A new remodeling client was suffering from seeing residential jobs succeed. He estimated the jobs had 35%-40% gross profit dollars attached to them, but he was ending up with gross profits on his P&L’s in the teens. Their actual gross profits on sales after material and labor costs (inclusive of tool and vehicle costs) were less than half of the expectation.
We recommended that the company review all active jobs and estimate the material costs, subcontractor costs, and labor hours to complete each job that day. After some push back, three days later the task was complete. For the next 12 weeks, once a week, the re-modeler would repeat this task with field feedback, review all materials drop shipped to the job, and compare those items to the purchase orders issued. All non-purchase order items purchased would be recorded on the specific job costing process.
The results, there was an increase in recording incomplete shipments from two vendors and notifying the vendors for credit. The labor team knew how many man hours they needed to complete the job. Material costs which were invariably over budget. The estimates were now under budget for each job. Labor hours were at or near budgets. Labor costs were reduced for each job. Gross profit increased on all active and completed jobs during the 12-week period at or above estimated gross profit. A gain of 20 percentage points, more than double the reviewed “low” gross profit without any change in estimating standards of cost.
Potentially, the lack of an accountable receiving process of materials on job sites caused this re-modeler to not record short shipments, pay for full shipments, and purchase missing materials. Think that is impossible? One very large high-end remodeling company in CT, received and verified all job materials and had a full-time superintendent on site. The superintendent missed a lumber shipment count and the result was an $80,000 lumber shortage for which the superintendent had signed off as received.
Labor on these smaller remodeling jobs had been communicated by “round numbers of days” to the crews. Crews were not always set up with working tools and equipment needed on site for each day. Labor was always chasing down, buying material shortages, and driving to buy it. Specific labor hour accountability, job sites confirmed materials, and incentives to complete the job under estimated hours with client satisfaction reduced the labor waste.
Try an estimated cost to complete test with your jobs weekly and see the difference.
CLM Advisors LLC