Mark: Today on PowerTips Unscripted, we talked to Josh Baker, co-founder of BOWA in McLean, Virginia. BOWA has been using cost Plus pricing for over 20 years, and today he’s going to tell us why this is a cornerstone of their company’s success.

Josh: Come on. You want answers?

Victoria: For what? That coffee’s down.

Josh: Are you talking to me? You’re all.

Victoria: Hi, I’m Victoria Downing, and welcome to PowerTips Unscripted, where we talk about tips, tactics and techniques to help you build a strong, profitable remodeling company. I’m really excited about our episode today, Mark. This is my co-host, Mark Harari.

Mark: Hey, everybody. I’m always sitting right across from you, but yet you forget I’m here.

Victoria: I know it’s funny, I know I don’t forget you there. I just forget to introduce you. There’s a difference there. So I guess I did get it. Just a half step late. Okay, so what do you think about this episode today?

Mark: I’m very excited. I’m actually intrigued because it seems to go completely against common sense.

Victoria: You know, it does a bit, but I tell you, this is a topic that I’m hearing bubbling up over and over and over again. Why do you think that might be?

Mark: Well, the big buzzwords transparency these days, right. So, this is totally falling into that.

Victoria: Yeah. And, you know, in addition, I think it’s one of those things that as we go through the evolution of life and technology and so on, so many there’s so much more information out there for homeowners to get their hands on. So by using this method, you know, maybe it helps make more sales. I don’t know, we’re going to find out.

Victoria: Here we go. In 1988, Josh founded BOWA, along with his college friend Larry Weinberg, as a leader of Boeing’s sales and marketing team. Josh helped to quickly grow the company’s revenues from $250,000 to nearly 40 million in just 20 short years. As Chief Revenue Officer Josh is focuses on growth and managing an energetic, productive sales team recognized nationally as an expert in the industry.

Victoria: Josh is quoted regularly in publications including The Washington Post, Better Homes and Gardens, and Remodeling Magazine, and he speaks at many industry meetings. So Josh, welcome and thank you so much for being here.

Josh: hi, Victoria. And, delighted to be here. I’m excited about it.

Victoria: You know, it’s kind of interesting. So we’ve known each other for such a long time. I remember when you were probably doing back in the days, 3 million. 4 million, that sort of thing. Probably didn’t really. It was not that long after you started, I guess, because I had been darn close to 40 years ago or 20 years ago.

Josh: Yeah. No, I mean, our company is, 30 years old now, and you can tell I’ve known you for most of, both of our careers, I suppose.

Victoria: Yeah.

Josh: We’ve grown together.

Victoria: So thanks a lot for doing this. You know, I when I originally contacted you with the thought of you being a guest because I knew you’d be awesome on whatever topic, we had a brief discussion about the whole idea of cost plus pricing. And you told me that you’ve been using it for a very long time. Yeah. So I wanted you to share some of that because it has been bubbling up and so many people don’t understand it.

Josh: Yeah. Well, I think as, as, Mark kind of pointed out, it’s it’s becoming a little bit more in vogue and people are starting to think about it a little bit. When we started doing it 30 years ago, it was probably even more of a differentiator. but as you guys know, it’s one of those things, you know, pricing and understanding, pricing is something that frightens people.

Josh: And when you’re using an open book, sort of approach, our strategy is that it really demystifies that for folks.

Victoria: So when you’re saying when you’re saying for folks, are you saying for the remodelers or for the clients?

Josh: A homeowner? I’m sorry for, for the clients. Oh, we always do like things cost, but yeah, but they don’t. And instead of having everything sort of, you know, behind the curtain, it’s sort of mystery numbers. We use this approach to sort of demystify it for them, to explain to them, exactly where the numbers are and exactly how any of their ideas, affect budget.

Josh: So it sort of puts us both on the same side of the table. We’re both working together to understand the program and what’s driving costs.

Victoria: So let’s start out let’s make sure everybody’s on the same page. Would you define cost plus pricing. And is that a is that exactly what you call it in your company. And B then define it.

Josh: yeah. we get to say cost plus or we, we actually use the term often time in materials plus. But you know, I think it means the same thing. And you know, it’s an approach. I say now we use it more for we use a cost plus more for our larger jobs, more sophisticated jobs. versus a slide, just as we said, to do still fixed price.

Josh: So cost plus is, you know, the way out. The way we define it is defining cost and the cost to define in sort of gap terms, meaning what what an accountant would determine would be the job cost of the job. And then there’s a certain fee that that we apply to it. And everyone see is going to be a little bit different.

Josh: There’s different strategies for that. it’s going to certainly depend upon your markets, depend on the size of the job. It’s going to depend on the complexity of the job. But we show that to our clients.

Victoria: Do you have because you’ve been deal with that so long? I’m sure you’ve talked to other people. Do you know what a decent range would be for that fee? Like anywhere from, you know, 10 to 30%? I mean, what’s the range?

Josh: And typically it’s a great question. And the answer is it varies a ton. And a lot of it depends on how the, what you determine to be your costs. you know I think it’s critical to understand your business and understand the kind of margins that you need. Right. Successful. So it’s, it’s you can back into that a number of different ways.

Josh: But you need to come up with a structure that works in terms of it, so that the fee makes sense to give you a reasonable margin, which we all need to stay in business. So I, you know, I’ve, I’ve seen a 15% difference, maybe a 20% chance, variation. But the bottom line may be close to the same because some people, define cost differently.

Victoria: So one of the ways that people define cost differently from my understanding is in their in-house labor rates, right, where some people will charge a straight cost, you know, wage plus fully burdened right. Others will add a margin to that in-house labor as well.

Josh: But I, I don’t mind sharing you our, our strategy with that is and we do the latter. In other words for us whether we’re doing it, it would we should be charging a market rate for let’s say a senior carpenter. So if you outsource to senior carpenter I don’t know the number. but just by way of example, let’s say in your market the senior carpenter charge is $90 an hour.

Josh: That’s the number that should be used in my view, regardless of whether it’s in-house or something that you’re subcontracting out because that’s the market for that person. No that’s just one strategy. You could have it be less than say that’s a big bonus. You know that’s actually discount there. But then your fees gonna have to be higher because you need to make a fair margin.

Victoria: Right. Okay.

Josh: So and then when you do what I just described, what you if you, if you start to figure this out, that the amount of particularly in-house labor that you have to drive profitability.

Victoria: Quite a bit. Yes, I would think so. Somebody’s thinking that they’re charging the right margin has to really keep that in mind and not compare themselves to a company that’s doing it differently, because they could really mess up their margins badly.

Josh: So. Right.

Victoria: So how I know you, you started out by talking a little bit about putting yourself and your customers on the same side of the table. How do you present this idea to clients and what’s their reaction and how do you avoid. This is a three part question. Yeah. It’s something that we try to avoid here. Well I’ll stop there.

Victoria: So, you know, how do you present it. What do you see the benefits. And then I’ll come back to question three.

Josh: So obviously it’s the kind of thing obviously we’re quite comfortable with it after after so many years and we’re not apologetic about it. And we, we show them our numbers. So it’s whatever we’re expecting to pay our plumber. It’s that number of whatever we’re expecting to pay out for our clients is you’ll see that and the question that we often gets, I think you probably ask if I didn’t jump out there is, you know, hold on a second.

Josh: How are you making your fee on, you know, appliances, by way of example. And my when someone asked me that industry, my response is, how are you? Not you know, it’s just a different way of looking at it. But but I think people give away just because they’re not used to, having the right answer and explain to people, look, I need to make a margin on, on that subzero refrigerator because, you said I’m installing it if something goes wrong, and at least I’m going to be repairing your floor, and, you know, it’s all part of how we run our business and build our business.

Josh: And that’s all part of our pricing structure. So I have this very little, once we really explain it and we understand that’s the business model and that’s how it works, we get very little, very little pushback. In fact, people embrace it. They get it.

Victoria: Now, you said earlier that some of the you’re selling some of your smaller projects on a fixed price, right? So why do you do that? Why do you not do everything in the cost plus model?

Josh: That’s a great question. I think it takes a little bit more time. You have to be a little more accurate, on a cost plus. And, you know, on a on a kitchen renovation or a kitchen master bath, a lot of times you kind of know the numbers ahead of time, but maybe you have a head of subcontractors out there and it’s just it’s a cost plus tends to be more meetings and more education.

Josh: Yeah. And that sort of thing. Okay. so yeah, we, we do both and sometimes we have some clients just saying, look, in my mind I like cost. Plus I don’t want any incentive for anybody to be cutting corners. I really like the idea of being able to change things and not feel like I’m going to get I got a change order, but it’s not going to be anything that’s going to, and be comfortable with that process so it can work for small jobs.

Josh: Also.

Mark: So Josh, just to clarify, so you still do a, a contract upfront, right? This isn’t an ongoing open ended deal.

Josh: Correct.

Mark: So so are you. Well, so then are you I mean, so if, if things if there’s a huge, massive swing in like the commodities market or something does that, is it something that works in your favor or is the contract the contract.

Josh: So again it’s an a cost plus scenario the the risk of going over budget lies with the homeowner.

Victoria:

Josh: Versus with Austin if it, if it’s fixed. So if there were sway and for whatever reason or if quite frankly if we missed something in the budget and it’s just wrong, that overage is going to be charged to the homeowner because they’re varying the risk. It’s it’s a, you know, it’s as good an estimate as we can get.

Josh: And, yeah, we tend to be quite accurate. And believe me, it it NE I’ll tell you this, it needs to be accurate. If it’s not accurate by very much, you’re going to have an unhappy client and then you’re going to be still dealing with excuse you ought to be dealing with.

Victoria: Okay. All right. Great.

Josh: So it’s not it’s not permission to not spend time getting very very accurate numbers. You still need to. It’s just more of an an approach to business.

Victoria: Do you find that this is more appropriate or more appreciated by a certain type of clientele or a clientele that is dealing with a specific type or size of project?

Josh: The more complete, I would say there is a, a greater argument to do this sort of kind of contract in a more complex sort of project. So. So the harder it is, the harder the more moving parts, the more difficult. it’s going to be even more appropriate for a cost plus. And now we may say, look, you know, this is homeowner.

Josh: There’s two ways we can do this project. I can do it at a cost. Plus, we understand that there’s a lot of things that are going to be pretty difficult about this, and I’ve done my best to estimate it, but I don’t really know where it’s going to be. I think it’s going to be here. We can move forward on that basis if you feel comfortable and it may be a little bit more, maybe a little bit less.

Josh: If you want me to be positive, it’s not going to be more than this. I’m going to increase that number because I can. Someone’s going to bear the risk. And if I’m going to bear the risk, I’m going to charge you more and the risk is on me. Okay. So that that’s the sort of conversation that you’re going to have based upon the kind of job you have.

Josh: So very high complexity, high risk may lend itself more to cost plus.

Victoria: And again, that then translates directly to the clientele, I imagine, because the bigger the size, the more complex, the more money, the more money the homeowner had to have in the first place. Which means they probably have a high powered job and are more affluent.

Josh: I mean, I mean, that we’re in the luxury, market. That’s generally where we are, but it could be a smaller but very complex job.

Victoria: Okay.

Josh: You know, where there is structure of, of temporary supporting a house or there’s we’re opening things up and that, that sort of thing. So it can just be complex versus you know, very large. Okay. But our industry is I mean, just to be clear, we’re in this, you know, within Metro to watch the area we’re in that sort of luxury market.

Victoria: Okay. All right. Great. So are there. We know we have to be super accurate estimating. You know, you’ve got to be comfortable enough that you understand the cost of the job. What are some other must must do’s to make this.

Josh: Work a pretty sophisticated sales force.

Victoria: How do you mean?

Josh: You need people who are experts in remodeling who understand the numbers, who, can get people comfortable because, you know, this is a different sort of approach, and they need to be do they need to understand what’s behind all of these numbers that everyone’s on the same page. So I think it’s not for the faint of heart. It’s for people, you know, been around a bit.

Victoria: Okay. Okay. So what else? We got the margin. We got accuracy. We got sophisticated salesperson.

Josh: Let’s see here. you know, I think you your whole approach has to be, that your client advocate, you know, that that you have that so it’s a team approach and that that’s part of that’s why this doesn’t work for everybody. If there’s someone who thinks that that if we can’t build the right amount of trust, if we don’t feel like we’re both on the same page, if we don’t have a good communication between all the parties, that maybe cost plus isn’t right, because it’s setting you up for a lot of questions later.

Josh: And obviously in a fixed price. We all know before we start what we’re going to get paid. so part of it is just understanding risk and making sure the clients understand risk. And, you know, if someone if a project is over budget 10%, they’re going to be devastated. It’s gonna be very difficult. And it’s probably, you know, this may not be the right approach today.

Victoria: Okay. That makes sense okay. So flip that around. Yeah. You’ve been doing it a long time. You’ve got it dialed in. But as you were starting to use it what did you see. Some of the pitfalls being.

Josh: the biggest pitfall is not being good enough. Salesperson okay. Not being able to demonstrate value and demonstrate that we earn our fees, you know, and so because, you know, the fees are out there, how are you? You know, and holy smokes, you’re making this amount of money on this project. That seems like a lot. How do you know how you deal with that and make sure that you’re demonstrating value and and also making sure the clients, you know, everyone wants to sell it.

Josh: They’re getting getting very, very good value, that you’re shopping subcontractors, that you’re getting the best pricing. So you need to not only be able to do that, but communicate that and so that they trust it’s really based on trust right.

Victoria:

Mark: How do you guys typically come in when you when you’re competing against someone else for the same project. You guys.

Josh: Were higher.

Mark: You’re higher.

Josh: Yeah.

Victoria: No you still sell a bit for the company. Is that correct. Are you out of that role now.

Josh: I do I like to try to be doing one project at a time okay myself. So I mean I go out with other folks a lot and help trade. but particularly people, it’s just I was just out yesterday. It’s a particularly interesting project. it tends to be larger. I like to sort of keep one, do my hands, dirty and one project at a time.

Josh:

Victoria: So why do you think that more remodelers are not using this model?

Josh: I think we, you know, you probably heard the term, but I call it head trash. I think a lot of Remodelers aren’t comfortable communicating the kind of thing that they need to be professional and be successful and and have profits that make sense to them. I think that’s the biggest and you know, they don’t want to have that whole conversation.

Josh: and again this is more work if you’re so it’s not right for everybody. If you know how much your kitchen is cost and you can do a couple line item allowances and tell me it’s going to be this much and turn that around quickly. It’s, it’s a, it’s a lot less paperwork. It’s a lot faster. So this is by no means the right process for everybody.

Mark: So, Josh, I only have one last question for you. Yeah. Are you ready for the lightning round?

Josh: Yeah. Let’s do it.

Victoria: Oh.

Josh: And now here’s a reminder. Lightning round. It’s a draft.

Mark: All right, here we go. What’s your favorite business book and why?

Josh: My favorite business book is, Five Dysfunctions of a team. And it’s we’ve actually used it in my, my company. So all we’ve used to like three different times to educate people. And, you know, building a team is always something that I think we’re we always want to be doing better at and sort of understanding the dynamics of how people work and how people communicate.

Josh: anyway, so that’s why my favorite book, and certainly one of them.

Mark: If you weren’t the co-founder of Bella, what do you think you’d be doing?

Josh: well, I’m supposed to be a doctor, so I if I didn’t do this, I would be, practicing medicine. I suppose.

Mark: What are you not very good at?

Josh: Let’s see, my first serve is in tennis. Isn’t as good as you.

Victoria:

Josh: Well, I’ll tell you, a boy is not very good at. We’re not very good at small jobs, okay? You know, we’re not fluid enough, and we’re not fast footed enough to handle smaller projects.

Mark: Your room, your desk or your car. Which do you clean first?

Josh: My desk. my desk is generally always clean. My room is mostly clean, and my car is generally in need of clean.

Mark: How many pancakes do you eat in a year?

Josh: Let’s see. I’m going to go with, 11.

Victoria: Very specific.

Mark: If there was a movie about your life, who would play you?

Josh: An old bald guy? Okay, so.

Victoria: All right. Thanks, Josh. Hey, you know, I was going to ask, would you mind sharing how many employees do you have right now?

Josh: I think we have just under 80 employees right now.

Victoria: 80. And how many salespeople do you have?

Josh: eight.

Victoria: All right. Wow, that’s a pretty big average per salesperson, isn’t it?

Josh: Yeah. All right. Yeah. We have we kind of have all stars. And you know, they they do focus on bigger projects. But, you know, we’ve got really, really strong salespeople and they, they do a good bit of work.

Victoria: If you don’t mind sharing, what’s your average job size? Would you say?

Josh: Let’s see. we’re going to do around it depends on what you, what you just define as job. But like like just say 5 to 600 grand.

Victoria: Okay. All right. Great. Thank you so much for doing this. Now, you know, people can go to your website and look and see BOWA and see how you present yourself though. Dot com.

Josh: Is it. Yeah. It’s Broadcom and if they would ever want to email me Josh Josh at Viacom and I’d be delighted to you know chat with anybody.

Victoria: That’s very nice of you. You’re going to be besieged by okay. So last little bit before we let you go, would you please share your five words of wisdom with our audience?

Josh: Share my five words of wisdom like you’ve done a five. all right, this is a couple more, but make sure you charge professional fees for the professional work that you do.

Victoria: Okay? Yeah, a few more than five, but good. Good nonetheless. Great sentiment. Something that these remodeling company owners never can hear often enough, right?

Josh: I think so, yes.

Victoria: Thank you so much for doing this was awesome and very educational. I appreciate it.

Josh: Yeah, I’m honored to, been called in, I hope was helpful.

Victoria: Thank you. Certainly was.

Mark: Fired.

Josh: All right.

Mark: That was great.

Victoria: You know, you one thing you got to like about him is he’s just laid back confidence. You know.

Mark: It’s just kind of like me.

Victoria: Yeah.

Mark: I try to say that as often as possible. Maybe something I’ll stick at some, but, Yeah. No, he’s he’s fantastic. He’s great. And, you know, it just seems, you know, it’s, interesting is just the position of being the client advocate. Yeah. Like it’s this isn’t a a competitive situation. We’re on your team. We’re not. We’re not opposing forces fighting each other in this process and and embracing that to make this thing work is kind of cool.

Victoria: I think one of the things that remodelers who are thinking about this model really have to be careful about is are they using that market rate for their labor, in-house labor or not, because that has a huge effect on profitability. So while it’s a fantastic concept in theory, you have to plan it out. And like Josh said, you have to be super accurate.

Mark: Yes. It was really interesting. I wish he could have done the five twist on, we could institute the 50 words of wisdom for Josh the 50. What are your 50 words of wisdom for our listening audience?

Victoria: And in the meantime, we know we’re going to have him come back again.

Mark: Yes. That’s even better to have him back on here. It’s fun.

Victoria: Hey, this is a great episode. Another one in the can. Thanks for being here, everybody. I’m Victoria Downing.

Mark: And I’m Mark Harari. We’ll see you next week.

Victoria: Bye.