Invest in speed to triple your profit
Imagine you are working at picking apples off a tree and the reward for hard work is a juicy piece of fruit. Meanwhile, as you work, you still have to sustain yourself, so you bring a bag of snacks with you while you labor at harvest-time. If you gather apples slowly, you leave with a meager bag of fruit but you’ve consumed your snacks. But if you gather them quickly, you’ll have a huge crop and hardly make a dent in your snacks, which you can save for another day.
Now, let’s get back to your real job. Every project is a juicy apple on the tree – profit waiting to be taken. When you finish some work and bill it, you pluck an apple. Delivering project scope is the same as harvesting. The money is made at delivery. And the bag of snacks? That is all your overhead that you have to pay regardless of how fast you harvest: salaries, rent, utilities, etc.
The power of execution speed
Suppose you have a backlog of work – if you finish 5 projects in a year, you earn 5 projects worth of profit minus your overhead. For example, let’s say you do 5 million-dollar projects, each with a profit margin of $200K and your fixed expenses for a year are $500K.
In this business, your yearly profit is $500K.
Now let’s say you find a way to complete your work faster, finishing it and booking it in half the time. Instead of a project taking 6 months from start-to-finish, it now takes 3 months.
Here in this diagram, you have completed 10 projects in the year with the same overhead. The overhead is spread out over more volume, and so even though you did only twice the revenue you book TRIPLE the profit: $1.5M.
This is a stunning result – your profitability isn’t a simple matter of price versus cost anymore; it grows unusually fast with execution speed. Suppose by some yet other managerial genius, you found a way to do 20 projects in a year; you’ll book $4 million gross profit, minus the same $500k overhead, yielding a staggering $3.5 million in net profit – seven times the original profit. By delivering 4x faster, you increased profit by 7x.
What else magically happens when you go faster?
When you deliver more volume in a given period, you not only book far more profit (by spreading the same overhead over more projects) but you unlock the ability to also do two other things:
Invest in employees. You can afford to invest in your team, up-level them, and pay them more. With the best people, you further increase your speed and profit (starting to see the positive loop here?)
Lower costs to clients. You can also afford to deliver better value to your clients, which increases your likelihood of winning work, which means more referral opportunities, which means more volume, which means more profit (see another positive cycle here?). They’ll be thrilled at the idea of lower fees but also faster turnaround – after all, they are often paying mortgage interest on the property but not using it. If you use speed to deliver gorgeous projects at low cost, you will be impossible to compete with.
Speed is a magical win-win lever for everyone in the business of custom homes & remodels, whether you are a designer or a builder. The best way to grow isn’t by skimping on benefits to your employees, or overcharging your clients – it’s to remove waste and increase speed. When you do this, it’s a win-win-win for everyone involved. So here’s our advice:
Invest in speed.
At Materio, this is our company motto, and we believe you should do it, too.
Client responsiveness: lightning-fast
Follow up with leads in under 24 hours. Do not let them go cold – respond quickly. Clients LOVE dealing with highly responsive firms.
Whenever a client messages you, respond in less than 15 minutes. The faster the better; do not let it sit for a day.
Schedule consultation visits within 48 hours. The best answer for “when can you come see my house?” is today. The second best answer is “tomorrow.” Treat anything else as “forget about it”
Return a proposal/estimate in less than a week. Again, the faster the better. The slower you are, the more likely you are to lose the job to a competitor.
Work throughput: remove speed bumps
Do not let client decisions delay the project. Every project has hundreds of decisions – spell them out for your client, put them on a list, prioritize that list, give them due dates, and make sure they answer on-time. Whenever a client delays in making a decision, your project slows down (and so does your profit, maybe even drifting into next year).
Relentlessly remove waste throughout your entire organization. Find ways to simplify, remove steps, automate, remove decisions (every decision is a speed-bump), and establish simple rules of thumb. Find ways to eliminate double data entry and triple-checking.
Minimize on-the-fly decisions. Anything you have to stop and think about is a delay that could have instead been decisive action that moves the project forward. Have a checklist for client onboarding, design, billing, building, and everything else. Make it really clear what must be done and in what order; you want to basically have everything pre-planned if you can.
Project organization
Don’t miss a single piece. Thoroughly review designs and floor plans to ensure every scrap of material is accounted for. If anything is forgotten, it tends to lead to a last-minute scramble and delays.
Don’t let client decisions fall on the floor. A lost decision is worse than a slow decision. If a client forgets a decision (say, they didn’t pick a faucet), you will realize it last-minute, then have to reschedule your plumber, which halts everything else. You’ll have to scramble to select and procure a faucet, which takes who-knows-how-long to ship. Your whole schedule (and profit) can fall apart on a single decision being missed.
There are many, many other ways to invest in speed! We love thinking about this and helping you go faster. If you have any other ideas, please let us know!