The True Cost of Fixed Fee vs Cost Plus Models

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

Find Our Hosts:
Reece Barnes
Matt Calvano

Podcast Produced By:
Motif Media

Transcript

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Welcome to another episode of builders, budgets and beers. Today we are joined with Jake Bruton of Arrow builders, out of Columbia, Missouri and recently expanded into the Kansas City Market. For those of you that don't know Jake, he is a part of the build show live with Matt Reisinger, and he is a total wealth of knowledge this episode, specifically, we were talking about what motivated him from moving to a fixed or from a fixed fee model into a Cost Plus model. And the real motivator there was in 2015 he had nearly a $200,000 loss on a project largely chalked up to poor communication and poor documentation. This is an extremely tactical episode, even going as far as how Jake is verbalizing or communicating a change order as an an Awa, additional work authorization. It took me a minute, but I got it. This is the type of stuff that builders need to know, and I think Jake does an incredible job at via storytelling, articulating why they made these moves. So if you want to hear more, let's go ahead, go ahead and jump in and we'll get to the episode with Jake. Alrighty, we're live. How's Jake brutons? World, busy. Yeah, that's why we had to reschedule this three times. Good. Do not, do not worry about that. I imagine you're busy with building and all the stuff you're doing at Build show. We're stoked for Dallas. Me too. Yeah, we're we actually, we just committed to the underwriter package. So we'll be underwriters for your guys's for your guys's session. So, all right, cool. Okay, I'm Thank you, yeah, of course, dude, of course. We're, um, so just even, like, little background what I'm doing now. So obviously, like, I was more on like, so as a first sales hire, I sold directly to your team when they were at JLC. Yes, and, and now I'm head of construction network. So really, what that is, is us leaning into building more long tail relationships, more community. And a lot of that is investing in these ecosystems where we have, like, a lot of really high intent, very serious builders to obviously network and engage there, but really start to uncover, like, what are these big pockets of builders that are wanting these more financially sound businesses? So that's where the underwriter package made a ton of sense. We're stoked. So financially sound sounds like a fantastic idea, doesn't it? It does. It does well, and I think that's what we can talk about a little bit today. I remember when we initially talked about this at JLC, just this last was it March? I think it's when it was I thought you had a really compelling or really interesting perspective on tariffs at the time, right that was like tariffs were big. I saw that you guys had done an episode on tariffs here just recently. Certainly don't want to replicate that, but I think that would be an interesting perspective to hear from you, basically, how you and the arrow builders team views managing a healthy business through economic uncertainty, whether it's tariffs, whether it's a drop in the market, whether it's interest rates, whether it's whatever, yeah. So we can start there. I mean, I think first off, it is important for the listeners here to have a little bit better idea of who you are, if they don't already, obviously, you've got a fairly well known brand, but go ahead and let the listeners know who you are and what you're about and what you guys have going over at Arrow. Yeah. So arrow building is a custom home building firm. We have two bases of operation. One is our original base of operations, which is Columbia, Missouri, which, if you're not familiar, is smack dab, like in the middle of the state of Missouri. It is the home of the University of Missouri, the Tigers, yes, my alma mater as well. It is, I'm the second generation owner. I bought the company from my parents in oh seven and a few years ago, we expanded into the Kansas City Market. Columbia is only 150,000 people with the students in town. Can cities of 500,000 people in the metro area? Correct me if I'm wrong, but students aren't typically buying custom homes for buildings. Are they not in this neck of the woods, maybe a wealthier community, but not here? Yeah, yeah. And so it's a small market, and we were getting because of the stuff that we put online, because of our online content, we were getting requests both from St Louis and from Kansas City, great. And those are the two larger cities in the state, yeah. And Kansas City tends to be a little bit more of a West Coast feel. St Louis tends to be. A little bit more of a Keeping Up with the Joneses mentality. And frankly, if I was thinking that I was going to have to drive over in the morning and drive back at night, I wanted to be headed west so that the sun was at my back and then the sun was at my back rather I love the sun in my face in the morning and the sun in my face at night. And so I just to go west rather than go to St Louis. So we went to Kansas City. I love that. And I want to make a little comment, because isn't it, like, just sometimes, like, the simplest decisions drive business decisions. Yeah, it's like, I don't want to be driving to the sun in my face on the way home or in this huge, gnarly sunrise on the way out. I thought, if this is going to be a thing, I want this to be permanent. Love it. And if I'm going to have to go multiple times a week on a two hour drive, 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 awareness is great. Yeah. And so we expanded a few years ago into the Kansas City Market. This year, Kansas City office is going to surpass our Columbia office in revenue. We have multiple employees over there now, and the bulk of our business is actually on the Kansas side. So Kansas City bridges the gap. It's on both sides. It happens to be that the majority of the wealth in the state of Kansas actually happens to be right up against the Missouri border, and so that that's why the majority of our businesses, on that side, we are a cost plus business, which means whatever your job costs, we add our profit and overhead too, and then that's how we make our money, rather than a fixed fee, which we were for a very long time. And we actually moved to the Cost Plus model because it made us more cost effective in the long run. Is more work. It's a lot more like work on our part, because we have to track every penny rather than just guess at the end on whether or not we made money. Although we were basically tracking every penny when we were fixed fee too, because we had to know whether or not we're making money. But we just lumped a big chunk on the end of every job to make sure that we were going to make money when we were fixed fee. And that worked well for us for a very long time. I mean, we were fixed fee from 1983 until 2015 probably dang good run a very long time. And then I figured out that it was going to be easier for us to be cost plus. And it's been great for our firm. Dude. I love it. So I do, I want to, I want to give you kudos for you know, a lot of people it's like, what does cost plus? Actually mean, right? It's cost plus a markup. And I love how you delineated it not and you didn't just say cost plus our markup, you said cost plus our overhead and margin, which really is like, what makes up markup? And I think I just did an episode with another builder, and we were talking about that, like, if you're bidding jobs with a 15, 20% markup, thinking that that's you're going to be your take home, or that's your profit, you're going to get scorched. Right? So I think that was great that you just like delineated those two profit and overhead, which is, which is also a really good point, is that, like in our in our industry, if you say, well, we put 20, 20% is our markup, people will look at you. And even if they realize that not all of that is your margin, they have a hard time then processing that if you were a waiter, that would be a really piss poor tip. Like that wouldn't be a great tip if you took part of the business, the kitchen's money out of it and the restaurant's money out of it, and then you also got your profit out of it. Like we make what our profit as an industry tends to be, what equates out to being a kind of crappy tip, super low margin, weight staff, yeah, totally. These are not enormous margins where we're getting filthy rich, totally. And I think that's like, an even better riff on it is, like, if, even if, if, for the builders out there that are kind of, like, balancing the I've been, I've been fixed fee or fixed price, forever and cost, plus like. It's harder to sell because you're throwing this big, like 20% number at clients, or they don't fully understand what that 20% markup includes. Just start pitching it as like. It's our cost plus our overhead and our margin. And typically what we see in the industry, and this is like, certainly, like an average is like, builders will be running anywhere from like, a 10% overhead on their business. So if they're doing a million bucks, they've got about 100 grand in overhead, and they're getting about a 10% profit margin. Obviously you're wanting to drive that profit margin up as much as you can, because again, a 10% profit margin on a business is not it's. A healthy profit, like, it's not a big profit margin, considering other businesses, but even just from a sales tactic, like, if you are a listener out there and you're thinking, like, okay, maybe, do I do? Do I move to cost plus, or do I move to fixed price? Or even, probably more common, there hasn't been much thought put into the pricing model as a business. It's just we've always done it this way. You can kind of start to think of it that way. Yeah, and it doesn't matter which one you do, as long as you fully understand where your costs are and where your numbers are going, you can, you can make either one work just fine. We just figured out that it was going to make us more competitive, because I didn't have to leave a big safety number on the backside when we were fixed fee, because I was adding sometimes upwards of 30 or 40% on big remodels. Now I still note that number to clients, but I just call it contingency budget, and I don't put it in my contract. I just say you need to have this available just in case we get into things. Okay, explain that a little more. Because I think, like, like, explain, like, what was the motivator in 2015 for you guys to move off the fixed fee? I think you did it, like, at like, a surface level there. But I think this is where I don't know if the industry is thinking about the pricing model and strategy here as much as they should. More to your point of it's just, you can make money doing both. This is just how we do it. But what was the driver for you to make that pivot? Yeah, so I had one project that I lost an incredible sum of money on how much was we're on the builders budgets and beers podcast you got to share. Yeah. At the time, my business was doing about a million dollars in revenue a year, and I lost 180 grand, dude. That's devastating. While 180 grand might not be a huge sum of money to some businesses at a time where you'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 to someone else, and I went to the lumber yard and said, I can't pay this bill. And the majority of it went to the lumber yard, yeah, and I was very lucky that I knew the person that owned the lumber yard since I was a little kid, because I grew up in the industry. I had worked at that lumber yard for three years during college. I ran a shift for them. I had a really great relationship with Him. And He literally said, how long or how much do you think you could pay off every month without it, putting you out of business? I absolutely could write you a check for four grand a month without it, like destroying anything in my business totally. And he said, Okay, stop on your way out and talk to Gail at the in the accounting office. Tell her what you just told me, and we're going to put it on a personal note between you and I at two and a half percent interest. Take it off your books at the end of the day today, and I'll take it off my books. Got it, and it took me years to pay it off. Totally, totally. So it was a combination of losing money on that project, where I was like, Man, I and it was my fault partially, and it was partially client fault. There was some nefarious actions on the part of my client, sure, but I looked at everything and was like, Man, if I was cost plus that, none of this would have happened. They wouldn't have had the ability to hose me over in any way. And I could have come out of this completely differently, sure, and all of those unforeseens wouldn't have mattered in this way, and I wouldn't have had and I just kind of looked at things differently. And then I started reassessing everything, and I thought, boy, I wouldn't have to put this big chunk of money on the backside to try to stay ahead of people. And I bid one project as a cost, plus project in my mind or on paper. And then I bid it my normal way, and I just kind of sat and looked at it, 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 much, and I still had some contingency money in it, and I went, I'm going to try it once. And I did it for $328,000 or something like that. And I was like, Yeah, I missed out on that cash. But then they told me that I got the job because I was like, 80 grand cheaper than the next guy, yeah, well, I would have been the same price as the next guy, and I might not have got the job. And so I made all that profit that I made off that job when I might not have made the money in the first place. And I was like, okay, I can be cheaper and more competitive if I don't have to build in that, Oh, crap, money totally. So I was just like, I just have to figure out how to not. Mislead people where I'm just like, I'm just overly cheap for no reason. And so I immediately just started saying, like, Okay, if it's a new construction I'm going to tell people, Hey, we very rarely have been, you know, 10 or 15% over budget. If you, if you take the number that I tell you for the house and add 10% to it, we should be well within what is perfectly reasonable to build this house for you, barring any COVID pricing, or you going crazy during the process, which I don't think of that as over buzz or outside of estimate. I think of that as you changing things, you move to the goal post. That's a different that's a different conversation, or me betting it, and then you waiting three years to build the house, we obviously have to rebid it right. And then the other one is, if we're doing a renovation, then that contingency money scales, basically on age of house scales or innovation. So sometimes I like if it's a we did a project for one of our or for our contract attorney, and we're about to do another one for him, and I'm literally going to say, I need you to add 50% to this for contingency money, because we've worked on this house already, and we, one of our project managers, can hear me talking, and I can see his head doing this. He's He's shaking his head, yes, yeah, because we've worked on your house already, and we know that last time we tore into it, we found what water damage and fire damage and bats that we didn't what'd you say? And termites, yeah, and termites that we would have no idea we're there, you know? Yeah, yeah, totally. So no, okay, so I think this is, this is all great. Let's go back to the the hosing that you talked about. Because I think, like for builders to really understand where things can go wrong. Obviously you had a strong motivator right to go to cost plus. But in that project that you lost 180 grand of the nefarious actions, I think, as you put it, what specifically was that on the fixed fee model that just totally dumped the project, kind of like an oh shit moment at the end of the job. Yeah, so the part the clients got one over on me was all the way through the project, like on day one, we figured out that the house was actually hollow brick instead of wood frame, and we thought all along those plaster walls with wood frame when we were doing all of our inspections, and so, like, there was a change order, and then it was kind of that way all the way through the project. And so when we were almost done with the project, I gave them a bill, and they were like, What is this? And I was like, I'm not sure what you mean, like, this is just another progress payment. And they're like, Well, we're this bill's for 300 and something $1,000 and we only owe you another 100. And I was like, No, we have all of the other stuff, like all the change orders all the way through the project. Make the total almost this, plus the other 45 that we still have coming, and they're like, We What are you talking about? And I was like, all of the change orders add up to this. 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 order conversations happened after hours with just day, and I on the job site because they, quote, unquote, can't meet during the day, yeah. And they were just like saying yes all along, and I was doing at the time, we operated for the most part on a handshake. Very Midwestern market. We barely had contracts on stuff, like our contract was two pages long, sort of thing, so we didn't sign change orders. We just discussed them and kept a running total on a yellow notepad. And then I had, like, pictures of that yellow notepad in my computer so that we would have record of them. And they were like, We never agreed to any of this. And I was like, Well, hold on, like, why is your bedroom two feet wider than what it is on the plans then? And they're like, We didn't know it was two feet wider. And it was like, Oh, you guys were planning on doing this to me from the beginning, and they're like, I don't know what you're talking about. And so then when I went to their to my attorney, my attorney said they absolutely owe you this money they cannot claim in court that they didn't know about this to get this 180 grand, it's probably going to cost us 40 or 50, and we're not going to get all of it. We're going to get a chunk of it. And I know that this person makes about $90,000 a month worth of income because he represented somebody that was a business partner, and he knew exactly how much the guy made. Yeah, and they came back and said, We will be happy to spend four. Or five months worth of income to keep you from getting any of this. Dan, I and my attorney said you're going to be better off to figure out how to walk away from this dang dude. Like, what right? And my attorney said, I know that 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 years for me to not just absolutely want to drive my truck through their house, right? You know, right. It was brutal, damn. And I had a, I had a project manager that wanted to quit over it because he thought that I was in the wrong because I didn't. I didn't just sit him down and go, Look, they're hosing us. They're like, I was trying to be the bigger person over the whole thing, right? Eventually, it got to the point where I had to sit him down and, like, walk him through everything. And then he was like, why didn't you just tell me all this? And I was like, because it doesn't do any good for me to sit here and whine about the money that I'm losing on the thing. Yeah, like, I just tried to explain to you that they were trying to rip us off and leave it at that so that I could be done talking about it. We had an electrician that was pissed off at us for a year that was like, Man, you owe me. And I was like, I paid you the money. It took me 60 days to pay you. It sucks, like I did it as quick as I possibly could, but I'm out 180 grand. I paid you out of my pocket. Like I know that sucks. We made the contract together, not you and the client, but have some sympathy here that I paid you, I could have went out of business instead, like, totally, I tried to do everything as stand up as I 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 our life. It affected timeline of how our lives went. Everything, totally, totally, damn dude, that's that's an incredible story. Thank you for sharing that. Um, and even more, just to, like, bring it full circle, like, had you been on cost plus that you're saying, it wouldn't have happened. Well, effectively, the way our cost plus contract is written is we spend the money you owe us for it now, we don't. We try not to treat it like that. We don't treat it as an open checkbook. We want the accountability there. But if it comes down to it, our contract is basically written as if that money goes into the project, and that was specified in any way in the plans, as long as we're not putting in a swimming pool that wasn't accounted for. Yep, you owe us for that. Yeah, you know. And so go ahead. We're we're way more diligent now with additional work authorizations, we call them an Awa now instead of change order, because change order, because change order has a negative connotation. I love that. What's Awa additional work authorization, and that's not a term that I came up with. Another builder, friend that I respect highly, said that, and I was like, Oh, hold on. We got to discuss this, because change order does sound dirty, and it does sound like we're going to try to stick it to stick it to the client in some way, because that's the way the industry thinks about it, you know, yep. So we're way more diligent with those things now. Nobody's perfect. We still, every once in a while have something go through that we're like, hold on, Mr. Project Manager, did you get this signed or not? You know? But we're way better now than we were, and things don't we generally don't piss people off anymore, totally well. And that's where like, so that makes more sense in terms of like, where cost plus would have mitigated that. And I imagine there's a component of like, the the assimilation of cost plus being open book, right? It's like the Cost Plus model poses a much more transparent experience for the builder, and that creates a lot more alignment, as I put it, as like you can't plus what you don't cost. That's more from like the builder's view of like, the emphasizing the importance of tracking every dollar that comes through your business. From a healthy business practice standpoint, if you're not tracking every dollar, you're not making the markup, which translates into the profit margin, right? To where, as a fixed price or a fixed, fixed fee builder, that's going to be more of like a game of race to margin, right? And you'll hear a lot of fixed price builders saying, like, I don't want to show my clients our books on this. I don't want to be communicating all the costs, because if I the builder can run a more operationally efficient business, and I can get material that they want in their house cheaper, then I should be able to get the upside on that with that lack of transparency. But I imagine like in your invoicing, for this specific scenario, it was just like your scheduled invoicing, or your progress, billing, whatever you guys were doing, and then it was just like the lack of documentation or communication on the change order side that really got you. Is that fair? Yep, yeah, absolutely. Damn. Okay, cool. Um, and you mean trust and handshake, way that we operated totally here's the house, here's the scope, based on what we know we can do it for. This price, and then you guys just got scorched. Yeah, yeah, dang. Okay. I can't remember if it was this conversation or if it was one of your recent posts, but I think you had mentioned that cost plus is more correct me, if I'm wrong, but more labor intensive or more time consuming, it requires more diligence. Let's hear a little bit about that. Yeah. Well, if you're, I mean, we send a we send an invoice. Let's see. I can actually give you an exact example. Let me bring it up. It'll take me two seconds. Let's see that was to this client. We sent an invoice in the last, I don't know last week or so that was for$158,727.76 beautiful. So if you're going to go to the effort of sending for that exacting amount, that means that I have receipts that are exacting. That means that I've tracked every hour that every employee has worked to an exacting point. There are times where we're entering receipts that are $7 for two electrical boxes or four electrical boxes, where it's like it almost costs me money to make sure that I have all of that included in the in the invoice. Yeah, we're tracking absolutely everything that goes into that invoice. We're processing every receipt. We're making sure that everything is accounted for, because that's the whole point of being cost plus is that we have to have absolute accountability. We have to know all of those costs, because it's reactionary. Totally it is. Here's what we spent. So therefore you owe us, right? Totally question and you, are you guys? You guys use adaptive? Are you still on adaptive? We do, yep. Are you using our draw packages for adaptive we do? Yes. Okay, beautiful. I was gonna say because hopefully, you know, it could have been like an opportunity for you guys get with customer success and expand. Hopefully it's not taking a super long time to do this, but go ahead. But if we were just on a draw schedule, it would be like, Hey, we're done with rocks. And then the next invoice Exactly. Just an amount, exactly, exactly, just we know that we're able to invoice for the second two thirds when we're done with drywall. Totally. That's a totally different thing, totally. If you think there are ways to make this process more efficient, Jake or your team, get on with Dan, get on with our product team. We'll talk about it. But on that point, I'm curious, are with you guys again, down to the penny, right? You're invoicing the client down to the penny. Are you providing backup documentation? Or do you guys 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 process wise, like, this is how much you have paid so far prior to this invoice, it says this is how much you have remaining in deposit with us. It also has we we create through your guys draw software. We also number our invoices so they know that this is that was invoice number six for that project, and then the next couple pages on that one talk about where each receipt is and what which one of our codes that it applies to, whether or not it's the job site conditions that includes like the dumpster and the Porta pot and things like that, whether or not it has to do with foundation or excavation. We're still in foundation on this one, and so they can see how each one applies. They can see who it's from and a quick note on what it is and the total and then it also shows what page it's on. And then there is a copy of every single receipt. And those are just click, not to kiss your guys, but those are plug and play click buttons for our office manager to pull all that over. And so all of that gets exported to them. So that invoice is 30 pages, great. And so sometimes that, for some clients, that doesn't matter at all. They look at the cover sheet and they write us a check and they totally care. And sometimes that's a bank client, sometimes that's a cash client. It just depends. And some clients like these, this client has actually said, Hey, can I get a breakdown of what the hours were further than what you've already provided, even like can I, can you help me understand what the project managers hours were since the last invoice? Like, what he was actually working on, not just a total of the number of hours that he's worked? So it's a push pull, depending on who we're working with. And it's sometimes it's one way, sometimes it's the other, but we try to get. Give them as much information as possible. I have never had a client since we started invoicing this way say, Well, I don't know you for that totally beautiful. There's, there's no question on whether or not it's got your address on it. Yep, I can 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 this HVAC system in their house? If they try? You know, I've never had anybody go. I don't know you for that. I've had people go. I don't have the money to pay you, yeah, but different story bearing on anything, you know, right? Well, and, okay, so, but that like that, this beautiful way to bring this full circle, right? Like on the job back in 2015 where you got just absolutely hosed. It really like, boiled down to, like, a documentation and transparency comp, and this is just like mitigating all of that, whether the client reviews a draw schedule and goes line by line by line in the budget of what did 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 point back on it and be like, Hey, this is what we provided. This is what it looked like. These are the expectations per the contract. So, dude, I think that's great. I think that's great in terms of your and I think, hey, this has been great so far. I'm curious not to totally like spin the conversation or sidetrack the conversation, but when we were at JLC, we had talked about, you know, a lot of concern with the tariffs I'm currently selling a house, and interest rates are, like, a huge conversation in terms of, like, what's happening with the market, and interest rates obviously, like, directly impact builders. And this, my question to you is, and let's pick up a conversation on like, how can builders run more confident businesses from a financial standpoint when they're coming on whatever 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. But yeah, so pricing is pricing something that's very difficult. I went to a bank this morning with a client, because the clients are going to be asking for an extension on time and for more money. We bid the house two years ago, and it's going to cost more than what it was when we bid it, and most of that is price shift, some of that is client choice, and some of that is us. We're we're part of the problem too. In other words, of course, over budget on some things, but when it comes to things like tariffs, that's a big question mark. Nobody could have planned for that. And because our our markup is based off of the cost of the item. There's a couple conversations that we generally end up having with people. One before the tariff, conversation was always well, what happens if I pick like, a $10,000 bathtub instead of a $4,000 bathtub? It kind of feels like I'm being penalized and having to pay more just because I picked a nicer bathtub, but still, you're just installing a bathtub. And so I always talk to clients about it might kind of feel like that, but you're paying for my warranty, and you're paying for me to burden the risk associated with your project, sharing my profit. That's that's part of me making money and staying in business, is me being here to warranty that, or for me to be the one to move it around the job site and protect it and everything. So if I'm carrying that tub up the stairs and I drop it and break it, I'm going to replace it at my cost. It's not your cost. That's an accident that I cause. I'm not going to charge you for that. So that $10,000 tub has a higher risk associated with it, and so my nump, my percentage doesn't go up, but my risk goes up. And so therefore you're not being penalized. You're just paying appropriately for it, right? So while I don't raise my rate, yes, it does cost you more, so you're not being penalized. So we talk to clients about that, like if you pick more expensive things, my risk is higher. So therefore, yeah, it does. It does cost you more here, same way as if you built a $10,000 house versus a $2 million house, I would be warranting $2 million worth of stuff versus $10,000 worth of stuff. And so clients generally don't have an issue with it. Once we talk about things like that, I don't think I've ever had anybody really push back after we've had that conversation totally now the tariff thing is like, well, but I'm putting in the same bathtub, and now, because of some decision made at a governmental level, I'm now paying 15% more for that item. Well, how's that fair? It seems like you're just making, you know, more money based off of an arbitrary thing. Right? And so I kind of looked at the client and said, Well, I kind of agree in that sense. So I'm not installing a more expensive item. I'm not burdening more risk, like, I'm not installing something that's going to cost me more money to replace, necessarily, like it might if I have to order it from overseas, potentially. But it's not a more finicky item, you know, right? Which, you know, a$7,000 faucet tends to be more finicky than a seven what? That's a thing. Yeah, price something from waterworks, and you'll see what I'm talking about. That's anybody who's worked with waterworks before knows, and they also know that waterworks, no offense to waterworks, that they're a sponsor or anything. No, no, you got to figure out how to ship it with all the screws in it. Next time they never send you all this, you're spending seven grand on a faucet. It Better come with the damn screws. It's, that's the boutique manufacturer thing, you know? Yeah, sure. So there's, there's, there is a little bit more risk on my part, because I'll have to pay the tariff if I have to replace it as well, sure. But what we've decided is, if we can directly relate the tariff to a before and after price, then we'll charge you our markup on the pre tariff price. You will still pay the tariff to the manufacturer or the supplier or whatever. So, for instance, we have some windows coming from Europe. The tariff on those windows and going to be like eight grand. We're going to subtract that eight grand off the cost of the windows, and then calculate our markup. You're still going to pay that eight grand tariff. It's still going to be in the price of your windows, but we're going to subtract that eight grand off, because when we bid the windows and when we bid the house and we signed our contract, that tariff didn't that tariff wasn't on the horizon. It wasn't part of the conversation. Are those tariffs like clearly outlined when you're getting cost from the European window manufacturer. So in some instances they are and some they're not. So that's part of the conversation as well. So that was the conversation that I had with our client. Was I said, if we can easily figure out that it is a direct tariff cost, I'm happy to do that, but I'm not going to have our our office manager or project manager spend two weeks trying to figure out if the cost of that light going from 65 to 85 is a tariff thing, or if it's our electrician or our electrical supply house trying to raise rates totally make more money. So totally, we have to know that this is a tariff thing. So the window supplier that we work with, European architectural supply, they put a line item and said, here's our predicted tariff. If it's more than that, we'll cover the rest of it, and we'll charge you that tariff when they show up if the tariffs in place, because it's not in place yet. Seaga is another manufacturer that we work with. Their stuff comes out of Switzerland, they know that after this date, if that stayed in place, this is what our price difference is going to be. So there's some simple ones like that. But when you get into like, all of our electrical components that are coming out of China or Taiwan, did, everybody's raising their rates, even the stuff that's not manufactured in Chinese, China or Taiwan. And so then there's this, like, maybe totally, might have 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 they can approach that. This could just be, like, short sightedness on my end. But like, how real are tariffs currently? Because I know is a ton of buzz like it was like the sky is falling, the world is ending, like Donald Trump's going to ruin the economy with all these tariffs. But it kind of seems like, and this could just be the media right shifting, like the focus of the consumer, but how, like real are tariffs now, and are they as violent as the market might have thought they were going to be Yeah. So, I mean, they all existed before this conversation started, right, right. There are some things that did go into effect, but for the most part, I think everything is still on hold. Everything that we had real panic measures about is on hold at this point. I think the electrical component side of things, and then nail and screw and fastener side of things is probably going to take the hardest hit, because Taiwan and China are in the like 100 to higher percent tariff rate, sure. So that's probably the part that we're going to see the worst. But I don't think that we're seeing it yet. Okay, you know, I think it's still a and I could be wrong. I'm not a political pundit in any way. Yeah, I think it was posturing for negotiation reasons. You know? I. Tell everybody, we're going to charge the hell out of you, and then you'll come to the table. That's the theory that's right or wrong. I don't make a, you know, I don't make a comment on that. But, yeah, yeah, I completely agree with you. That's that's been my general takeaway. Just like, again, going from this, like, create the panic market freaks, and then it's just like, kind of cooled off, and there's been a lot of deals cut around this. To your point, China and Taiwan are still like the concerning ones, kind of a side. Do you have something else you wanna add on that? Well, I will say that when all of it came through, I went and looked at the list of who his the President's list of who's getting tariffs and for what. And I have to admit that I feel like I'm pretty darn good at geography, yeah. And I had no idea of where the Falkland Islands were. Where is that? Even no idea that we traded with them. Yeah. Where is it? And yeah. And then I and then there was another, I had no idea that there was another small country off the coast of Madagascar, off the coast of Africa, that we also trade with. Is that Seychelles? What country might be. And I had to, 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 I was like, oh, because we don't send anything their direction. It's a, you know, sort of like, I thought it was really good at geography. And there were a couple of countries that I was like. Number one, I didn't know that country existed. Number two, country existed. Number two, I have no idea where it is totally, totally side comment. And you made this with like, you think, like screws, fasteners are gonna take, like, one of the biggest hits. I think there's a couple other pieces in there. Just out of curiosity, I feel like screws, and fasteners is one of those things where it's like, it's a screw. What does it cost? Five cents a unit, right? But then you think about the house, are you buying 1,000% so how much of that actually accounts for your budget? Or, like, how? Like, if it even that's not a budget, maybe. Like, framing material, but like, how much does that actually cost? Yeah, would you say on a home you might have a $10,000 line item 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 like so on, say, million dollar house in our market, you might have a 3000 square foot house, dude. So few dollars a square foot, for sure, that's insane. I had no idea. Do you think that contractors are pretty good about, like, taking that into consideration? Or do you think that they like that's something that tends to get messed or slept? I think it gets mess. Okay, I actually have a story. So my dad's a builder. And Winter Park, Colorado, they build custom homes up there. And he made the comment that they had cut a deal with their framing sub that all nails fasteners. I would imagine nails fall in that bucket. Yeah, are a part of their bid, their quote. Yeah, exactly. And they started getting invoices for nails, and it started to get missed. And that was, like, this is a part of the agreement that they were supposed to be covering in their bids. We were like, they were bucketing and budgeting for that, and then here they are paying invoices for nails and fasteners. So I think, yeah, you're probably right. Like, it's probably one of those things that's like, it's such as, I guess, physically, it's a small thing, but when you're talking about numbers and budgets, it's a pretty big, pretty big deal. Yeah, well, and if you go beyond just regular run of the mill hardware store fasteners, when you start getting into things like exterior insulation, and you go to something that's all longer than four or five inches, if you go to, say, a 10 inch long screw for fastening 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 the budget of a house all of a sudden. I mean, that $8 fastener was 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 crazy. It's crazy. Well, we're coming 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 think there's a lot of great storytelling, a lot of great takeaways for our listeners here, I appreciate the hell out of you for jumping on the show, taking time out of your day as busy as you are, and I'm super stoked to see you guys in Dallas that'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 day one, we're going to have some really great stuff. Matt and I are opening the entire show with a closed door session on like, let's have some 911 conversations, let's talk about hardships, like we just did, and let's do some problem solving as a group. So yeah, it's going to be a really great. The VIP session. So, yeah, totally, that's, I think, totally. And for anyone that's here is there, I'll get the website, I'll do, I'll do a 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 VIP session. When I look at it from like, a pricing standpoint, I think it's like, you guys have aced the pricing on this. This is like a no brainer for people to show up to, as you call it the 911, sessions, just to get real and talk to yourself, Matt, and candidly, it sounds like a big group. It's like 300 builders, isn't it? Like hell of a networking opportunity. I think they've, we've convinced most of the contributors to be in the room and spread out and join the conversation as well. Totally, totally. I mean, I know I'll be there, we'll be there, but no, Jake, I appreciate it. If there's anything we can do for you, let us know, and we're getting ready to roll out thanks for having me. Of course, over at adaptive, we are getting ready to roll out some pretty intense stuff in q3 so stay up to date on your releases. If your team does need kind of a health check or a revisit, let us know. We'll get you in front of it. Okay, awesome. The Oakland islands are off the east southeast coast of Argentina, by the way, southeast coast of Argentina, far South South America, South East, okay, and Argentina is, or I'm thinking of Chile. Chile is the long country, right? Yeah. Argentina and Chile kind of run parallel, run parallel. So it's on the southeast side of southeast 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.