You’ve sold the job. The proposal details have been worked out at two separate meetings. You have a detailed scope of work and specs. The budgeting has been worked through so the project meets the client’s needs, expectations, and budget. Signed, sealed, delivered, the job is scheduled for production.
You’ve budgeted a 40% margin to meet net-profit goals. And here’s where that 40% begins to walk away. Let’s follow the trail to those places where your gross margin points could disappear.
A week or so after I sell a job, I take out my proposal and contract to start planning. Here’s a critical control point. I can either: a) refer to a neat checklist that runs through all the items agreed to with the client, or b) wrack my brain trying to recall what exactly the client is expecting (see Check It Out, below).
Does Option B sound crazy? Maybe. But that’s how a lot of contractors do it. They rely on memory and some scattered notes to tell them what they’re expected to deliver on a job.
You can start the job on time, but if you don’t have all the materials needed to install it, you’re asking for margin loss. Say a lot of the materials on the job are special order. If your start date is two weeks out, it could take three weeks to get the materials. You start anyway, and a week into the job the supplier calls to say that the materials will be another week late. Now you’re changing materials and stopping the job.
Solution: Plan your start date carefully and don’t start a job until all materials are ready for disbursement.
THE BIG RUSH
You put off planning the job until a week before its start date, and now you’re in a rush to pull permits and order product. The permitting process alone can easily throw you a curve ball — especially during busy season. And the process starts the day you bring in the signed contract.
Say you go to apply for a permit for that job that starts in a week. Now you find that the permitting department wants to know if you have the homeowner association’s approval, or it turns out that there are side and rear setbacks on the building that don’t allow you to build the project you sold without a variance. Such issues could set your permitting process back another two to three weeks.
You could also hit a stretch of bad weather. You can’t control that, but you can plan accordingly. So if you know, for instance, that a snow storm is coming, take the time and tarp off materials.
Solution: Do your homework on permitting and other potential issues before you set the job’s start date.
CREW & MATERIALS CONTROL
Make sure you have a good, reliable group of contractor partners. If you don’t and you select someone on short notice and he’s not available, you may have to go with a second choice, which can be more expensive.
Also make sure that material deliveries are scheduled at the necessary intervals. The obvious choice is to have everything delivered at once. The better choice is to have materials delivered when they’re actually needed. That may not be important on a window job going in over the course of two days, but it would be important on a deck or a fiber-cement siding job where construction is going to take 10 days or more.
Solution: It’s the production manager’s job to make sure that everything on that site meets your company’s standards. That alone doesn’t protect margin, but it will allow you to make more money down the road.
Time to revisit your checklist. That’s where the client’s expectations (and fears) start. Their concerns, and the way you handle those concerns, is important to your margin because the most common way to allay fears and address concerns is to take money off or put in something extra. That costs you. Say you throw in $400 worth of lighting on that deck job so the client won’t be mad that your crew arrived late two days in a row.
Use the checklist to steer your way around the client’s concerns. If you know, for example, that because of weather, you can’t be there Monday morning, call on Friday to let the client know what’s going on in advance.
Solution: Avoid situations where clients can use something you did to demand a discount or free work.
Though nowhere near as important in exterior replacement work as in design/build, it’s still essential that you have a policy and process for change orders that is clear to everyone in your company and that they all buy into.
Say, for instance, that after the contract is signed on that deck job, the homeowner decides he wants post caps. Don’t just agree to it and give it away. Have the salesperson contact the customer or have an installer call in to get a price, so that any alterations to the original contract can be accounted for.
Let installers know — especially if you have clients who seem like they want to be very involved in the project — that your policy is that nothing can be done outside the project scope without approval. Even the smallest changes must be approved. Designate one of your employees to be the person to deal with these changes.
Solution: Create a written change order policy and include it in employee manuals and in the materials you give to customers.
This is another big one. Material prices will fluctuate and incrementally increase throughout the year. Six to eight weeks could elapse between job sale and job start. Unless you have an agreement with the lumberyard that the prices you sold the job at are locked in, you may be paying 4% or 5% more eight weeks later, which equates to 1 or 2 margin points.
Obviously, you don’t go back to the homeowner with a new price after signing. Instead, collect enough of a deposit so that your excellent relationship with the supplier allows you to lock in those prices by paying for the materials in advance. Create a relationship with your local supplier so that this arrangement becomes the norm. If you don’t have this type of system in place, you may have to bump your margin to allow for price increases as they occur.
Solution: Collect a deposit large enough to cover your materials costs and develop relationships with lumberyards and other suppliers so that you can lock in prices when you order materials for your jobs. Cross-check all materials received with what you ordered (see Secure Site sidebar). It’s a lot of work, but once you make this part of your process, it becomes habit. You’ll be amazed at how much money you’ll see that would otherwise have escaped your margin.
At the end of the year, the margin points you built into the sale and saved through better management translate into dollars in your account. It’s your money, why not try to keep it?