Remodeling companies often are looking for ways to improve their processes. Making processes easier, better, faster, and cheaper are some of the most common goals across all remodeling companies regardless of size. One major changes are made, though, continuous improvement is all about finding small, incremental changes, Doug Howard writes for Remodelers Advantage.
The extra effort to improving one area of the business, reducing the time to complete an average job for example, can pay major dividends. Howard outlines how improving processes and job efficiency can play a major role in changing a company's bottom line.
Let's run some hypothetical numbers, and use a simple example to illustrate this idea. Say you do 15 jobs per year, at an average of $100,000 in revenue per job. The average job takes about 90 days in production, and you generate a good 30% gross profit margin. This gives you $450,000 in gross profit on $1.5 million in sales. Your overhead runs about $350,000 and you net $100,000 per year.
So, then add in a continuous improvement process with the objective of reducing the number of days for a job from 90 on average to 84. By streamlining processes, improving communication, avoiding delays and eliminating other waste in the job, you reduce each of the 15 projects by six days. Would it make a big difference?
Well, if you could take those 90 production days and do one more $100,000 per year job, you would generate approximately $30,000 in additional gross profit. But, keep in mind our overhead has already been covered. So, the increase in gross profit would also yield a $30,000 increase in net profit. Therefore, your net profit would increase by 30% and bring you very close to 10% of revenue.
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