Like many remodelers, I was overly focused on revenue when I moved into the office after 15 years as a lead carpenter. I understood how to use the project estimate as a guide for running the project. I could tell you whether our trade partners were staying within their bids, if our material costs were in check, and if the crew was hitting their estimated hours. What I did not understand was the concept of return on invested capital as it applied to our in-house labor. This concept, taken from Greg Crabtree’s Simple Numbers, has become the link between the operational and financial parts of my role.
When I began studying the Simple Numbers book series and Greg Crabtree’s financial framework, it didn’t give me new facts or new data. It reorganized the data I already had and compelled me to see them differently. By isolating direct labor from subcontractors, materials, and other miscellaneous direct costs, and isolating management labor from operating expenses, I developed an understanding of how our company’s labor affects gross and net profit.
The “True” Top Line
The first shift was deceptively simple: redefining the top line. In a traditional P&L statement, revenue sits proudly at the top of the page and includes all money flowing into the company before any direct costs are subtracted. But Crabtree takes a different view by exploring the actual economic contribution a contractor makes to a project. He asks, “Should a subcontractor’s labor or a supplier’s material costs be included in the general contractor’s contribution?” Crabtree says no, and I have come to agree wholeheartedly.
An example that I use frequently is a bathroom shower install with premium handmade tile versus a commodity subway tile. Each product will have wildly different contributions to the COGS (Cost of Goods Sold) of the project and neither choice influences how you run your company. You may think that you deserve to be rewarded with a higher gross profit for selling the higher cost tile, but do you want to stake your financial future on gross profit dollars that could evaporate if the client makes a last minute change from handmade Moroccan tile to big box store white subway tile?
This is why Crabtree advocates that you view your direct labor as your true economic contribution to a project and use your capacity to provide that labor as a driver of your gross profit calculation. Looking at your revenue through this lens redefines your company’s true top line as revenue less all non-labor direct costs.
In contractor language, that means if you are a $10 million company but $8 million of that is subcontractors and materials, you are running a $2 million operation buoyed by $8 million of pass-through costs.
If you are a $10 million company but $8 million of that is subcontractors and materials, you are running a $2 million operation with $8 million in pass-through costs.
That realization can be uncomfortable. Think about how often contractors define themselves by their revenue number: “I’m a $10 million company” or “We are shooting for $30 million this year” are common refrains heard at conferences.
At our company, roughly half of our top-line revenue is spent on non-labor COGS. When I reformatted our numbers using the Simple Numbers format, the scale of our economic output shrank instantly. Revenue isn’t the machine. Labor is.
This reframing changed how I think about pricing. It made me far more cautious about taking on labor-heavy projects like decks and structural additions. Projects now must meet a labor efficiency threshold in addition to reaching a minimum gross-profit threshold. Blanket margin percentages stopped making sense. Even blanket gross profit per day targets became insufficient without a labor lens.
With the “true” top line defined, the next question becomes obvious: How efficiently is labor converting that top line to gross profit? Enter DLER.
DLER: Exposing the Blind Spot
Crabtree’s Direct Labor Efficiency Ratio (DLER) is defined as:
(Revenue – Non-Labor Direct Costs) ÷ Direct Labor Wages
For example, before tracking DLER, I relied on estimate-versus-actual comparisons, schedule adherence, cost-to-complete accounting, and gut feel. Jobs that were busy and roughly on schedule felt successful. But when I calculated DLER across our portfolio of projects the picture changed.
Our labor was underperforming in terms of the money it returned to the company. This wasn’t a morale issue. It was a structural issue. We were pricing and staffing in ways that didn’t fully reflect the economic return required from each labor dollar. This was evident when reviewing the financial performance of direct labor-heavy projects. For these, a blanket margin added to labor without the additional costs of subcontractors and expensive material did not meet the minimum DLER metric.
I have been tracking our company’s DLER since 2023 at both a project- and a company-wide level. This gave me the confidence to apply DLER to our 2026 budget and make it a metric that my team and I track. As for 2026, our company’s DLER target, derived directly from our Simple Numbers budget format, is 3.52. That means every dollar of direct labor wage we spend must generate $3.52 in gross profit. That target isn’t arbitrary; it flows from our budget and net profit goals.
DLER has since become a pricing guardrail. If a bread-and-butter remodeling estimate deviates significantly from our typical DLER range, something is usually wrong. Most often there isn’t enough labor in the estimate. Occasionally, the opposite is true. Either way, it forces a deeper level of discipline.
DLER changed how I think about labor-heavy projects. Those can sometimes function as “flex jobs” that run alongside our core cycle. But they still must return gross profit in a way that supports our financial needs as a company. Meeting the minimum DLER on a labor-heavy project requires a higher than typical margin.
Separating Management Labor from Overhead
In the Simple Numbers format, non-billable management and administrative labor is separated from traditional operating expenses. It is treated as labor capital, not overhead.
The question we ask is straightforward: If we were doing zero work, who would still be employed?
For us, that is the owner, myself as operations manager, and our finance/HR manager. Everyone else represents direct job-costed labor. Additionally, all non-billable labor costs from anyone are grouped into management labor for purposes of this analysis. When we reformatted our financials this way, I clearly saw the impact of non-billable and management costs on the entire company. Crabtree’s Management Labor Efficiency Ratio puts this relationship into focus and gives you a number to manage to.
Management Labor Efficiency Ratio (MLER) measures:
(Revenue – Non-Labor Direct Costs – Direct Labor Wages) ÷ Mgmt and Admin Labor Wages
It answers a hard question: Is leadership labor generating an adequate return?
When management labor is hidden inside overhead, inefficiency is hard to isolate. When it stands alone your structure becomes visible. It clarifies whether management staffing levels are supporting growth or eroding margin.
A Different Way to Make Your Numbers Work
This framework doesn’t replace a traditional P&L (as defined by generally accepted accounting principles). It reframes it. The P&L records history and compares it to a budget. The Simple Numbers format interprets the performance of our structure. For me, the biggest change wasn’t the spreadsheet. It was in how I do my job.
Before, revenue growth felt like progress. Labor performance was judged by feel. Overhead decisions were intuitive. Now I understand exactly how efficiently our labor capital converts to dollars. I price jobs to hit DLER, not just a set margin. I see management labor as invested capital, not background noise. But most importantly, I can teach everyone at the company how the financial outcome of our individual work is interconnected.
