Every company ought to track change order revenue as a percentage of total job cost. Below-average revenue may signal change orders that are not being processed, and that can cost you.
If change orders average 10% of total revenue (see Benchmark, July 2002), a company with $500,000 in total sales is handling $50,000 in changes. But some change orders never make it back to the office for proper billing. Some are forgotten until the final billing, then deeply discounted to avoid owner complaints. Others are underpriced to begin with.
The consequences aren't pretty. If actual change order revenue of $50,000 is only 90% of what it should be, that's a $5,556 nick to your bottom line. The bad news for other scenarios is in the chart below.
|No Small Potatoes|
|If $50,000 of change order revenue is short by this percentage:||This much revenue is lost:|