8 Profit Killers That Will Lead You To Ruin

According to the National Association of Home Builders the average net profit for remodelers is 3%. For example, on $1 million in gross revenue that 3% net profit translates into $30,000. WOW! No wonder so many construction contractors were crushed by the recent recession.

The problem here is not a revenue one, but a profit one. Most profit killers are self-inflicted, and can easily be prevented.

So what are the biggest profit killers you face?

#1 Too many trips to the store by your workers.

Take any job and look at the daily receipts of materials purchased. Do you discover 2, 3 or 4 receipts from a single day’s purchases? This is the sign that your workers are spending much of their daily work time at the store instead of on the job. You need a full day’s work from every field worker and wasting time at the store diminishes their daily productivity to a snail’s pace. They need to get in and get out. This kind of behavior keeps your company on the job site way too long!

#2 Leaving the job site early.

How many hours of real work do you get from your workers? By the time they leave the office, do a materials run, get to the job site, take scheduled breaks and have lunch, leave the job site to go home at 3:30 or 4 pm – what time actually remains to get the job done? How many hours of productive work are you getting each day from each worker? Do you monitor this? Do you know what is really happening with with your workers in the field?

#3 Using hourly wage earners instead of pay by the job laborers.

Every owner falls victim to workers milking the clock. This happens most frequently with hourly wage earners who are in no hurry to finish the job they are working on. Pay by the job workers are incentivized to get the job done quickly because the faster they are the more they make for each hour worked. How do you pay your workers?

#4 Lack of control for material purchases.

How often does your crew buy 15 sheets of drywall instead of the 12 that the estimate calls for? Do they buy $32 gallon paint when the estimate calls for $26 per gallon? Have you ever had someone buy a $200 sink when your estimate calls for one at $90? I have and you probably have too. Lack of controls allows workers to buy greater quantities and at higher unit prices than your estimate allows. Those lost profits come out of your pocket.

#5 Poor estimating practices.

Do your estimators leave money on the table through lazy practices? No adjuster will tell you that you are under scoping a job, but they will tag you every time you over scope one. Most owners believe money is left on the table through poor estimating but they don’t know where, how much, or how to find it. More lost profit!

#6 Employee theft.

What steps do you take to control your inventory of tools and equipment? Do hammers, saws, nail guns, and drying equipment show up missing when you do your once annual audit? One good step to take is to require all construction workers to own their own equipment. On occassion, when working with an independent worker (IC) who needed a particular tool, perhaps a nail gun to install wood flooring and either didn’t have one or his nail gun recently broke I might take the money provided in the Xactimate estimate for the use of this equipment item and pay the worker that amount. If the amount was sufficient to make the purchase great, if not the worker had money to use toward the purchase. This endeared the worker to me as an owner and also helped to insure my company was not buying equipment that could later easily disappear. Each worker was required to have their own equipment to do work for us.

#7 Workers who buy personal tools on your credit card when buying materials for the job.

Has this ever happened to you? Who reviews invoices and receipts for these kinds of exceptions? How many hammers, tape measures, gloves, and other small tools do you think you have purchased over the years for workers who did not have your authorization for the purchase?

#8 Lack of job costing.

Do you have a retrieval means to review how well you have done with costs for each job? One of the first lessons of management is that “you can expect only what you are willing to inspect”. If you have no means to review overall costs per job you will consistently lose on each one.
These are some of the most common profit killers in many companies. Taking control of your construction services, providing greater worker accountability and enforcing company approved practices is vital to protecting your profit.

 

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