After 18 years, Lumia has learned that the more jobs CDCR can do that are similar, “the more these jobs become systematized. Salespeople will try to sell certain packages, sell the same cabinet line at a certain price range, or the same type of [kitchen] island. This allows our people to get faster at those specific jobs.” And the efficiency leads to higher profits.
Lumia says he has also figured out that if his company is reaching its potential, “[budgets for] 80% of our jobs should fall in the middle-of-the-middle to the middle-of-the-high” range. “If it’s a kitchen remodel, we’d want it to fall into an average of $65,000 without appliances. A master bath would be about $40,000. A regular bath would be about $26,000.”
Riordan, too, looks at more than just the bottom line. “The client — not the project —is the most important thing,” he says. “I’m married to a client for six or nine months, and I don’t want to marry someone I don’t like.”
It took seven years of owning his own remodeling business for Riordan to feel comfortable telling a client that their project didn’t fit his company. Now, after 20 years, he says that if he sees a client being rude to his or her spouse or to the children, he knows that’s a client he doesn’t want and will walk away. “With the amount of effort it takes to run a job for bad clients, I can use that energy for five or six other jobs,” Riordan says. “It saps your energy and company morale, and it isn’t worth it.”
SHOW ME THE MONEY What kind of profits are you looking for?
Riordan says that although he charges the same markup on all his projects, some end up being more profitable than others. “I like a meat-and-potatoes job, such as a room with a kitchen, rather than scrambled eggs — little projects all over the house. [With those little projects] my profitability goes down. They’re more difficult to bid and manage.”
When reviewing clients’ businesses, Downing looks for 36% to 40% on larger jobs, but on smaller jobs she’d like to see 50%. “It’s easier to double a $5,000 job than a $100,000 job,” she says. “When I look at a client’s jobs and see percentages in the low 20s and 30s in more than one category, it’s a red flag. They’re leaving money on the table. They need to charge more on smaller jobs to make it worthwhile.” (See “Sized Right,” page 104.)
And you don’t have to take every project that falls into your preferred range. “You might have a sweet-spot job that makes a lot of money but is boring,” Downing says. Or requires too much hand-holding. Or too much detail work. That’s all right. Mixing it up can be good for morale as well as for the bottom line.
Once you understand your company’s sweet spot, you can focus your marketing and lead conversion efforts on finding those clients and jobs that fit — and that’s a sweet spot to be in.
Sized Right According to Victoria Downing, a consultant and owner of Remodelers Advantage, the goal of this chart is to help you determine the right size projects for your company to pursue — as well as to see how many jobs of each size are currently produced to reach the company’s revenue goals. For example, she says, “if you did 19 projects for $25,000 or less and your average gross is 23%, you might ask yourself if it was worth the churn and human resources for that little bit of gross profit.
“Understanding your company’s ‘sweet spot’ can help you determine where to focus your marketing and promotion efforts.” (Because some projects span across the year end, Downing asks clients to report only jobs completed in the last 12 months, regardless of when they began.)
Autopsy for Answers One way to gather information to find your sweet-spot job — the one that offers the highest profitability, is done most efficiently, and that you most enjoy — is to hold a job autopsy shortly after your the project is finished. The goal of your information gathering is to find answers and improve your company — not to lay blame. Here are a few pointers from remodeling industry software consultant Walt Mathieson (www.mathiesonconsulting.com/downloads.htm):
- Review all aspects of successful projects as well as problematic ones.
- Compare final costs with original estimates.
- Ask yourself what made the project a good or a bad job.
- Review the performance of subcontractors and suppliers.
- Discuss results of your customer satisfaction survey.
- Include non-quantitative information that might not show up on a job-cost report, such as anecdotes from the lead carpenter on hand-offs.
- Designate one person who attends every job autopsy to identify trends and direct any changes that may be needed — this will most likely be the owner.