It’s no secret that the average profit margin in the construction industry is low, which can be frustrating when you know how hard you and your employees are working.
The good news is that, while improving your company’s profitability is challenging, it’s not impossible.
So, if you’re a construction company owner looking for ways to increase your profit margin, you’re in the right place.
In this article, we are sharing 6 things you can do to achieve that.
In this article...
Make Accurate Cost Estimates
The first step in improving the profitability of your construction company is making accurate cost estimates.
Keep in mind that the costs can be divided into hard costs and overhead costs.
We suggest you start by estimating the hard costs, i.e., “all the labor and materials required to complete the whole building or structure.”
Because these costs are tangible, the person doing the estimating should be able to make the estimates accurate and reliable.
Whether it’s a project manager doing the estimating or you choose to hire a cost estimator for the job, they need to have a good understanding of the project in order to make sure the estimation is precise.
Dave Shank, the owner of Shank Glazing Solutions, explains:
Apart from estimating the costs directly related to the project at hand, you also need to factor in your overhead.
Simply put, overhead is the cost of running your business and is not associated with a specific project.
Here are some of the expenses that fall into the overhead category:
It is important to be as detailed as possible when calculating costs.
If you don’t list all relevant items, you’re running the risk of pricing the job inaccurately, and not making a profit as a result.
Once you put together an accurate list, the estimator can add markups that will ensure you hit your profit margin goals.
Making cost estimates is time-consuming, but necessary for your success and profitability.
With a detailed budget, not only will you be able to control your project costs better, but you’ll also increase your profit margin.
Pick the Right Construction Projects
Being selective about the projects you take on is another good way to improve your construction company’s profitability.
You might feel like the best way to make a profit is to take on as many big projects as possible, but this is often not the case.
You don’t need to go for every project out there just to get more clients, so don’t be afraid to say no to projects that don’t match your experience and expertise.
Instead, focus on taking on fewer projects that are the right fit, and that will ensure a higher profit for your company in the long run.
At the end of the day, your goal is to maximize the returns on your investments.
Therefore, you need to bid on the jobs that will allow you to achieve that.
This is where the aforementioned cost estimation plays an important role.
Troy Guevara, a construction technologist at Digitek Solutions, advises:
A more effective way to bid is to reverse engineer a winning project. Take a previous job’s specific items—like cost codes—and use them in the estimating system to bid. Even if it isn’t the same type of job, the individual cost codes are the same.
Using this kind of information will ensure that you don’t underestimate the cost of your work and that you only take on jobs you know you can complete successfully.
If you’re looking for a way to win projects with a higher profit margin, you can also use your track record to your advantage.
The projects that you successfully completed in the past can set you apart from the competition and allow you to use that success as a selling point for future, more profitable projects.
Just like clients won’t settle for any construction company, you shouldn’t settle for any construction project.
So, if your goal is to improve your profitability, make sure you’re picking the right jobs.
Use New Technologies
When you’re trying to improve your construction company’s profitability, spending more money may seem counterintuitive.
However, investing in new technologies can actually help you improve productivity and profitability at the same time.
As you know, there is a lot of work happening behind the scenes that makes it possible for your company to meet project deadlines.
Manually keeping track of different schedules, tasks, and deadlines can get time-consuming and chaotic.
With information scattered around different file folders that are buried in filing cabinets, it’s difficult for your employees to find what they’re looking for.
It also causes them to waste time they could have spent on more meaningful tasks.
Good project management software can help prevent that. Yes, it is an investment, but it will help you save money and time in the long run.
If you choose to switch to digital project management, all project-related information will be securely stored on the cloud.
If anything unexpected happens, project managers can easily make changes to the schedule, and workers can see the updates in real-time.
That will allow them to adjust to the changes in order to finish their work on time and within budget.
Paul Wallett, Regional Director for Trimble Middle East, believes that using new technologies can boost your company’s profitability:
When you provide your employees with advanced tools and equipment, you are making it possible for them to complete otherwise time-consuming tasks faster and with more ease.
That way, they have more time to focus on the really important tasks that can’t be automated and that actually make your company money.
New technologies may take some getting used to, but they are sure to help you improve your team’s efficiency and profitability long-term.
Focus On Improving Productivity
Ensuring that your crew finishes projects under budget and ahead of schedule can also help you increase your company’s profitability.
This can be achieved by focusing on improving your crew’s productivity.
As we mentioned, you can use project management and scheduling software in order to ensure that everyone is on the same page.
But you can also save time and money by making sure the crew members you’re scheduling are truly the best choice for the job.
No two workers are the same, and each member of your crew has their strengths.
Toner Buzz shares some interesting statistics about the correlation between employee engagement and allowing workers to use their strongest skills.
Employees that are engaged are going to be productive, and productivity results in increased profits.
So, how do you maximize construction site productivity?
The answer is pretty simple: through observation and well-thought-out scheduling.
Take some time to observe your employees on the construction site.
Evaluate which workers excel at which tasks, and then use that information to create an optimal schedule for those tasks.
With a strong team in which the workers and their tasks complement each other, you can increase both your earnings and your efficiency.
Invest in Your Construction Crew
While it’s important to recognize and appreciate your workers’ existing skills, it is just as important to provide them with opportunities to get even better at their jobs.
Recruiting and retaining crew members that are great at what they do is invaluable and it can improve your company’s profitability.
However, your workers can’t become a valuable asset to your company if you don’t commit to actively and continuously investing in their professional development.
According to the LinkedIn Learning Workplace Learning Report, “94% of employees say they would stay at a company longer if it invested in their learning and development.”
By providing adequate training and advancement opportunities, you are showing your workers that you recognize their efforts and want to see them grow.
Providing training is not only great for your workers, but it’s also beneficial for your business.
According to a study conducted by the Association for Training and Development, companies that offer training have a higher profit margin.
When you make an effort to help your workers further develop their skills, you’ll also be able to bid for more profitable construction projects.
Having a construction crew with a wide set of skills and plenty of experience can be a great selling point.
It will help you rise above your competitors and allow you to win projects even when you aren’t the most affordable option.
The bottom line is, investing in your construction crew is beneficial for everyone.
Your workers will feel appreciated and motivated, and your business is going to stand out from the competition and thus become more profitable.
Keep Track of Your Assets
Apart from taking care of your employees, you also need to take care of your assets in order to ensure your company’s profitability.
If your tools and equipment get lost, damaged, or stolen, or tend to sit idle between tasks, you’re bound to lose money.
However, if you make it a point to keep track of your assets, you can reduce the odds of having to deal with expenses these issues incur.
As we’ve already mentioned, productivity and profitability go hand in hand.
However, your crew won’t be able to reach maximum productivity if they don’t have access to tools and equipment when they need them.
With accurate information about where each piece of equipment is and who is using it, you’ll be able to do a better job of allocating various items across different construction sites, thus avoiding unnecessary downtime.
Ben Van Avery, director of Sales and Marketing at Advanced Tracking Technologies, elaborates on the benefits of tracking your assets:
Investing in asset tracking software like GoCodes, for example, can also help you ensure your tools and equipment don’t get lost.
Once you’ve applied a GoCodes QR code tag to a piece of equipment, you and your employees will be able to scan it with a smartphone in order to obtain information about its availability and/or assign it to a certain employee.
A GoCodes customer has shared their positive experience with using the tool to manage their assets and prevent loss:
Investing in a good asset tracking tool is going to pay off in the long run.
Knowing where your assets are and being able to retrieve them even if they get misplaced will help you save money you would have otherwise spent on replacing them.
It will also improve the way you allocate tools in order to reach maximum efficiency on each construction site.
When you’re taking good care of your assets and encouraging your crew to do the same, you are also making sure that you don’t harm your company’s profitability.
Improving your profitability is a challenging task, but there are steps you can take to tackle it.
It all starts with accurately estimating the hard costs and the overhead costs, followed by picking projects that are the right fit for your company.
We also recommend embracing technological advancements with the goal of increasing profitability.
Invest in project management and asset tracking software to improve productivity on the construction site, and don’t forget about investing in your employees, too.
There is a strong correlation between productivity and profitability, so focus on creating an environment in which your workers feel motivated to do their best.
After implementing these changes, you should see a positive effect on your profits.