Improving your profit margin can make a tremendous impact on the net profit of your remodeling company. However, remodeling companies focused on improving their profit margin are often much more focused on avoiding slippage than they are achieving grippage.
Slippage and grippage are the difference in gross profit percentage on a job from what it was originally estimated to be. If you estimated the profit to make a 35% margin, and it ended up being 33%, there was 2% slippage. If that job finished at a gross profit margin of 37%, there was 2% grippage.
I believe that well established companies that have done well in their pricing and performance should shift their focus and that of their team, to obtaining grippage. The target gross profit percentage for the job should be the minimum not the maximum we are looking to achieve.
You can’t budget for the perfect job. Estimates need to be practical in terms of how long things take and consider a reasonable amount of error, waste and delay. Estimates from your subcontractors also take those factors into consideration when they provide you with pricing. We settle into norms in terms of time to do tasks, waiting time for scheduling issues, mistakes and other forms of waste.
Hitting your target gross profit is great. It means the job was accomplished in the time frames (with a built-in margin for error) that was in your estimate. But often times, we are considering that to be the maximum, the perfect case, and we start planning for, a incentivizing for, a reasonable difference from that percentage – this is slippage.
But what if we take a different tact? Think of the budgeted percentage as what is minimally expected, and during the project focus on how to avoid errors, minimize waiting, improve communications and continuously execute even better. Let this be what is celebrated. This is what continuous process improvement is all about. LEAN is one method that remodelers are using to accomplish such improvements. But whatever your method, the focus is on grippage.
And, what if this way of thinking extended to your subcontractors? Imagine they reduced, or even eliminated mistakes and delays, thus leaving themselves even more profit? When Toyota, the creators of LEAN, had been very successful at improving their processes, they realized that they could only continue that effort if this way of thinking was adopted by their suppliers, as well. What would that continuation look like in your world?
Make Grippage Your Goal
These are seven steps to making grippage the goal: Change the mindset: Estimated gross profit should be the minimum to achieve.Build an “Ideal State”: Continually ask “what would it take to beat that estimated margin?”Know where the opportunities are: Focus on what areas could go better than planned.Build a support system for the team in the field: Use management and staff to maximize the efficiency and effectiveness of those in the field by continuously offering great support.Make your subcontractors part of the process: Take them on the journey with you.Celebrate grippage, not just the avoidance of slippage.Expect a better gross profit each year: This is the very nature of continuous improvement and one of the most profound ways you can impact long-term net profit.
Now, take your sales goals for each of the next five years and multiply them by a margin that is 1% higher each year. How much more will that add to your gross profit in 2025? Oh, and by the way, since your overhead doesn’t change because of this, all of the additional gross profit is also additional net profit!
