Finding Hidden Profits From Change Orders

Is work-related stress causing you heart burn, high blood pressure or even hair loss? There’s a chance that improving your health might — to some degree — involve improving your contracts.

Many builders have contracts and change order policies that leave too much room for interpretation and an excessive amount of client flexibility. That could potentially add stress for the builder that could have been avoided.

Dennis Dixon is the owner of Dixon Builders in Flagstaff, Ariz. Throughout his 34-year career in home building, he’s learned the key to finding hidden profits — and maintaining his sanity — is in change orders. But it requires having a refined contract that thoroughly explains your change order policies.

“Your contract doesn’t have to be fancy. It just needs to be in plain, simple English, clearly stating what the builder will and will not do, and what will be required of the client,” Dixon said. “It’s incredible how much time and effort you can save by having things spelled out in the contract beforehand.”

Last month during the 2018 International Builders’ Show, Dixon led an education session called Making Money with Change Orders & Allowances. Some of the key points he shared include:

Determine How Much You’re Worth

First, specify each step of the change order process, no matter how small, and decide how much time it takes to complete each step. Then, determine exactly what you need to charge by the hour, the day and the week to generate enough income — including administrative fees.

Dixon advises never to negotiate on your rate and to establish a minimum fee for each change order to reinforce the seriousness of each request.

“People always tell me, ‘Dennis, I can’t do that. People will get mad.’ But I tell them they don’t have to explain themselves. By [adding the cost of processing the change order] you’re not a criminal. That’s how you stay alive in this business.”

Do Not Proceed Without Formal Client Approval

Each change order is a mini contract. It must include a decision due date, which if it isn’t met, will result in the change order being cancelled.

Dixon is not a fan of clients sending and approving requests electronically. In his experience, those methods can make the process seem less serious to the client and, in fact, encourage them to make more change orders.

“Getting client signatures on change orders sometimes feels like you’re asking them to reach into a bag of rattlesnakes,” Dixon said. But obtaining that signature first will save the builder from running into significant issues down the road.

Document everything, every time

Dixon says it doesn’t matter what you use to make out a change order. “You could write it on a scrap of wood, if you want to,” just as long as it’s written down on something and the client has signed off.

“To those who aren’t willing to write up change orders, I say, ‘Buck up! Or else you might want to consider a different line of work.’ Not only are they missing out on additional profits, they could also be losing money.”

Those with a paid, full registration to the 2018 IBS can get more in-depth by using their complimentary one-year subscription to IBS Education on Demand. They can download full recordings and handouts of presentations such as Making Money with Change Orders & Allowances as well as other sessions. Visit BuildersShow.com/ondemand to learn more.

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  1. Ryan says:

    Great advice to keep it simple. Often, change orders are put off which can result in lost revenue. Every change or request should be documented and approved. It’s also important so your team in the office and the field have confidence on ordering materials, billing, etc.

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