The purpose of this department is to establish standards for most aspects of the remodeling business against which readers can judge their companies. I'm betting, however, that most remodelers don't have the means to collect the data they need and have even less time to analyze the information they are able to gather.
Under those circumstances, the question becomes, What are the most important measurements a company owner needs to take? Here are my top five.
Estimate = Actual
Construction accountants put a lot of emphasis on balance sheets, but I think the typical remodeler is better served by performing a job cost analysis of every project. No matter if your company does $250,000 in sales or $2.5 million, job cost accounting is the most direct way to find out whether or not you are producing jobs at the contracted price. All of the data we see tells us that most companies -- regardless of size, years in the business, awards won, and any other criterion you choose to name -- do not. In other words, all companies experience slippage, which comes straight out of the bottom line. Many are actually paying out of pocket and don't know it. Job cost analysis tells you how much you're losing and where you're losing it.
Number and Source of Leads
Unless you know where your work is coming from and how much is headed your way, you're just riding the wave. At the crest, it's all good, but the troughs aren't so much fun. Remodelers -- and again this includes everybody, regardless of size, years in the business, number of referrals, and so on -- don't market enough or to the right people. Consequently, they always experience the market as volatile. To even out the ups and downs, you need to market constantly, in good times and in bad. Plus, you need to measure the results regularly and adjust your marketing depending on what you discover.
I think remodelers lose a lot of money through change orders, and they lose it in two ways: They don't collect payment for extra work; and they don't recover the true cost of making a change even when they do bill for it. Plus, when you monitor the size and number of change orders job by job, you learn valuable lessons about your processes. Too many changes signals that something's wrong in the preconstruction process. Too few changes means the field crew is doing extra work without getting approval. Once you start tracking the data, you can make all sorts of interesting comparisons -- for example, lots of changes on certain types of jobs vs. few changes on other types. In addition to job costing, getting a handle on change orders is probably the fastest way to improve your margins.
Most remodelers can tell you what percentage of their sales revenue represents work performed by subcontractors, but other factors deserve to be measured as well. These include how many delays were caused by subs, how many change orders were directly caused by subs or directly related to subbed work, and how many cost overruns were directly caused by subs. The results would show, I think, that your field crews spend a lot more time than you think supervising subs and putting out their fires. Even when trade contractors are model citizens, many potential profit-eating problems occur over and over again. For example, who wires the furnace, the electrician or the HVAC sub? By tracking how subcontracted work affects the rest of the project, remodelers will find and fix existing processes to handle problem areas and invent new processes where none now exist.
In the end, none of the above matters if your customers aren't happy. And even happy clients are of no use to you if you don't know what made them happy and can't duplicate it for the next client. Don't just measure how many clients give you referrals, because most of your customers will give you the benefit of the doubt. Instead, design a post-project questionnaire that breaks the job down into its components parts -- sales, design and product selection, contract, site management, and so on -- and ask about each one specifically. The results will tell you exactly what your strengths and weaknesses are and will be a giant first step toward engineering your customer's experience.