When you’ve been in the construction industry a long time either as an employee or subcontractor, it’s easy to get frustrated by the lack of career opportunity and progression or the way in which the pay stays the same no matter how much your skills and experience may grow. Those with an entrepreneurial spirit may find fortune in going into business for themselves. Unfortunately, the startup costs of construction businesses can be extremely high. While we’re always hearing of bright people making their fortune in the digital realm making their fortune on bootstrapped startup companies, it’s simply impossible to bootstrap a construction business.
As such, those who run their own construction businesses start off with sizeable debts which can eat away at their profit margins. As loan repayments and equipment financing gather interest they can place a greater and greater restriction on cash flow. In this climate, construction firms need to bolster their profit margins without compromising on the quality of the services they offer. Here’s how they go about it…
Rethink your suppliers
Your company likely uses a lot of contractors and service providers to cover the blind spots of your operations (like how to transport heavy machinery to the intended construction site). Even if you have good relations with your suppliers, it’s a good idea to keep an eye on what their competitors have to offer. Visit A&A machinery for machinery moving resources as a good example. The more services your provider has under one roof, the more room you have to negotiate a good price.
Avoid the urge to race your competitors to the bottom
As the new kid on the block, you may feel that you need to undercut your more seasoned competitors on price when bidding on contracts. This should be avoided as it benefits nobody. Construction is, by nature a low margin industry, and nobody expects you to compromise your margins as long as your quotes are fair, reasonable and reflect your worth. Bear in mind that even the best-planned project has a margin for error and that even a change in weather can set the project back. If you’re not careful, your projects will run at a loss if your margins are too low.
A Request For Information is an essential way to reduce the likelihood of errors and omissions in a project. But while forewarned is forearmed, RFIs can place a huge drain on a project’s profit margin. Since the average cost of an RFI is $1000 and the average project required around 10 RFIs per $1M of construction cost, it behoves profit conscious entrepreneurs to use a collaborative cloud-based approach to sharing information to mitigate these costs. This will not only save time, effort and capital but reduce the chances of rework eating further into profit margins.
Easier said than done, right? The very nature of construction makes it vulnerable to mismanagement and inefficiency. An estimated 95% of data and analytics in construction is either thrown out or not collected at all. Needless to say, this means that construction companies lose out on valuable insights. Only by keeping a close eye on your project data can you identify areas to save time, effort and money on the next one.
Follow this advice and project by project you will see a steady increase in your profit margins.