Understanding Average Profit Margins in Construction & How to Improve Them

Traditionally, the “10-10 rule” suggests: 

• 10% for overhead 
• 10% for profit 

That means a 20% margin is considered healthy—but in reality, most firms achieve far less. 

Several factors contribute to shrinking margins in UK construction:

1. Rising Material and Labour Costs 

• Material costs remain historically high, with BCIS forecasting a 13% increase by 2030. 
• Labour costs are set to rise 16% by 2030, driven by skills shortages and wage inflation. 

Even though material price inflation has slowed since the pandemic, costs remain stubbornly high compared to pre-2020 levels. Essential items like concrete, steel and bricks have seen double-digit increases over the past few years. Add to that the volatility in global supply chains and energy prices, and contractors are left with little room to absorb shocks. 

Labour costs are another major pressure point. With a shrinking talent pool and rising demand for skilled trades, wages are climbing faster than many firms can adjust their pricing models. This combination of expensive materials and labour squeezes margins from both ends, leaving businesses vulnerable to even minor project delays or scope changes. 

2. Construction Skills Shortage 

• The UK faces 140,000+ unfilled construction vacancies in 2025. 
• CITB projects the industry needs 47,860 extra workers per year through 2029.

When contractors can’t find enough skilled workers, projects slow down, deadlines slip and costs spiral. The demographic challenge makes this worse: over a third of the construction workforce is over 50, while younger entrants are scarce. 

This shortage forces companies to pay premium rates for subcontractors or overtime, further eroding margins. It also limits the ability to take on new projects, capping revenue growth.

3. Optimism Bias 

• Unrealistic schedules and underestimated costs lead to overruns. 
• The HS2 rail project is a prime example of optimism bias causing delays and overspend.

Optimism bias is the silent profit killer in construction. It’s the tendency to believe things will go better than they realistically can - shorter timelines, lower costs, fewer risks. While optimism can be motivating, in project planning it’s dangerous. 

When estimates are too rosy, projects inevitably run over budget and behind schedule. HS2 is a high-profile example, but the same pattern plays out on smaller projects every day.  

4. Insufficient Planning 

• Poor pre-construction planning results in design changes, delays, and rework - eating into profits. 

The pre-construction phase sets the tone for the entire project. Skimping on planning might save time upfront, but it almost always costs more later. Inadequate design development, incomplete scope definition and rushed procurement lead to surprises mid-project – that often cost money.  

Poor planning also often leads to project delays and rework – which can have a huge effect on margins. The ‘Get It Right Initiative’ predicts that between £10–25 billion is spent on construction rework every year in the UK. 

5. Poor Data Management 

• Construction remains one of the least digitalised sectors. 
• Reliance on spreadsheets and siloed systems leads to errors and inefficiencies. 

Data is the backbone of good decision-making, but in construction it’s often fragmented, outdated or just plain wrong. Many firms still rely on spreadsheets and disconnected systems, creating blind spots that lead to cost overruns and delays. 

Without a single source of truth, teams waste time reconciling numbers and hunting for information instead of managing risks. Errors creep in, collaboration suffers and profitability takes a hit. Moving to integrated platforms like construction ERP systems is a key margin protection strategy. 

Our industry-leading Construction ERP, Access Coins, gives your business a ‘single source of the truth’ to empower your team and increase your profit margins. 

6. Scope Creep 

• Uncontrolled changes during projects often go unbilled, reducing profitability.

Scope creep happens when clients request additional work that isn’t captured in the original contract - or worse, isn’t billed. In an industry where margins are already thin, even small untracked changes can wipe out profits. 

The solution lies in clear scope definition, robust change control processes and tools that make it easy to document and approve variations in real time. It’s about turning “just one more thing” into a managed, billable change rather than an unplanned cost. 

7. Legislative Changes 

• New regulations—such as whole-life carbon assessments—add compliance costs mid-project.

Regulatory changes are a moving target, and when they hit mid-project, they can derail budgets. Recent examples include updates to the Building Safety Act and sustainability requirements like whole-life carbon assessments. 

These changes can often require design revisions, new materials or additional reporting - all of which costs time and money.

Here are four proven strategies

1. Avoid the “Race to the Bottom” in Tendering 

• Competing solely on price leads to unsustainable margins. 
• Instead, sell your expertise and quality—not just cost. 
• Be selective: if a client prioritises the lowest bid, consider walking away. You may end up working at a loss.  

“Rather than discounting rates, companies should invest in working practices that enable them to work quicker and smarter while delivering higher quality.”

-  Roy Hedger, Director, Association of Cost Engineers (ACostE) – talking to Access Construction 

2. Embrace Digital Transformation 

• Digital tools can significantly reduce costs and improve efficiency: 
• Construction ERP systems unify data for better forecasting and cost control. 
• Automation and AI can help streamline estimating, scheduling and procurement. 
• Connected job sites and IoT improve visibility and risk management. 

3. Focus on People 

• Invest in training and retention to combat the skills gap. 
• Build a positive culture to reduce turnover and maintain productivity. 
• Prioritise health and safety to avoid costly delays and penalties. 

4. Build a Culture of Collaboration 

• Use shared platforms for real-time data access. 
• Standardise project management processes. 
• Encourage transparency across the supply chain to reduce disputes and delays. 

A modern Construction ERP like Access Coins provides: 

• A single source of truth for all project data. 
• Real-time cost tracking and forecasting. 
• Integrated procurement and budgeting. 
• Collaboration tools to reduce miscommunication and rework. 

“Having a digital platform accessible to all stakeholders throughout a project lifecycle has been game-changing. It ensures visibility, reduces risk, and improves profitability.”

- Roy Hedger, Director, Association of Cost Engineers (ACostE) – talking to Access Construction