Looking to succeed as a construction business?
Over 3.5 million construction companies exist in the country. With such a high level of competition, you must grasp every strategy to keep yourself afloat. A vital part of this strategy is to ensure a high profit margin.
How to Improve Construction Business?
Join us as we explore some tips to enhance your business profits. Read on and find out more:
1. Improve Productivity Levels
Productivity is the primary means of measuring how effective your efforts are. It also determines whether your company stays on schedule. If your projects conclude under budget and earlier, your profits are higher.
It’s why as a construction firm, you aim to improve productivity whenever possible. To do it, plan and schedule work carefully. Most general and trade contractors work together to complete work while making the most out of efficiency.
Your field workers are the most important component of productivity. They must know how to complete assigned tasks the right way. To ensure their safety and efficiency, they must have proper training.
Another thing your workers must have is the proper tools, equipment, and resources. They must have them for every possible task.
Other factors are detrimental to productivity and profitability. Some of these are poor supply chain management and poor scheduling. Accidents and unexpected reworks also contribute to these problems.
2. Know Your Costs
To improve profitability, understand the associated costs with each completed project. It goes beyond job costs—overhead costs count too. If you have no sense of the costs for each project, your profitability on each job is unclear.
Job costs include every component necessary to finish a construction project. These will include the following:
- Equipment rental costs
- Insurance premiums
- Fuel permits
It’s any related cost on the job site. It varies depending on your region or project type. Keep your job costs updated. It’s an important requirement if you’re working in multiple locations or states.
Dealing with material cost fluctuations can affect your job costs a lot. It can become severe that it will affect your profits.
Meanwhile, overhead costs come from expenses necessary for business operations. It includes the following:
- Support staff payroll
- Office rental
- Debt payments
- Your salary
- IT fees
- Legal fees
Depending on your business setup, you might pay more overhead costs. When calculating and reporting them, capture everything. Be accurate since estimators need them for better bid submissions.
3. Estimate for Profit
Bidding for a project is all about winning. When you get the contract after winning a bid, you’ll get profits. It’s only possible if your estimates are realistic and accurate.
Project management and productivity gains are useless when you offer low estimates. Your projects are never profitable. To achieve your profit goals, calculate your job and overhead costs accurately.
Consider the associated risks on each project. Build contingency lines to your bids. They can absorb the extra costs whenever the risk becomes real.
Estimators often ask about your field workers’ productivity levels. It allows them to make realistic job costs. Track of both actual and estimated job costs for every project.
Focus on labor costs and productivity rates. It allows estimators to adjust your estimates on your next bid.
Becoming the lowest bidder is not always the best choice. Never let your profitability struggle to win bids. It must be your top consideration while analyzing your company’s capabilities.
4. Set Profitability Goals
Always set profit margin goals to improve your company’s profits. It also avoids business failure because of the lack of expense control. Think about your company’s state within the next five to ten years.
Are you looking to grow or expand into new markets? Are you tackling larger projects? Regardless, knowing your business plans enables you to set goals you can achieve in time.
It also helps determine the projects you’ll take. A goal guides your estimators when setting the markup percentage on each project. In the end, these will allow you to achieve your intended goals.
5. Manage for Profitability
The key to improving your profitability is through proper project management. If you want to achieve a profit goal on a project, keep your costs down. Do it while completing your task before the scheduled deadline.
Track costs on any change orders to billing them properly. It expands your profitability margin. Never do more work on projects unless your client consents and agrees on a price.
Avoid having idle workers in your company. Let them learn about comparisons between CoConstruct vs Buildertrend when they’re not doing anything. Stage the job site to maximize your workers’ productivity.
Each worker must have protective equipment to prevent accidents and injuries. If your construction site is safe, productivity and profitability increase.
6. Analyze Your Results
After completing projects, gather your team. Let everyone analyze whether your estimated profit is close to their actual counterpart. Determine whether the job and overhead costs align with your estimates.
Always compare your estimates to your actual costs. Record everything that went over and under your estimated budget. It allows you to set better expectations next time.
If you have productivity issues, think about giving extra training to your personnel. Look for more ways to reduce downtime. Do it while scheduling your next construction project.
7. Decrease Third-Party Business Partnerships
Subcontractors and suppliers are vital to every construction firm. However, it’s not a license for you to pick the cheapest ones to partner with. It seems like a good idea, but your work quality is at risk.
Instead, look for subcontractors or suppliers with good reputations. They must deliver high-quality and well-priced work. It’s a good way to explain the reason behind your price increases to your customers.
Make Your Construction Business More Profitable Now!
These are some tips to make your construction business earn more. It applies to both construction job bidding and construction projects. Otherwise, your construction business profits will decrease.
Are you looking for more ways to increase your profits? Try our other blog posts for more management guidance.