In his recent JLC business column, Ian Schwandt discussed Gross Profit per Day (GP/Day) as a way to determine how much gross profit in dollars your company needs to earn per project. GP/Day also measures how efficiently your company earns profit.
In his Substack newsletter, Nails to Numbers, Schwandt takes the discussion a step further, offering additional thoughts on how to use GP/Day as a lens to change how you look at jobs, schedules, and maybe your business model.
Schwandt pushes us to think deeply about what our numbers really mean, beginning with gross margin. While it’s good that many contractors have been taught to pay attention to profit margin rather than just profit dollars, margin doesn’t account for project duration and might not be an accurate accounting of a company’s true profitability. Consider this example:
- Project A has a $250,000 contract at a 35% gross margin and will take 110 days to complete.
- Project B has a $180,000 contract at a 32% gross margin and will take 60 days to complete.
Which is the stronger project?
If you said A, you wouldn’t be alone. But if you said B, you would be correct. Surprised? You need to read Ian Schwandt’s Substack post, “You can’t spend a percentage.”