Find Extra Days, Get One More Job per YearPosted: October 1, 2019 Posted by: Doug Howard
We talk a lot about process improvement. How can we make our processes easier, better, faster and ultimately cheaper. And most of the remodeling companies I get to work with have given considerable thought to improving their processes.
But once major changes are made, continuous improvement is much more about finding the small, incremental changes rather than huge leaps. It’s time to look for those little steps along the way that make an immediate and dramatic impact. As a result, sometimes it might seem like the extra effort is simply not significant enough or not important to implement.
But consider this … how much would it affect your bottom line next year if you could get just one extra job through production? Would it make a big impact? Would it be worth the effort?
I’m here to suggest it would.
Let’s Run Some Numbers
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 percent 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. All in all, not bad.
So, then add in the continuous improvement process —LEAN, in our case — 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?
You’ve Got Extra Days
Well, if you could take those 90 production days and do just 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 percent and bring you very close to the 10 percent of revenue that we like to see companies generate.
Your actual numbers may be different, but the process is the same. Could you improve your workflow just enough to do one “extra” job per year? It might be time to find out what LEAN could do for you.