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Construction profit margin: 5 ways to improve profitability and grow your margin

Picture of a building in construction in NJ viewed from Manhattan | Profit margin | Knowify

What’s your current average profit margin on a job? What would you like your average profit margin to be in the future? What kinds of jobs tend to have the best margin for you? 

Far too often, contractors have the goal of being profitable, but don’t know where to start to move the needle in the right direction. Here are 5 simple but effective ways you can start to reduce costs and increase profit margin in your construction business today.

Utilize a detailed budget

Detailed construction budgeting is a surefire way to help you control costs and increase your overall construction profit margin. Your budget can go well beyond what resources you need to simply get the job done; if reviewed during and after completion of each project phase, your budget can also be the greatest source of insight into how to increase your construction profit margin. For example, did you underestimate your materials budget? If it was a matter of quantity, you may need to revise your estimating sheets. If the prices were higher than expected, then you might consider using an RFQ process with vendors to find the best prices for materials and lock them in ahead of time. In either case, you’re using real-world data to make profit-enhancing decisions. 

Detailed construction budgeting should factor in things like:

  • Crew efficiency and downtime (eg, driving time to get to a distant jobsite)
  • Fully burdened labor costs
  • Detailed material quantities and costs
  • Labor, material, and subcontractor markups

Planning out these aspects in advance as well as reviewing progress throughout the job via job profitability reports allow budget-consuming expenses, habits, or mistakes to be identified and adjusted for the future. One Knowify customer noted of the software’s job costing and project management features:

“We’ve increased our profit substantially, mainly due to material cost and things of that nature. I can look and see the analytics and see my actual profit percentage for a particular job. It’s helped us to decrease our materials cost because we have better control over loss prevention of the materials.”

Efficiently communicate

Communication goes beyond face-to-face interactions and emails. It’s ensuring that everyone on the team knows where to find critical information and are on the same page regarding projects, deadlines, budgets, and goals. One business productivity report found that:

  • 41% of respondents found it difficult to get a detailed overview of project statuses at any given time.
  • 62% have experienced losing a critical file on a personal hard drive, within their inbox, or another location that isn’t accessible to others.
  • 70% of customers have chosen to stop working with companies they felt were disorganized, moving on to one of their competitors.

Better communication ensures that issues and problems are addressed sooner, when there still may be a chance to address them. In order to ensure your profitability doesn’t take a hit, empower your employees – both in the field and in the office – to follow a clear communication pattern and provide accessible updates regarding projects. This can be achieved when an all-in-one business solution is utilized to allow for centralized and streamlined project statuses, visibility, and reporting.

Emphasize safety

Safety is critical when completing construction projects, and injury can occur to anyone at any time while on the clock. Taking the time to ensure proper procedures and precautions are being followed on the job site, alongside regular safety briefings and training, can pay off big time when it comes to cost control in construction.

Aside from the direct benefit of your employees’ safety, “OSHA estimates that construction companies save $4 to $6 for every $1 invested in safety programs.” Not to mention the money saved in loss of manpower or delays associated with illness or injury.

Get to know your crews’ strengths

No two workers are created equal. You may discover that your crews are much more efficient with certain kinds of work, and that focusing on that kind of work can lead to an increased construction profit margin for your business. Playing to your workers’ strengths can have other benefits, too: 73% of employees who are utilized for their strongest skills on the job are more likely to be engaged at work. And this engagement translates into profit, with companies boasting high levels of employee engagement seeing a 21% increase in their profits.

Take the time to understand each of your employees’ strengths, shortcomings, and backgrounds. By doing so, you’ll be able to create crews that round each other out and can work autonomously to get the job done well and efficiently. Alternatively, if your crews are already established, pay attention to the projects they are placed on and phase work they complete. Is one crew more efficient than another at a certain phase or type of work? By noticing trends and understanding gaps in your crews’ productivity, you can take steps towards remedying causes of project delays and mishaps.

Invest in your team

One of the most common problems contracting firms are facing these days is employee retention. It’s a competitive industry, and highly skilled, high-performing workers can be hard to come by. Losing a great person to a competitor can be a big setback and hit to your bottom line – not only do you now have to go find a replacement, but you’ll inevitably have to spend time training the new person to perform work to your standards. 

According to LinkedIn Learning, “94% of employees say they would stay at a company longer if it invested in their learning and development.” Training, goal planning, and performance reviews can potentially reduce employee turnover, improve productivity, and increase workplace morale. Do you have any high-performing workers who have been with you a while and really know your business? Do they have leadership aspirations? Maybe you should introduce them to the estimating or project management sides of what you do. Even if they’re not going to become an estimator or project manager, giving them the opportunity to see more of the upper-level business functions will make them feel like you’re valuing their professional development and investing in them as professionals.  

Conclusion: the next step for increasing your construction profit margin

With Knowify, contractors and construction companies receive the actionable insights and tools they need to reliably increase their profit margins and control costs. Thanks to features like job costing, project management, billing and invoicing, and job profitability reports, Knowify users take control of their profitability and understand how they can remain successful. To find out more about how Knowify users take on an average of 20% more projects in their first year, request a demo or start your free trial now – no credit card required!