The primary goal of any business is to make a profit. This is quite straightforward, right? Well, for those unfamiliar with the industry, running a construction company sounds like a fairly simple thing. You bid on construction projects, build these projects, pay any expenses, and make a profit. Then it’s just rinse and repeat, right?
Not really. There’s a lot that goes into running a construction company. Plus, business growth in the construction industry has not been encouraging in the past few years. It’s important to have a good handle on the figures that establish how profitable your business is, as it will ensure that you make enough profit from each project. This way, you can stay afloat and build a great business.
In this article, you will learn about the profitability of construction companies, and how you can boost your profits and reduce overheads in construction projects.
How is the Profitability of Construction Companies?
The construction industry is undoubtedly one of the most profitable sectors of the economy. However, it can be quite challenging to predict the profit margins of a business in such a huge sector. Construction companies often have to contend with huge expenditures, including the project’s overheads. You also have to account for equipment, supplies, labour, bonding, and other expenses related to completing the project.
One major expense you want to account for while operating a construction company is the overhead costs. These include office rent, insurance, office supplies, equipment, legal fees, bookkeeping, debt payments, owner salaries, and other expenses related to running the business.
What you’re left with after deducting the project’s costs and your overhead is profit. This is what will enable your business to grow and invest in itself. Your construction company may run into operational difficulties in case it doesn’t make adequate profit.
When writing bids for construction projects, make sure that you know the costs and the intended profit margin when calculating the projected contract price. Make sure that you also include a markup in the cost of materials and labor, and an overall markup for both overhead costs and profits. If you only include your profit margin in the markup, it’s likely that you’re not sufficiently accounting for the overhead costs. Websites such as Build Store offer discounts on bulk orders of building products.
How to Boost the Profitability of Your Construction Business
The main goal of your company should be growth. Besides taking on larger projects or a higher volume of projects, growth mainly comes from raising your profits. The following are some of the more important tips on boosting your profit marking and lowering your overall overhead, to ultimately increase the profitability of your construction business.
Give Realistic Estimates
As much as you want to win when bidding on a project, you also want to be practical and exact with your estimates. You won’t become profitable if you give estimations that are too low, no matter how well you manage the projects.
Always have precise accounting for your construction projects and the overheads. It will give your estimators a better chance of applying the right markups to meet the profit margin goals. Ensure that you also account for the risk factors associated with the project and include a line of contingency in your proposal that can absorb extra expenses in case the risk materialises.
Determine Profitability Targets
If you want to become profitable, you need to set profit margin objectives. Where do you see your business in a year? 5 years? 10 years? Perhaps you intend to expand the business into new areas, take on more significant projects, or move from residential to commercial projects.
No matter the vision, having attainable revenue targets will help you achieve where you want to be, and being aware of your long-term plans will help you do that. It will also influence the kind of jobs you take and can direct your estimators in terms of the markup proportion they should aim for in each project.
Stay on Top of your Costs
Effective project management can help you increase profitability. Make sure that your expenditures are kept low and that you complete the project by the stated completion date if you want to meet your profit targets.
Keep thorough records of your work and all charges associated with it. While it might not be possible to record every nail and screw from your project, you need to be able to know the exact prices of the job and compare it with your budget to be able to do a full study once the job is completed. According to Experts Windows Dublin, you should also factor in the cost of your windows to the total building cost as the type of windows you choose can drastically change the overall price of a newbuild.
Always Check the End Result
Even if the project is completed, there’s still some work to be done. Gather the relevant members of your team and perform a retrospective analysis of the project to see how closely you predicted the profit and how much profit you actually made.
Examine the projections and real expenditures carefully. Note down any prices that were different from what you anticipated to see where you can improve in the future. This way, once you start planning your next project, you can identify any bottlenecks and look for ways to cut downtime.
In Closing
Hopefully, these ideas have given you a good rundown of what is expected of you for the long-term success of your construction company.
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