Small gains, big impact: How to boost your profit margins in construction
It’s no secret that profit margins throughout the construction industry are notoriously low. Despite many projects running into millions or even billions of pounds, contractors typically struggle to turn even a 2% margin.
In contrast, other industries that employ many skilled and semi-skilled workers such as car manufacturing can expect a much healthier profit margin of around 6-8%.
Why are low margins a problem?
Responsible managers should always look to turn a healthy profit to invest and grow the business. Profits can be reinvested in training and development, research and innovation, new technologies and machinery. In short, if it is well managed, a profitable business is a healthy business.
Unfortunately, the construction industry is littered with recent examples of large contractors such as Carillion and a raft of smaller companies including Shaylor, Pochin and Dawnus who failed to keep their finances in check. According to Building Magazine, more firms from the construction industry fell into insolvency last year than any other sector, with almost 3,000 going under.
How can businesses increase profits?
With so many construction businesses struggling, what can companies do to improve their finances? Simply selling more does not necessarily increase profit margins if overall costs increase at the same rate. This is why companies with a multi-million pound turnover can still be at risk, as the fall of Carillion showed.
Google 'improve profit margin' and 42,000,000 pages of advice are returned. They can be summarised as 'increase the price of goods or services sold', or 'reduce the cost of creating and delivering those goods and services'. Not very useful in the real world when increasing prices can be difficult in such a cost-driven industry.
For this reason, many companies seek to make many incremental savings throughout the business. This includes efficiency savings i.e. saving costs through better processes, as well as savings in direct costs such as buying goods or services at a cheaper price. This leads onto the importance of the estimator.
How estimators can improve profit margins
Estimators have a key role to play in helping to improve profit margins. Of course, gathering data and negotiating the best price from subcontractors and suppliers is a vital element of the role. Building great relationships with suppliers is crucial, as well as keeping a firm track on prices and estimates as they come in.
Moreover, keeping the whole process of estimating as smooth and efficient as possible will help to drive down costs and nudge up profits. The best way to keep these processes efficient is to invest in specialist construction estimating software such as ConQuest. Using software designed for the job, rather than complex spreadsheets, can save hundreds of hours of administration time on manual and repetitive tasks.
Even if you’ve designed your spreadsheet and know every formula and macro inside out, using a bespoke estimating package to manage the process will always save time. Not only that, it helps to reduce manual errors, reducing the chance of costly mistakes if the error isn’t spotted and saving hours searching for the wrong decimal point if it is.
Small gains deliver big impact
While reducing manual tasks may not immediately appear to have a direct impact on profitability, the cost of employing staff is one of the highest monthly costs for a business. And if more time can be spent on productive work and a company can save hours on estimating for every project, that can play a vital part in boosting profit margins and growing a healthy company.
