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May 2023 The Contractor’s Advantage
HarrisonLawGroup.com (410) 832-0000 jwyatt@harrisonlawgroup.com
A HIGH STAKES GAME OF HOT POTATO
When Projects Aren’t Completed as Promised
I’ll let you in on a dirty little secret I’ve learned from working in construction law: No project gets done on time or under budget. They either all take too long, there are cost overruns, or both. So, the owners of these construction projects don’t want to pay a dime more than they’ve already agreed to. That means when they get to the end of the project, they either try to avoid paying full price — because it wasn’t completed when expected — or the general contractor or subcontractors have incurred additional costs (due to no individual fault of their own). These mishaps result in insufficient funds at the end of the project, and not everyone can make money. That’s why on a project, owners can utilize change orders to retroactively adjust the work or cost of the project’s contract in some way. A back charge, also known as a deductive change order, is the subsequent reduction in the contract price and what someone can collect after the project. Usually, owners or general contractors issue back charges for some sort of wrongdoing. In these projects, where there are cost overruns or delays, a kind of “dance” occurs at the end of the project, with the general contractors passing down deductive change orders to the subcontractors and the subcontractors giving their own requests for additional compensation at the end of the project. Essentially, the general contractor and subcontractors are stuck jockeying for enough money to profit from the project. A significant delay is the most common nexus of problems that causes this dance at the project’s end. For example, a general contractor might promise a beach hotel owner that the project will be completed by April so it will be ready in May when beach season begins. The owner can then rent out rooms and make more money during the busy season. But then, the hotel isn’t finished until August, and the general contractor has a real problem on their hands. Usually, by this point, the owner will be distraught and issue back charges because now they’ve missed out on the prime rental season the contractor promised them.
And the thing is, delays don’t happen in a vacuum; someone is at fault. So, the general contractor passes those back charges down amongst the subcontractors and engages in a high-stakes game of hot potato, with everyone trying to pass the deductive change order to whomever they believe is the responsible party.
But the question is, who exactly is the responsible party?
On a construction project with hundreds of things happening at once, one will take the longest. That task that takes the longest, whether digging the foundation, installing windows, or electrical wiring, is called the critical path. It’s deciding who was on that critical path and who took the longest on the project, which is really the hot potato changing hands between subcontractors. If everyone determines you were on the critical path, you’ll likely be stuck with that back charge. At the end of the day, commercial construction projects can be a struggle. That’s why Harrison Law Group is here to help. Our firm has experience asserting and defending
against back charges regarding project delays or other critical path errors and negotiating satisfactory resolutions to change orders and back charge disputes. Call us at (410) 832-0000 to get started.
-Jeremy Wyatt
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New businesses often think in terms of sales rather than relationships. But your customers will only keep coming back if you value them as more than a simple transaction. You must think long-term, which requires understanding each customer’s lifetime value (LTV). Lifetime value refers to the expected gross revenue your customer will bring in throughout your relationship. Through LTV, you can understand what each of your customers is worth and forecast earnings. Knowing their LTV also allows business owners to make the most of their marketing efforts and grow their profitability. After all, it’s worth spending more to acquire each new customer when their lifetime value is high. LTV will vary widely across industries. For example, even with repeat business, clients at a roofing company will generally have a higher LTV than diners at a restaurant. Your demographic, pricing, and the type of service or product you offer will determine your ideal LTV and your room for growth. How do you calculate the LTV of your business? Different experts suggest a variety of formulas that will give you more or less precise outcomes. But we’ve included the most straightforward and most common calculation below. Start with the average value of each sale at your company. Hopefully, you already have this information on hand! (And if not, it’s time to start tracking it.) WORTH YOUR WHILE Why You Should Understand Customer Lifetime Value
for businesses that use subscriptions, but other owners can generally get a feel for how often their customers use their services. Some entrepreneurs prefer to group their customers by frequency to determine an LTV for low, medium, and high- value customers. Finally, you’ll need the average time you retain a customer. This might be the trickiest metric unless you run a subscription service. But going through old customer transactions and your sales software can help you estimate your customers’ average longevity to determine a baseline LTV. With the above information, multiply all three to determine your LTV. For example, imagine you own a diner. Jack comes in each Friday and spends $15 on his lunch for 10 years. You would calculate Jack’s lifetime value with the formula 15 (dollars) x 52 (visits per year) x 10 (years) for an LTV of $7,800. Meanwhile, if your average diner spent $30 and visited two times per month for five years, your average LTV would be $1,440. Note that LTV calculates revenue — determining profit is a different matter. But LTV will help you decide whether your customer acquisition cost (CAC) is too high (or, perhaps, whether you can afford to spend a little more). Calculating LTV will also help you learn which customers offer the most value and then develop ways to keep them happy. Finally, you can only fix a problem once you realize it exists. Perhaps your LTV isn’t as high as you’d hope — but you never know you need to improve unless you start crunching the numbers.
Next, determine how many transactions your typical customer makes. This information will be easier to locate
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RESULTS START AT THE TOP SETTING UP YOUR SALES TEAM FOR SUCCESS
Is your sales team not getting the results you’d like? It’s easy to criticize their performance, but success starts at the top. Your sales team needs leadership, guidance, resources, and training to succeed. Here are some areas where your business may need to step up to the plate to improve sales numbers long term. Onboarding Before a sales representative can be successful, they must understand what they’re selling and who they’re selling it to. That may seem shockingly simple, but countless companies get it wrong, with 66% of the top-performing sales organizations reporting that they struggle with
customer base, value proposition, and offerings. Otherwise, they’ll try to sell the wrong things to the wrong people. Resources Your sales team shouldn’t stop learning after a few weeks. Sales is a complex field, and new issues arise all the time. Where can your reps go for help, and how can they find solutions? Your team needs mentorship and participation from management; nothing will doom your company faster than employees who are afraid to ask questions. Every business should also invest in its sales playbook as a comprehensive guide. Unfortunately, only 29% of surveyed companies say theirs is accurate and updated. Expectations No one can live up to your standards without understanding
should be unambiguous. Think carefully about what you expect before you announce it. Transparent expectations motivate employees, but shifting goals demoralize. Expectations will change over time, but adjustments should be rare and clearly communicated. Further, ensure your team knows why the change is happening so they can feel like a part of the company’s new vision. Feedback Don’t leave your sales reps in the dark. There’s nothing worse than thinking you’re doing everything right and learning the opposite during your annual review. It’s also incredibly frustrating for employees to fail but not understand why. Be consistent about telling each team member what is and isn’t working, and follow up to celebrate improvements. Your reps will feel valued — and more motivated to close the next big deal!
onboarding. Before letting them fend for themselves, your new reps must be fluent in your company’s
them. The expectations and metrics you give employees
HAVE A Laugh
Pirates Stole Our Metric System Why America Never Changed to Kilos and Grams
Pirates, that’s right, pirates stopped America from changing to the metric system.
When America was still in its infancy, the states had no regulated measuring system. So in 1789, Thomas Jefferson decided that the country needed order. He asked the French to help the U.S. transition to the metric system, and they sent scientist Joseph Dombey. Dombey set sail for America with two items pivotal to our measuring system change. The first was a copper cylinder 3 inches in height and width, weighing precisely 1 kilogram. The second was a copper rod estimated to be a meter long.
Except, we never received them.
Storm winds blew Dombey’s ship off course and into the pirate-filled Caribbean. Pirates hijacked his boat and held him captive, and Dombey died in a pirate prison before help could arrive. The pirates then auctioned off everything Dombey had on his boat, metric measuring tools included.
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Jeremy Wyatt jwyatt@harrisonlawgroup.com HarrisonLawGroup.com (410) 832-0000
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Inside This Edition
1. 2.
A High Stakes Game of Hot Potato
Why Your Customers’ Lifetime Value Matters What Your Sales Team Needs to Succeed The Mysteriously Missing Metric System
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Rebranding: Are You ‘Starry’-Eyed?
DON’T BE ‘STARRY’-EYED ABOUT YOUR STRATEGY Rebranding the Right Way
In early 2023, Pepsi shocked the public by
Since rebranding is not a quick fix, every business owner should evaluate their reasons for wanting to rebrand before making the leap. Simply “feeling” like it’s time for a change is not enough. Ask what you’re hoping to accomplish, then consider whether you need to rebrand to achieve it. Your brand may just need a “facelift” with a tweaked logo, new company colors, or a refreshed social media presence. If you’re committed to rebranding, do it with clear eyes and an awareness of how your efforts could go wrong. One famous example was Tropicana (also owned by PepsiCo) in 2009. The company replaced its instantly recognizable image of a straw in an orange with a generic picture of a glass of orange juice. Consumers felt it cheapened the product — and some even had trouble finding it. Tropicana quickly switched back to its old packaging, but it was a $50 million mistake. Rebranding is a balancing act between refreshing your image and retaining the elements that made your company successful in the first place. Business leaders should strongly consider hiring a rebranding expert who understands the risks before beginning an overhaul. It’s essential to understand your current customer base and target market. Otherwise, you could alienate both — and all your money, time, and effort could fall flat.
rebranding its lemon-lime soda Sierra Mist as Starry. Though the move raised eyebrows and spawned jokes, the success of the company’s rebranding
strategy remains to be seen. Rebranding is always tricky and opens you up to the wrong kind of attention. So, if you’re considering it for your business, how do you ensure you get the right reactions? Companies rebrand for many reasons. Many do so after flagging sales to revitalize interest or reach a new market. Others rebrand to reflect a significant change in the business, like an acquisition or considerable shift in products or services. Rebranding is also a tried-and-true method for companies to move on from bad publicity. But rebranding is more than renaming your business — in fact, you don’t necessarily need to rename your business at all. Rebranding is more than a new company name, updated logo, or website. It’s about your business’s identity and overall strategy for the future.
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