"Where did the money go?"
"Why aren't we making any money on this project!"
"Maybe I need to sub out more of my work and cut back on my self-performed and in-house labor?"
These are questions and thoughts one of my remodeling clients articulated on the phone the other day. He had a lot of hypotheses. A lot of 'Maybe it's this? Maybe it's that?'
What he was lacking was a hard look at his job cost report. The numbers don't lie. Did you quote 100 hours and it took your guys 120 hours on that trim work? You lost gross profit dollars. Did you estimate $1,500 in materials for that phase of the project and it ended up at $1,800? You lost $300 of gross profit dollars.
I urge you to spend time digging into the job cost reports for recent projects that you've completed. Just take a close look at what you expected to make (from your estimate) vs. what you actually made.
Dig in and see—with clarity and honesty—the good, bad, and ugly of the project. The closer you look at not only what went right but also at what was different than you expected, the more clarity you'll have in what is going well and what needs to be improved.
The more you understand what needs to be improved, the more adjustments you'll make to your estimating and production to improve your results. That leads to more gross profit on your jobs and less slippage of gross profit.
Here are a couple suggestions on key areas of your job cost report to look closely at:
When you look at your expected vs. actual related to the materials used on the job, look for material costs you incurred on the project that you forgot to include in your estimate. Twenty dollars here and $30 there add up to a lot over the course of the year. Find these little (or big!) costs and make sure you catch them on future estimates.
Add up the labor hours that your team in the field has on the project. Take a hard look at what you expected vs. the actual. How can you improve this? Can you share these numbers with your team to set clear expectations and to motivate them? Don't forget, not only is every hour over the expected eating at gross profit dollars, there's also the opportunity cost, where that hour could have been earning gross profit on another project.
The key takeaways: Take the time to dig into your job cost reports. Work hard to clearly understand them and take action to improve your future estimating, production, and profits.