5 Ways Construction Companies Can Increase Margins
As costs rise, construction contractors should look for ways to increase their profits.
The construction industry is known for its low and tough-to-predict profit margins. While it would be optimal for profits to increase every year, that’s not always the case. Outside factors influence the industry in unanticipated ways, leading to occasional decreases in demand. There are, however, a few things that contractors can do to help increase their profits. Here are our suggestions.
Use Construction Software
Construction software can make projects much easier to manage, giving insights on valuable data that can be used for important business decisions. Construction estimation software can help prevent costly mistakes in estimates that impact company profits.
Construction project management software monitors a project’s resources, budget and schedule to create valuable reports. This data helps contractors decide how to grow their company or determine cost savings for the next project.
Reduce Project Duration Time
Reducing the time safely spent on a project means lower costs for rented equipment and labor, influencing profits. Improved time efficiency means you can schedule more projects, increasing overall revenue for the company.
To reduce project duration times, contractors should analyze their steps to see which ones take too long or create bottlenecks. Perhaps the concrete takes a long time to dry, so you may consider using concrete that dries faster. It’s also possible one of the subcontractors is taking too long to complete a job, delaying your crew from doing theirs.
Increase Your Markup
“By increasing your markup by only a couple of percentage points, you can quickly increase your profits,” says Nick Miller, a home construction contractor who runs ContractorAdvisorly.
According to Miller, “Customers understand that you have to make a profit on your jobs, that’s why contractor markup is one of the easiest things to explain to your customers when you hand them the cost breakdown sheet. Even if you increase it by three to four percent, that quickly adds up when you’re doing multiple projects. If your total revenue per year amounts to $400,000, a four percent increase in markup would add $16,000.”
Rent Equipment Instead of Buying It
Renting equipment should be prioritized over buying expensive equipment that will only be used once or twice a year.
Marcos Soto, who owns a roofing company in San Antonio, says, “One thing to keep in mind is that apart from the money used to buy the equipment, money is also spent on maintaining it and fixing it when it breaks. The costs of owning equipment over renting is a lot more than just the costs of buying it. It wouldn’t economically make sense for us to buy a large dumping trailer since we only use them for very large commercial roofing projects and not for our regular projects, so instead, we just rent them when we need them.”
Renegotiate With Your Suppliers
Contractors should always be aware of changes in the industry, as well as supply and demand. A certain material might have been in high demand the previous year, but things might be different now, making it more likely for a supplier to negotiate the material price.
Says Miller, “Construction is an industry that is vulnerable to all types of changes ranging from political to environmental. As such, contractors should consider renegotiating their contracts with suppliers to keep up with industry changes.”