Mark: Today on PowerTips Unscripted. We talked to Mike Medford, senior president of Medford Design Build with offices in Arlington and Colleyville, Texas. Something we preach here at Remodelers Advantage is the business owner should be hitting a nice net profit after you’ve been paid an above average salary. Now, when the economy is booming, you can get away with a lot.

Mark: Some will even hit that net entirely by accident. But this isn’t a one and done proposition. Your goal is to achieve consistent and healthy net profits. Year after year in any economic climate. And Mike is here to let you know just how to do it.

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. And I’m here with my co-host, Mark Harari.

Mark: Yes you are.

Victoria: So it’s the back after the holidays. Ready to rock and roll here. Ready to talk business one of our favorite things to do.

Mark: Yeah. And the best part? Profits.

Victoria: Yeah. You know, it’s it’s so wonderful when you see companies that have figured out how to make profits consistently. I mean, that’s what it’s all about. That’s when the rewards really start to add up for you. Yeah.

Mark: Well, they say, you know, even a blind squirrel finds another one. But you know, if you can do it over and over again, you know what you’re doing.

Victoria: You know, so I’m really looking forward to this particular guest because we got talking at one of our conference, I think it was at one of our summits that we do every fall. And it was it was just a great conversation. It was just so exciting to talk to somebody who really feels really sounds like and acts like they have their, their stuff together in terms of how they make money in this company, how they make this business work.

Mark: It sounds like it’s a good guest to have had is.

Victoria: All right. So let’s get started. So today I want to welcome to this episode Mike Medford senior again. He’s the president of Medford Design Build in Texas. And I’ve known Mike for a long time. But I finally had this great opportunity to get into this conversation with him about making money and profits and that sort of thing. So as we got talking, I got more and more excited about having him on the show.

Victoria: So welcome aboard, Mike.

Mike: Thank you, Victoria, I’m glad to be here.

Victoria: So tell me a little bit about your business. How long have you been in business?

Mike: Well, I’ve been a contractor since 1977. And, it’s it’s a long and storied career. the particular the the Medford design build. we started this 1 in 2007, and that’s when I partnered with my son. And, we started remodeling business. and then in 2014 is when we became university members, and that’s where we, branded ourselves as a design build firm.

Mike: And we’ve learned so much from you guys. And it’s been it’s been an awesome, relationship.

Victoria: Good. I’m glad to hear that. And now you’re going to be returning the favor to all these listeners. So let’s start talking about profits. So one of the things that you talked about was profit margin. What do you mean by that? And, you know, how do you create that?

Mike: Well, you know, there’s always talk about financial modeling, which is a, an abstract grasp representation of reality. And, and those models get really complicated. And I’m always trying to simplify things and, and make it easy to understand. And so in the when I look at profit, obviously you have revenue. But then the three numbers that are critical are the, gross profit.

Mike: Your, operations cost as a percentage, of the, revenue and then your net profit. But those three numbers, the, the, gross profit, the operation percentage and the, net profit. You know, they they, they just are always fluctuating because, you know, if your revenue changes, then your, operation percentage goes up. and if you don’t have good estimating and good, job control, your gross profit can fluctuate.

Mike: And it’s it’s always a flux. And, so, you know, I’ve always looked at those three numbers and, you know, the go to, model is making sure you have at least a 30% gross profit, spend about 20% on your operations, and then bring home a 10% net profit. And, you know, the the biggest gift that you guys gave us is when you published the, the metrics of the top 10% of the round tables, companies.

Mike: And when we saw those and we were already tracking towards those numbers. But, you know, it kind of changed that model from a fluctuating model to a fixed model, because those became the numbers. so what I did when you publish those, I added a couple of points because I figured that’s the, the average of the best.

Mike: I want to be the best of the best.

Victoria: So that’s good.

Mike: Information and got the team together in our quarterly meeting. you know, so these are these are hard targets. Now, you know, we better figure this out. So it’s it’s a matter of getting those three numbers and balance and, and trying to figure out how to get them to be a fixed target and not a moving target.

Victoria: Well, so, wonder, give me a couple of specific things that you did to start to achieve those tough goals.

Mike: Well, the you know, the first thing that we did is we, the design team and the administration team got together when we really tightened up our estimates. We automated a lot of it. we do all of our estimating on, Excel spreadsheet templates that we’ve built over the years. We really we really brought those, to a much better place where it wasn’t allowing for slippage and we could identify, where money was going out.

Mike: And, and then the other thing that we did is, we, you know, we’re always talking about process, process, process. And so I took an Excel spreadsheet and I, you know, put our process from like, a critical path, you know, from the inspiration to the marketing to the, design to production and administration all the way down to profit in a straight line down the the spreadsheet and then to the left of that, the manager is blocked off on which area that he has.

Mike: And then to the right of it, the person who owns that task, you know, we, where multiple hats, like most small businesses do. And, and so this, you know, becomes like a prophet code, because if that if that critical path isn’t working right, then, you know, you’re not going to spit the profits out. And so it’s working really bad and just company.

Mike: So, so what we do is we like that we made the, the, the template out of our process and went through and made everything that we could do better or had an issue. We we made it read. And so that that’s gave me something to do is to go and help the manager or the person owns that task to fix those things.

Mike: And it was, you know, like in marketing, making sure that we weren’t doing marketing, that wasn’t giving us an ROI or some long term branding. in the design, process, you know, the estimating was, we fixed a lot of that. And then the production guys, we’ve got a really strong production team. My son runs that, and I try to stay his hands off, and I was just challenged, and I said, you know, you guys are spending 70% of the money, on labor and cause you can find this 4 or 5%.

Mike: And they they started listening to Tim’s podcast and all of that. And. That’s right. and and we’re very open book and, a good percentage of their income is out of the profits and, and quarterly bonuses.

Victoria: So,

Mike: Charge them just 100 little things to really tighten it up, to make sure that, we’re running the best that we can.

Mark: Mike, what’s the, Just a sense for our listeners, what’s the size of your company? How many employees?

Mike: We’re pacing. 2 million. this year, a little over 2 million. And we have, ten employees, including our, four legged stress control managers.

Victoria: that’s a nice. We’re looking at a little dog bed in the background here. Yeah. That’s cute. Yeah. And do you, Mike, do you work in the company as well as on the company?

Mike: I, I try not to, you know, the the management team is tasked to keep me away from the clients and the and the the jobs as much as possible. I get involved in the larger projects. I do the structural design work, my backgrounds, all the structural stuff. And so I get involved in the design end of it.

Mike: on the bigger jobs. And then I go to the background and, don’t go back out to the projects until they’re finished and see the finished project.

Victoria: Nice. Okay, great. So there’s a little bit of a luxury that you have to have. You who obviously is a process minded person that has some of the time to focus on a lot of these little improvements and, and manage it throughout the organization as well. Would you say.

Mike: That’s that’s really important? And and it’s and that’s one of the reasons you want to get your profit up so you can afford to do that. Yeah.

Victoria: Yeah. That’s great.

Mike: If you’re only running a, a 10% or less net profit, it’s really hard to grow. You don’t really it’s really hard to have the money to hire good talent. And, so we’ve, really worked on trying to keep the profit level up so that we can have good talent and so I can stay in the background as much as possible.

Victoria: So, you know, you have to have a culture in which everybody is focused on profit. I would think.

Mike: Absolutely.

Victoria: So how do you create that? How do you drive that desire through your team?

Mike: Well, I call it a profit centric culture. And and that’s all we talk about process. We don’t we don’t talk about revenue, especially in this market. We don’t need to, but everybody, is tied to the bottom line, and everybody’s income and bonuses are tied to the bottom line. So, if we have, quarterly, meetings with all the management team to, review the numbers and, and, and bring up the issues, and, but it’s just, it just always, you know, profits, you know, profits are not a dirty word.

Mike: And we we keep it on the forefront. And and if we don’t have a profit, then, we can’t, we can’t survive. And and so it’s just, it’s just the main thing that we do and focus on.

Victoria: Could you tell us a little bit about the bonus structure that you’ve just referenced a couple of times, and how you have set it up? So I’m assuming there’s smaller salaries or, compensation from an overhead point of view or cost of goods point of view, either one. And then you give these bonuses. You tell us about that.

Mike: Yeah, sure. the, all the employees are on salary. the field guys are hourly. but the the some of the staff or salary, but they’re. And the is enough for them to make a decent living. but what we do is we have them focus on the gross profit. And so, when a job’s every quarter, we get, we compile the jobs that are, finished, and, we have a sliding scale.

Mike: And so they get a percentage of the gross profit. And so the, you know, we have a we have a target that we try to hit on the job. And, if they hit that target and they get a percentage and then it’s a if we exceed it, then their bonus percentage goes up. And and if they miss it, it goes down.

Mike: It goes to nothing pretty quick. If it gets if it gets too low.

Victoria: As it should a yes. So if you’re looking at a one of an average of your employees, how what percentage of their salary is potential for them in a bonus?

Mike: 20%.

Victoria: Okay. Nice.

Mike: Yeah. Because I, you know, where I look at is is 80% of their money should be, you know, pretty well guaranteed to them. So they’re not having to lay awake, you know, worrying about paying bills and and, and, you know, and I, and I always tell them not to use the bonuses to change their lifestyle. That should, you know, strictly be a bonus.

Mike: And, you know, I encourage him to say he’s in banking. I always warn him about the next recession.

Victoria: Yeah, yeah, we always got to watch out for that. So you talked about, you know, how we ask all of our guests to give us some ideas on questions and so on, and you have one here I thought was very interesting is what is the art of contract writing?

Mike: Well, you know, I think that the contracting has really phased out of the business. The focus on contracting, it used to be that, you know, guys like us were called contractors. And, you know, now we’re designers and builders and all these and, and, and, you know, again, you know, 60 to 70% of the revenue is going out, on contracts, I mean, every, every year, if you do a big kitchen, you may have 100 contracts and some of them may be handshake deals, some of them work with attorneys and, you know, but, you know, the people you hire, the, you know what?

Mike: You pay them how you pay and how they’re going to do it. You know, you have all these agreements and, and, and I look at that very seriously. And I, I just I go through and I make sure every agreement is the best for everybody and, you know, is it’s good for the client, it’s good for the guys working on the project and it’s good for the business.

Mike: And, and, and the other the other part of that is, is that, you know, you have to build to get excellent profits. You have to have an excellent team and that excellent process. And, I think that, you know, you got to do better than everybody else. And, and so the art is, you know, figuring out, you know, what it, the market will bear, and what people charge for the say and kitchen and do it better than everybody else, you know, so if, if, you know, if a kitchen’s $50,000 in, let’s say, a 30% gross profit, which is $15,000, well, you know, if we’re bigger, better and faster and we get

Mike: it done and get a 40%, you know, we shouldn’t penalize ourselves for that and, and try to cut the cost. That should go straight to the bottom line. Right. That’s that’s that’s what we focused on okay. I just think that I just think that the industry has kind of lost the focus on, on contracting. And and we talk about a lot around here.

Victoria: Okay. Great. Good. Thank you for sharing that. Now you mentioned a few of the metrics that you follow gross profit overhead percentage and net profit. Are there other metrics and how do you how do you present them to all of the team? You know, how do you communicate that throughout the organization?

Mike: Well, we we graph everything. I think I sent you a graph of our, profit percentage, but we, we we measure the incoming leads, we measure the closing ratios, we measure the the cost of goods, marketing, operations expense, and then the net profit. Okay. And and all of those are on graphs because, you know, one of the issues that in the past is, you know, when you’re really busy and you have a really good month, you know, well, is that was that an anomaly or are you really busy and, and a few graphs and, trend lines on it.

Mike: You know, you can tell you can tell if, you know, if it’s a blip or if it’s trending in the right direction. But our charts have, their bars for what we’re measuring, and then we have, three, six and 12 month trend lines on there. And so with, you know, the three and six month trend lines are on the bottom side of the 12 month trend lines.

Mike: And, you know, they’re pointing down, you know, you’re going in the wrong direction, right? If it’s, something that you want to go up, but the the team seems to be able to understand the numbers better with the chart.

Victoria: Okay. That’s good to know.

Mark: And how often are you reviewing that with the team?

Mike: every, every quarter. Every three months. Okay. We, this is we used to do it monthly, but as we got into bigger and bigger jobs and our most of our jobs now, you know, last two, 3 or 4 months. So, it it’s just better to do a quarterly, but we’re all that we’re on top of and we’re forecasting into the next quarter, and we’re looking at it internally every month or every week at times.

Mark: And so who’s responsible for for all the the data is it is any one person compiling everything or do you have like the person in charge of marketing putting that together and so on and so forth?

Mike: No. Or administrative man or administrative manager does that. Okay. they bring in the, when they download the numbers out of the bank account, we’ll put it into QuickBooks. And then we, we run basically two sets of books, one for cash flow and one for accounting. And the administration, manager does that.

Victoria: Now, you had mentioned that you’re very open book. Do you think, first of all, do you think that that has had an influence on your profitability? And second part of that question is, can you tell us a little bit about how you do it and what information you share to what to what degree?

Mike: Oh, it’s absolutely makes a difference. Because, you know, again, if you want a profit centric, culture, you know, you have to show everybody how it works. And, and, you know, they go. So we basically show them the key metrics, you know, that that, you know, they don’t get to go through the checkbook or anything like that. But, but we they, we are open book with by showing them the graphs of the key metrics.

Mike: And it has the the dollar amounts and the percentages. But, that’s, that’s the only way I can see to make it work. If, if you want to have a profit centric culture, how long?

Mark: So you said, really, you kind of had a turning point, where you saw the top 10% metrics at around tables means that, okay, now I got something to shoot for. And then you had an all hands on meeting. How long did it take before you started to see an impact from from that initial meeting to numbers pointing out it.

Mike: Was I mean, the very next quarterly meeting, we saw everything rise. And it was it was an immediate effect. Nice. Because everybody just, you know, dug in and and really figured it out. And, and like I said, we were we were already trending that way, but it just it just kind of gave us, an extra boost, seeing those numbers.

Victoria: So once your people got sort of got their arms around it and started making things happen, can you think of, like, from the production department, for example, a couple of things you talked about and those little, many, many, many little changes. Can you think of any specific changes that had a big impact in the production side of things?

Mike: Well, the the biggest impact was the doing the handoff. And we learned learned that from you guys is that we, you know, we weren’t doing our handoffs very well. we were basically, you know, getting the plans and everything together and just giving it to the production guys and saying, here you go. But but now we’re taking Tim’s advice and we’re taking them out to the jobsite, walking it through, and, and, they’re just hitting the ground running a lot quicker that way.

Mike: And they’re, and we’ve talked to them about planning, and I believe that, the runs to the lumber store and the efficiencies are a lot better than just.

Victoria: That can save a lot of money, can’t it?

Mike: Oh, yeah, it really is. People driving around. It’s just the windshield. Time cost a lot of money.

Victoria: no. So when you are estimating a job, are you building in time for these people to plan? Like, I think Tim used to say a half an hour a day or something like that for Lee Carpenter when they were on the job?

Mike: Absolutely. Yeah. And that’s another thing we learned from you early is that, making sure that the cost of goods included everything that that that job needed, which includes project management time, planning time. Good. That’s that’s that’s on the line item right next to the design time.

Victoria: So do you have a rule or a guideline for moneys that you keep in the business, like a rainy day fund and emergency fund, cash to cover overhead for a while, that sort of thing.

Mike: That’s yeah, that’s another thing we learned from years after we started the vault, you know, and, and we peel off 5% of every, every deposit, we put 5% in that. And, you know, we’re not allowed to touch it.

Victoria: Good for you. So if you were to look at that amount of money right now, how much like here I try to strive for 4 to 5 months of overhead covered.

Mike: Yeah. That’s it. And we we try to keep six, six months as my rule with,

Victoria: All right.

Mike: take our operations cost, you know, our true overhead. and, and then figure six months and that’s how much we try to keep in the vault to, just to keep us, protected from a downturn.

Victoria: So do you if you’ve been through this even longer, nine months, through this. So, you know, there’s cycles in this business. So we know there is going to be another downturn coming. Right? I’m here in different time frames. We no one’s coming. Do you have a plan on how you’re going to maintain your profit ability? When that happens you.

Mike: yes. you know, the downturn is inevitable, but I think it’s going to be the end of this year and into 2020. nobody knows how deep it’s going to be. But, you know, some of the things that we do is that we, we have a very strong marketing arm, and, we turn down a lot more business than we accept so that that will help, you know, that that buffer will will help in that.

Mike: And then the other thing that we did, last year, the year before, is we, branded a handyman division.

Victoria: I saw that Mike’s guys. Yeah, yeah. That’s great.

Mike: Yeah, yeah, my son’s name is Mike also, and he’s, you know, he’s got a phone. Was, you know, about 100 guys that are the best of the best. And, so what we, we tell our clients is, is any time you want to do anything to your house, I mean, it’s, you know, for the kid, pops, you know, the hole in the drywall, or you need a, you know, furniture fit together or whatever.

Mike: You know, we can do that for you. So we just try to get them to call us first, and then, then we can either give them a name and number or we can go out and help them. But we’ve got a young guy that’s running that for us now and doing a fantastic job.

Victoria: Oh that’s great. You know, I find that that’s a challenging, service to offer and make money. But is it a profit center for you as well?

Mike: Yeah, that’s see, we’re a little different on that because, as as we, the guys that are with me and have been with me forever, for a long, long time. And we’re all we’re all framers and and trim carpenters and things like that. So we’re, you know, a really true handyman type of guys. And, as we got bigger, you know, we noticed that we were getting as many of the smaller jobs and, and we actually make our best money on 5 to $10,000 project.

Victoria: Okay.

Mike: Because these guys are so good and they can bang them out so fast and, so, one of the reasons we did that was because, you know, as you you do the bigger jobs, you have to you have to reduce your gross profits. And if you you can’t make the same money on a $300,000, same percentage on a $300,000 job as you a 5000.

Victoria: Right, right.

Mike: So we’re, we’re pumping up that arm of the business so that, when the big jobs start, if and when the big jobs start falling off, we can put more, energy into the, the smaller jobs and make a bigger percentage. And so that that should help. And then also, as we’ve been growing every, every step of the way in our growth, we make sure that, that we can scale it down quickly.

Mike: Any, you know, anything that we’ve done to, and take on overhead or employees, you know, it’s it’s all set and ready to pull the plug on it. You know, when I hire somebody, I just, you know, so if we have work, we’ve got work in, you know, we don’t we don’t keep anybody around that isn’t, productive and, and, day to day, we just, expanded our office space, and the landlord, gave us, just we could go month to month on that, you know, just just things like that.

Mike: Just, as you grow, just keep in mind, can retract and make sure that you can scale it back as quickly as possible.

Victoria: Okay. That’s very cool. So.

Mark: So, Mike, I only have one more question for you. Are you ready for the lightning round?

Mike: Sounds electrifying. Let’s.

Victoria: Oh.

Mike: And now here’s the Remodelers advantage. Lightning round.

Victoria: It’s a tri.

Mark: Okay, here we go. Let’s put 30s. Now. Let’s put 60s on the clock.

Mike: Okay, man.

Mark: What’s your favorite business book and why?

Mike: My favorite book is no Vincent Bills Power positive thinking. I read that book in my 20s and it changed my life. It teaches you how to achieve a permanent and optimistic attitude. And and that’s the greatest tool that I had.

Mark: If you weren’t the president of Medford Design Build, what do you think you’d be doing?

Mike: I’d be a hippie micro farmer. No.

Mark: It’s great. What do you not very good at?

Mike: following rules. Assign them to be, hold me back too much.

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

Mike: My desk.

Mark: What’s the last thing you watched on TV?

Mike: Mad man.

Mark: What’s your. That’s a good one. What’s your biggest pet peeve?

Mike: Golly, I don’t think I have one. Oh, I just I just go along, get along.

Mark: hippie thing is working for you. Yeah.

Victoria: Yeah. Really?

Mark: Do you sing in the shower?

Mike: Absolutely.

Mark: What did you sing last night?

Mike: Bohemian Rhapsody? I just went and saw the movie, and I just can’t get it out of my head.

Victoria: That’s great. That’s great. Well, like. Really, thank you so much for sharing your thoughts on this. You know, I just love hearing these success stories and you’ve got your stuff dialed in, you know, so I, I really appreciate you sharing this with our group and our listeners and just, you know, taking the time out of your day to be here.

Mike: Oh you’re welcome. I’m so appreciate you guys. You guys give us so much information and it’s, it’s just been an awesome relationship. And I’m looking forward to seeing you at the end of this month.

Victoria: Now, before you go, though, I want you to share your five words of wisdom with our listening audience.

Mike: my five words of wisdom are peace, love, rock n roll. And, you know, the the thing that I learned is, like, the biggest gift I could give myself is a peaceful mind. And it takes work and, perseverance. But it’s attainable, and it’s easy once you get there. And, love. So do.

Victoria: You meditate?

Mike: Yes.

Victoria: Okay. All right. Great.

Mike: I’ve been meditating for 20 years.

Victoria: Really?

Mike: It’s it’s really made a big difference in my life. Wow. And, love, I mean, approach everything with the loving heart and surround yourself with loving people. there’s a synergy there that just attracts great things. And then rock and roll, you know, just have some fun, you know? All right. One of the greatest compliments I’ve gotten from the teams that I’ve coached and managed over the years is they always say that, you know, I make work fun.

Victoria: Oh, that’s great.

Mike: You know, if you’re not laughing, you’re not live.

Victoria: And so I like that.

Mark: That’s my motto.

Mike: Yeah.

Victoria: There you go. Is that five words too if you’re not laughing. Yeah. no, that’s to me. Yeah. That was a good one though. Well, thank you so much for being here. Greatly appreciate it. And I’m sure that our listeners are going to find this fascinating. So again, thanks.

Mike: Okay. Victoria. Okay, Mark. Thanks. Thanks.

Victoria: Bye bye.

Mark: Good stuff.

Victoria: Yeah. You know, creating that profit centric culture.

Mark: That’s cool I like to I like that is I wonder if he can trademark that.

Victoria: Oh yeah.

Mark: Profit centric culture.

Victoria: Yeah. That was good. You know, in the idea that they focused so much of their energy looking at gross profit, revenue is like not important. I mean it’s not not important, but it’s not the important thing.

Mark: Yeah. Revenue’s more of like a vanity number.

Victoria: Yeah.

Mark: And don’t you think.

Victoria: Yeah.

Mark: I mean it is.

Victoria: Exciting when you hit that next one. Okay. You know, it is exciting to hit that next threshold.

Mark: Sure, sure. But, you know, making, $400,000 net profit on $4 million versus making 400,000 on $10 million. I mean, net profits for.

Victoria: 5% on anything, you know. Yeah. Yeah. So he’s you know, he’s aiming for the higher numbers. He’s challenging himself and his team. And it sounds like they’re doing it and consistently do it. And he’s got a plan. He’s not leaving stuff up to chance it. Just love that whole attitude.

Mark: To go on. And you know he always can fall back on his happy mindset farming if things right there is a downturn apparently. What is micro farming?

Victoria: You know, those little tiny greens, those little tiny vegetables that are just like tiny? I mean.

Mark: Thanks, thanks for that description. I wouldn’t have figured that out. It’s is really tight. Is it like these little tiny corn looking things that you eat? The corn?

Victoria: No. What is it? You know, it’s baby corn.

Mark: I don’t I know it’s like the size of, That’s like two inches.

Victoria: Yeah, I know, I know what it’s like there. It’s in Chinese food. Those little.

Mark: Oh, yeah. Yeah, yeah. Like that, I don’t know. Is that micro.

Victoria: Farm. No no no it’s not, I don’t think. All right. Well, I’m not a hippie so I don’t know. Maybe it is.

Mark: Is it me or does he sound exactly like that? You don’t think he sounds like Johnny Cash? Yeah. He doesn’t like us. I don’t know, it sounds like Johnny Cash to me, man, I don’t know. All right. That’s right. Okay.

Victoria: Once again.

Mark: All right. Good stuff. We appreciate Mike being here. He he shared a lot of good insights. And, Yeah, of course we appreciate you for joining us every week. And thanks for being here. Mark Ferrari.

Victoria: And Victoria Downing. See you next week.