juggling act.
Just because we do scopes of work, we price the jobs really accurately, and there’s always price increases happening, labour increases, a material might be discontinued, you’ve got to substitute it so the other material’s worth different. There’s so much going on that are out of our control. And without data, you can’t reflect on that and review that and make sure that you’re going to do better in the future.
Amelia
If you’re not tracking your project costs, you can’t ever really know whether you estimated that project at the right price. You might have created a quote or a proposal for that project that was a certain amount of money, but the price that you actually ended up delivering it at, the price, the amount of time it took, what it cost your team to deliver it, could be an entirely different thing.
And yet, if you’re constantly quoting and creating proposals for jobs based on a bunch of assumptions that are actually incorrect, you’ll be going out the back door, and before you know it, you’ll have no money and be none the wiser.
Whereas if you’d actually been able to track those project costs through and review them on a weekly or a fortnightly basis, you’d be able to make much faster decisions, much better-informed decisions about whether you’re making and relying on the right information for these proposals. And also, in the execution of those projects, whether you need to change anything so that you don’t, kill your bottom line.
Educating Clients and Enhancing Proposals
Duayne
Yeah. And, again, I love it. At the end of the day, numbers don’t lie. And for a long time, and this will resonate with people as well. We’re coming up close to our 200th project now, and we’ve never, ever done the same one twice.
But there are similarities between different projects. It’s blown my mind over the years as we’ve really kept improving how we track our data and even just seeing how much time and on a job, and the other thing that’s actually important with this is it allows us to educate our clients.
Especially if you are in a situation where you’re against other builders, you can educate your clients on how well they’ve allowed for everything because even the site can change the cost dramatically. You might have the exact same house design, but this house here on a flat block of land, and then plonk it on a real steep block of land; the cost will vary dramatically.
Amelia
Or even a site that just has more significant constraints or a narrower street or some kind of issues with traffic control that are required, anything like that can make a big difference to the overall cost.
Duayne
Yeah, and we’ve had a perfect example of that lately where your typical sort of average-size, two-storey house on a small lot, but our current job is in a flood overlay area. And the cost to get that to a slab is literally ten times more than what it would be on a high, flat block of land somewhere else.
So we’ve got that data now. We’ve literally got a huge bank of data that is adding value to my business because I can go back and review it. And while I’m quoting jobs and putting proposals together, if I see something that I think, look, that’s not quite right, or maybe we need to look at that there.
I generally will just shoot an email through to my accounts manager and say, hey, could you please send me the three footing costs on these three jobs? And a lot of the time that gives me a bit of an average that I can check against my current quote and make sure I’m on the right path.
Amelia
If you’re not tracking your project costs, now you’ve got some ideas about how you can get started. If you’re not tracking your project costs with the level of detail that we’ve been discussing, then review whether you can start incorporating more detail and really wrap your heads around how you’re going to be able to track your project costs so that you can stop your projects from unknowingly chewing money and be able to create change far faster in your business.
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