Increasing field efficiency means improved margins, but some tactics are better than others. Purchasing inferior materials is shortsighted because you will have to spend warranty dollars down the line. Using less expensive subcontractors may also increase future warranty costs, but worse is the potential loss in customer satisfaction from subs not treating clients as well as your regular subs do.
That leaves labor. Even though in most companies field employees will affect just a few line items — such as supervision, demo, rough and finish carpentry, windows and doors, clean-up, and punch list — increasing labor productivity directly affects gross profit.
Lost Opportunity A lot of marketing materials boast of the company's ability to finish jobs “on time and on budget,” so a few years back, I asked all the remodelers I met at trade shows or during client consultations the same question: “If you complete the job on schedule, do you make money?” Every one of them said, “Yes” without the slightest hesitation. If that's the case, then “on time” means “on budget,” and a renewed focus on the schedule can both put money in your pocket and protect client satisfaction.
Let's look at labor productivity through the lens of the schedule. If you could increase productivity for all jobs next year by 10%, you'd have an additional 26 working days (more than five weeks) in which to take on new work. Your annual overhead would stay the same, and so any gross profit realized on that new work would drop straight to the bottom line.
How much money do those 26 days represent? Let's say annual revenue is $1.4 million. Dividing by 12 (26 days is about one month) yields average revenue of $116,666 per month. If your gross profit margin is 28%, the increase in productivity would put $32,666 straight into your pocket.
Keeping Track Use a spreadsheet like the one shown for all jobs underway. Enter the original budget plus the number of weeks you estimated the job would last. When the job is complete, update the spreadsheet with the number of weeks it actually took to finish.
In the example, falling behind schedule 6.5% translates into almost $35,000 lost to the schedule (assuming employees were working somewhere most days), plus lost opportunity cost of the same amount for new work that couldn't be done because current jobs fell behind.
The lesson is clear: Finishing on time doesn't just make the client happy; it protects your profit.
—Judith Miller is a Bay Area construction business consultant and trainer specializing in accounting, finance, and computerization.