How to Improve Profit Margins in the Construction Business
Owning and operating a construction firm requires a deep understanding of money management. After all, earning enough money to sustain your growing company isn’t as simple as stacking one brick on top of another.
It’s all too easy to fall behind and fight to meet deadlines and the client expectations as costs continue to increase. For example, in construction, setbacks are inevitable, but of course methods are put in place to mitigate risk and improve your profit margins. It’s best to “pre-empt” problems and stay competitive by employing these basic techniques
1. Set Clear Annual Goals for Your Construction Business
You may struggle to improve your profit margins if you’re unsure about your current status, unless you’ve set clear objectives to give you a sense of direction.
It’s relatively easy to track your progress when you determine the quantifiable goal you need to meet. Sit down with your management team and decide how much gross profit you want to make and how much profit you want to net. You can find this number by looking at the equity or net worth in your company – your projected overhead for the upcoming year and the risk you take in operating your business.
When you look over this information, you’ll have a better idea of how much net profit you’ll want to make. Just track your progress on a monthly basis and remain mindful of other metrics you need to know to keep your company profitable.
2. Build Your Business Relationships
You’ll make connections in the construction industry and eventually develop contacts that can be valuable assets for expanding your business. It’s important to foster the relationships you have with other professionals with care in order to remain in good standing with others in the industry. They’ll help you address many of the issues you might struggle with, offering insight from their own experience.
Beyond these industry professionals, you should also establish relationships with suppliers. Finding ways to reduce the strain on your finances is more time consuming, but will benefit you in the future. Search for suppliers who are more interested in creating long-term relationships rather maximizing their current margins.
A long-term contract with a focus on volume discount will cut costs and increase your profit over time. It’ll allow you to source your supplies at a lower price more consistently, saving you money in small increments.
3. Control Your Soft Costs
The soft costs of your construction projects are any expenses that aren’t directly associated with the physical building process. They represent any services you need pre- and post-construction, and they typically account for 30% of a project’s total budget.
When looking for a way to control these costs, streamlined project management is an excellent place to start. Today’s estimation software can simplify your responsibilities and decrease the time it takes to report and compile information.
For example, you can always take advantage of cloud services, storing all your information in a single place for easy access. It’s a small adjustment with a profound effect on your profit margins. Though it’s often challenging to calculate the exact savings you can expect from these changes, the value of a universally accessible server is difficult to argue.
4. Manage Employees Effectively
The approach to how management strategically employs the resources it already has to keep projects on track is what separates a successful construction company from a business just barely getting by.
In truth, your employees are your most valuable asset on a work site. Even with access to drones, project management software, and similar systems, your workforce brings a project to fruition.
You’ll keep your employees on-board and prepared when you invest in their ongoing education. Through continuous training, you’ll provide the resources they need to excel on a work site. Open communication and clear paths for career advancement are crucial to showing how much you value the people who work for you.
Continued Growth in Construction Business
When looking to improve your profit margins, you’ll see it’s far easier than you may have thought by following the four suggestions above. Set clear annual goals, build your business relationships and implement some of the other strategies on this list. As long as you apply these insights, you’ll reduce your expenditure and ensure the continued growth of your construction company.
Credibly offers small business loans that can help you meet your goals and stay competitive.
Holly Welles is a real estate & construction writer with experience covering business growth for industry publications including Construction Executive and NCCER. She also runs her own blog, The Estate Update.