In the remodeling industry, 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 that I get to work with have given considerable thought to improving their processes. But after the initial major changes have been made, continuous improvement is all about small, incremental change – little steps along the way. These continued efforts don’t produce the fundamental changes that make an immediate and dramatic impact. As a result, some remodeling firms get bogged down with continual improvement; all that extra effort seems more trouble than it’s worth because the small, incremental changes do not seem significant enough.
But consider this: How much would it impact 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 am here to suggest it would.
Let’s 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% 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, let’s say we use continuous improvement (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, we reduce each of the 15 projects by 6 days. Would it make a big difference?
Well, if we could take those 90 production days and do just one more $100,000 per year job, we 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% and bring you very close to the 10% of revenue that we like to see companies generate.
Your numbers may be different, but the process is the same. Could you improve your workflow just enough to do one “extra” job per year?
