While construction companies are adept at securing contracts, the industry’s profit margins have never been lower. Competition and corporate mergers have increased financial pressure even as timetables tighten and budget constraints force companies to accomplish more with less. The following are a few ways to improve your construction firm’s revenue.

As shown in a 2019 research that studied over 2,700 construction projects, gross profit margins increased substantially between 2008 and 2012 from 10% to more than 20%. However, profit margins started to fall dramatically after 2014 and plummeted significantly three years ago.

Given these conditions, it’s understandable that construction firms are always on the lookout for innovative ways to increase profit margins on construction jobs. Fortunately, new technology and strategies have made it feasible.

Ways to improve your firm’s revenue

Don’t get caught up in numbers, but rather look for areas your firm may save expenses on, improve its offers, and provide high-quality services. The following are some ways to increase your firm’s revenue:

1. Set a tangible goal

Construction firms often struggle with profitability due to a lack of bottom-line objectives. Establishing measurable, precise company goals that are communicated to all workers and managers helps motivate you to take action to accomplish those goals and reach your intended firm’s revenue.

If you establish yearly objectives for your firm, you may measure your progress monthly to assess if you’re on target. Moreover, setting annual objectives provides a clearer picture of how your monthly return should appear, allowing for adjustments during the target period.

2. Improve productivity

Productivity is a term used to determine the efficacy of an activity. Optimising productivity on a construction project entails working effectively to keep expenses down and schedules on track. Moreover, finishing projects on time and within budget often results in larger profit margins. This is why construction companies are always searching for ways to enhance productivity.

However, enhancing productivity involves meticulous planning and scheduling. Team members must collaborate to ensure work is executed in a logical order that maximises the efficiency of all parties involved.

Moreover, since field personnel is critical to productivity, they must understand how to accomplish their given jobs effectively and securely. This includes ensuring every worker gets enough training and is provided with the equipment and tools necessary to do their duties successfully. Fortunately, construction management software like this one offered by Jobber may help streamline your processes and improve productivity within your firm.

However, remember that productivity is not only about the efficiency of your employees. Additional variables that might have a detrimental effect on productivity, and hence firm’s revenue, include inefficient supply chain operations, inefficient scheduling, errors, and costly rework.

3. Keep an eye on overhead expenses

Overhead refers to all of the costs associated with operating your construction business. This includes salaries and wages, legal expenses, and equipment. However, many construction firms overlook these additional expenditures when calculating their total work costs.

One critical component of increasing profitability is including overheads in work costs. For instance, if you must pay the wages of your support staff, include their salaries in your total costs. Keeping meticulous records of your expenditures can help you determine exactly where your money is going.

Moreover, compute monthly overhead costs and adjust your proposal accordingly. This will keep your margins consistent even when your overhead varies.

4. Estimate for profit

Whenever you bid on a job, you anticipate winning. Likewise, when you’re successful in a bid and granted the deal, you anticipate making a profit. To make it happen, you must be as thorough and precise as possible with your estimations. If your estimates are inaccurate, no level of productivity improvement can make you profitable.

Hence, it’s critical to maintain an accurate record of project expenses and overhead. This enables your estimators to include the appropriate markups in order to meet your profitability targets.

Additionally, a competitive bid is founded on factual information, not conjecture. Thus, take into account factors associated with each project and include a contingency provision in your proposal that can handle extra expenses if a risk occurs.

Furthermore, estimators must also be aware of the level of output of your site personnel to establish accurate job estimates. Keep a database of actual versus expected work costs for each project. This should include labour expenses and productivity levels so your estimators may verify the accuracy of their estimates and make any necessary revisions with your next bid.

5. Evaluate your results

Work continues even after you’ve finished a project. Thus, assemble your staff and do a retrospective study to review the accuracy of your forecasted profit compared to actual profit. How accurate were your estimated construction costs? Was your proposal correctly itemised in terms of overhead?

Examine your estimates carefully in comparison with your real expenditures. Also, take note of any expenditure that exceeded or fell short of your expectations. If you encountered productivity challenges, try offering more training to your employees and identifying strategies to minimise delays when designing and scheduling your next job.

Bottom line

Revenue doesn’t happen spontaneously in the construction industry. That is not how the industry is designed to work. Many potential pitfalls may derail what could have been a profitable endeavour. Thus, it requires determination and effort to go from trying to carve out a living on razor-thin margins to profitability sufficient to build your firm and achieve your business objectives.

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