It is interesting to see how you can dramatically impact your business by making small changes. Given the relationship between gross margin and net profit then consider whether it is easier to improve margins or increase your revenue. I encourage you to consider the following thoughts to improve your gross margins:
· Improve the accuracy of your estimating. There are some companies that require several sets of eyes on an estimate before it goes out the door. This can be a challenge with the new requirements of timely estimate uploads. Your estimators should get in the habit of reviewing the estimate with the superintendent or subcontractor if you have the time and opportunity. The challenge is that you still need to focus on timely uploads. Another good idea is to have a project review at completion to discuss the estimate accuracy. The accuracy of the estimate needs to be established before it is submitted as often as possible since most adjusters and companies do not look favorably on frequent supplements. I can come up with many other items but the relevant point is to make sure that you are estimating and billing for the work that is done. Many adjusters will not challenge your estimates if the work is necessary and justified.
· Prepare a budget before you start. I am surprised how often companies proceed with work before developing a game plan. If you want to make 40% then plan it on paper before you start. Then as you proceed with the project make sure that you are reviewing the actual costs to see that they are in line with expectations. There are many different ways to prepare a budget - it is not important how you go through the process, it is just important that you do create a plan. Often I see contactors jump into a job because they are excited to get started but then spend too much money or do not have a solid schedule for production. When you take time to properly plan your project you will reap the rewards later.
· Finish the job on time. Although this is an unscientific statement, I have found that each day that a project exceeds the real or perceived completion date, the more profit is lost. The first part of this statement is that even if you do not have a firm completion date, the customer does. Given that perception it is my recommendation that you establish and communicate a schedule and completion date for each project. Provide some room for delays and keep the customer in the loop. This will be an important step in improving service and hitting your budget. When the completion date is missed then the focus is on completion at any cost rather than following your schedule and budget.
· Focus on higher margin work. This statement seems obvious yet is often overlooked. When you establish goals for the work mix and referral source then you can work through your marketing plan to achieve your goals. Obtaining higher margin work means increasing emergency service and cleaning work for many companies, but it also can be dictate by the companies that you partner with. You all know that some companies pay better than others and direct referral work may be more beneficial than insurance referrals. If this is true then plan your business and then implement a marketing plan to create the business that you want.
· Use subcontractors and give them a price before they start the work. I am amazed at the companies that give a project to a sub and then wait for a bill at the end of the work. It is a simple step when you plan a project and establish a budget to then send the sub with a work order and price. Some project managers hope that the sub will give a lower price and avoid offering the price when the job is assigned. When you use subs, do not wait to find out if you meet your budget, establish the price in advance and assure your margin.
· Obtain discounts. This is a thorny issue these days since this is potentially a legal concern. My advice is that you seek legal council and ask how you can legally obtain contractor or prompt pay discounts. This could have an easy impact on your bottom line.
· Track, limit and manage travel and material procurement time. Travel to jobs and the supply houses is a daily cost in every company yet most do not review this as an obvious resource for improving margins. I have reviewed the price lists in several databases and cannot locate travel time in the unit costs. When you are able to limit the time spent on non-reimbursed costs you can have an immediate impact on your bottom line. I studied the job costing in our company and learned that we were spending near 5% of the total job on getting people and materials to jobs. If you take a look at the 5% equation above then you can see that we could have doubled our net profit by controlling this cost. I do not think that you can eliminate these costs but you can certainly manage and minimize.
· Provide exceptional customer service. Providing great service usually is a matter of attitude and does not cost money. When you have happy customers you will find that they are not as picky about the project details, it is easier to get the notification of completion and final payment. My recommendation is that you create a system to dramatically exceed your customer's expectations.
· Collect deposits and draws from a position of strength. How often do you find yourself writing off a deductible or making adjustments to the contract amount due to a need to get a signature on a larger insurance draft? In many companies I have worked with this can be a significant amount. It may not seem like it but do you write off or write down $10,000 per year? That may not seem like much in the context of the entire volume of work that your company performs each year but at the same time this is net profit CASH to the bottom line. Would you like an additional $10,000 in your bank account? Collect your deductibles in advance (when allowed) and then collect your draws on time.
Although this is not an all-encompassing list it is a good start at improving your business in 2011. Read this list and then review with your staff and discuss how you can add to your bottom line this next year. You can also get a more detailed description of each of these ideas in our online training subject for PRODUCTION MANAGEMENT. Please send an EMAIL if you wish to view this subject and more with a free 48 hour pass to the program.
