There’s no denying that COVID-19 has made a mess of lives and businesses: People worry about themselves or their loved ones getting infected; about trying to make mortgage payments and buy groceries when income has dropped; about maintaining a business when customers disappear by choice or are kept away by state mandates; about adhering to new safety protocols while attempting to complete those few projects that are permitted; about how to take advantage of economic incentives that have a difficult application process and dry up before the process can be completed. In the midst of all this, my clients are experiencing a range of work conditions, from being completely shut down to attempting to complete doable work. But nobody seems to be operating at full capacity. This is discouraging, but it also opens up an opportunity for reflection, analysis, and improvement.
There was nothing you could have done to make the COVID-19 impact less catastrophic. But while you’re waiting for things to return to “normal,” there are things you can do to prepare to come back stronger, more efficient, and more profitable than ever before.
Here are some things that you can explore with an eye towards improvement:
1. What has been your company’s profitability trend as measured by achieved gross profit margin and net profit? (I suggest you produce a P&L by quarter for the past one to three years.) If profitability’s stable and you’re happy with the amount you’re making, great! If it’s improved, congratulations! If it’s sliding, ask yourself why. If gross profit margin is steady but net profit is slipping, look to your overhead. What has changed? If the change is permanent (such as adding a new office employee or committing to an expanded marketing program), then you will need to reconsider your pricing methods. If the delay between your pricing and selling a job and your producing the job is significant and you’re planning on increasing overhead costs, then you will need to start early to increase pricing to accommodate the enlarged overhead if you want to maintain the same net profit.
2. What jobs are making you the most profit? This is a question that will need to be refined for each company. For example, if you’re a full-service remodeler, you may want to start analyzing jobs based on the nature of the work (for example, kitchens vs. baths); if you’re a specialty or replacement contractor, it might be more valuable to look at job size (decks under $50,000 vs. decks over $50,000). You can slice and dice the data any way that seems relevant. Other options might include work performed in state A vs. in state B (if you perform work in multiple states), or work within 15 miles of your location vs. work outside that radius. What about job size or length? One of my clients discovered that he could make a killing on jobs within the $75K-to-$200K range, but nearly lost his shirt on anything over $1M. This information can lead you to re-think pricing and marketing. For example, if you discover that you do great on kitchens but not on bathrooms, you have three choices: Stop doing bathrooms, charge more for bathroom projects, or train your employees on efficient production techniques or different products and materials in order to match the kind of profit you’re making on kitchens.
3. Investigate production strengths and weaknesses by task. For example, if you’ve been canny enough to track labor by categories (that is, framing vs. trim vs. flooring, and so forth) now is the time to figure out what tasks are coming in on (time and dollar) budget, and which aren’t. Of course, this also opens up the question of where the problem lies: Is the estimating totally in left field or are your production workers falling short of reasonable expectations? One of my clients discovered that he was consistently over budget on interior trim--by a lot! He was estimating for trim and his production workers were completing the trim within budget, but then he was going to the jobsite, complaining about the trim (which didn’t measure up to his standards), and insisting that the crew redo the trim. Obviously, this put them way over budget. If you discover a situation like this, you have three choices: Plan to have trim redone, so estimate for it, keep the owner out of the field since his standards are probably higher than those of the customer, who wouldn’t have noticed, or for heaven’s sake, train the trim installers to the owner’s standards.
4. Whose jobs are the most productive? If you use lead carpenters, supervisors, or project managers (all of which essentially make an individual responsible for managing the job), whose jobs are the most productive as measured by timeliness and profit? Any system in which responsibility is assigned to an employee should have within it a process for review and reward. If you have three lead carpenters and one of them is consistently on schedule and hits the target profit margin while the other two don’t, then you have some choices: Fire the other two, set up a reward system (profit sharing or bonusing) as an incentive but also help them discover why they aren’t achieving similar results, or manage your schedule so that the most successful lead can mentor the others, being aware that this will reduce everybody’s productivity and must be allowed for in the schedule.
5. Analyze the most appropriate employee to sales ratio for your company. This simply means going back and calculating the number of sales dollars that came in as measured by employees.
In the example above, only production employees were counted, but it’s also useful to look at overhead employees and total employees. Once you have this information, you may need to make some tough decisions when you’re ready to rebuild your workforce.
6. Where should sales be coming from? Your sales are probably built upon a mix of marketing efforts and referrals. Referrals are your cheapest source of work since there’s no direct outlay of money to get them, and the prospect sees you as “pre-approved” by their friend or relative. But why not mine this resource more fully? If you’re not paying attention to your past and current customers, you will soon turn into a fond memory. Now is the time to think of ways to stimulate more referrals, whether it’s by putting together a campaign to reach out with “checking in” e-mails, helpful maintenance hints, or thank you notes. With most people stuck quarantined in place, they have more time to provide thoughtful words of appreciation. Reach out and ask for references; if nothing else, it will give bored people something to do. In terms of marketing, do you have good information on what avenues have been most successful for you? If you don’t use CRM software that easily tracks data like this, then invest some time in researching current CRM software and look for free trials to test. If you already have CRM software in place, take extra time to explore its reporting capabilities and get a handle on what’s working and what’s not. There’s no point in investing in marketing methods that don’t produce results.
7. Take time for comparison shopping. Whether it’s a supplier or your insurance company, when was the last time you comparison-shopped rates or reviewed your history with the company? Figure out what you’re spending annually on average and see if you can get a better deal as the economy rebounds. It doesn’t hurt to ask.
8. Investigate refinance options. With interest rates dropping, if you have mortgages or loans, now might be a good time to investigate refinancing. As Ben Franklin said, “A penny saved is a penny earned,” and if you can save on financing costs, those dollars saved will drop right to your bottom line.
9. Review company documents. This is an excellent opportunity to review your company’s paperwork. Look at your last project contract. How could it be improved? Are you providing adequate information in your Scope of Work section? Have you included both what’s included and (sometimes even more important) what’s excluded? Do you have a section that lays out the change order process clearly? Check out your change order form. Does it include a description of the change, the charge for the change, and the effect on the overall project schedule as a result of the change? If you sell work with a fixed/contract price, have you explained the invoicing process? If you sell time and materials or cost plus, have you included specific rates for labor and markups on materials and subs? Is the “boilerplate” language clear? If you’re not sure, download some sample contracts or consult your lawyer and ask for a fixed price review of your existing paperwork. He’s probably bored, too.
10. Take time to study. If you have a backlog of JLC or other professional magazines languishing in your home or office, why not set aside some time each day to read? This time, include all those business-related articles you skipped before. There are incredible online resources as well, in the form of online articles and in blogs written by construction and remodeling experts.
My husband grew up next door to a Canadian lumberjack who used a double-bladed ax. He would cut for a while, then sit down and hone the blades before going back to work again. That was exceptional process. The time that he spent honing was more than paid for by the efficiency with which he cut. It’s the same with business. You may have been cutting for a long time. This is a great time to hone your process.
