Profit Margin and After Action Review for Contractors
I know what you are thinking; you did not start your business to do accounting. You enjoy what you are good at, which is your day-to-day job. But, I hate to be the bearer of bad news; there are some business metrics that you need to have a good handle on. Even if you don't like looking at your income statement, you should look at the numbers that we are going to discuss.
To ease the pain, we will simplify them and show you how you can keep track of them without becoming a QuickBooks expert. Understanding these job profitability metrics will ensure that your business will strive.
Before we dive in, if you prefer watching over reading, we recorded this nine-minute video that will explain in short topics discussed in this article.
Working every day from sunrise to sunset without a decent income can’t work. You will get burned out. You need to make sure that you are profitable on every job. You need to make sure that your margins are still there after paying salaries and material.
After Action Review
To ensure profitability and great work experience, you will need to review every job once completed. This is known as an after-action review. Once the job has been completed, review the items listed below. Scroll down for sample review reports.
1. Compare the actual project's profit margin to ensure that it matches your budget profit margin.
- You should review your payroll and material costs separately to get a detailed insight.
- If your business has a few departments, you might want to set a cost goal by the department as it might not be accurate to lump them together. For example, your margins for commercial might be different from the residential. Your margin for servicing will be different than new construction.
2. Compare the estimated number of hours projected for this job on the estimate to the Actual hours. If the actual hours are more, you'll need and explain why the job took longer than expected. If the actual hours are less, see what went well and maybe use this as a model for other jobs.
3. If you have multiple salespeople and crews, you should compare them against each other, you might see a pattern of some team overperforming. If that occurs give them that credit that they deserve and try to learn from them how you can imitate their success to other crews as well.
Although you are performing the after-action review after every job, you should still have a monthly meeting to review all jobs that you finished in the prior month. This will give you an overall view of how you're doing and how one project worked out compared to the others.
The following report shows a list of the worse performing jobs. Take a look at the profit margins.
Following are comprehensive reports broken down by department. In this example, we used commercial, residential, and services calls.
This report shows you how you performance by Manger or by Salesperson.
I hope that I have succeeded in simplifying this for you. If you would like to receive a spreadsheet to help you set this up, please reach out to us here and email it to you. If you have any questions on topics discussed here, please comment below.
At Oberlander & Co, we are here to help you set up and track your job profitability, along with other Virtual CFO and advisory options that we can help you with. Learn more about our Virtual CFO services here.