Ever wonder what makes a remodeler successful ... successful enough to be selected to be included in REMODELING Big50 issue? One reason is that these contractors run their businesses by the numbers, not by the gut. Here are five things that Big50 contractors have in common:
1) They manage the job by the budget. Create a job budget that outlines the anticipated job costs. Then, use a good job cost-reporting system to measure performance against the budget. Remember the job budget never includes overhead or profit and the labor costs in the budget represent true labor costs, not billing rates.
2)They track gross margin carefully, on each job. Gross profit is total job revenue minus total job costs. This shows the amount of money for each job that is left over to cover overhead expenses and contribute to profit. Gross margin is a percentage (gross profit divided by total revenue) that represents how much of the incoming dollars are gross profit. This figure allows you to compare profitability of different size jobs.
3) They create operating budgets. While job budgets are important on a micro level, managing the company on a macro level means creating expectations and goals. Create an operating budget to determine your sales and gross margin goals. These numbers allow you to determine how much you can afford for overhead and what your net profit expectation should be.
4) They track labor utilization. Field employees may be the key to job completion, but their time isn’t 100% billable. For example, if you pay a field worker for 2,080 hours but only bill customers for 1,850, his employee utilization rate (billable hours divided by paid hours) is just under 89%. When you are estimating labor for a job, take this into account.
5) They track change orders. Change orders can make or break a job, but doing extra work without getting paid for it erodes profit. Track and invoice change work, and clearly communicate with the customer all changes in overall job price and completion date.
Follow these five rules, and maybe we’ll see you in next year’s Big 50 Issue!