Many construction companies struggle to make decent profits. Why? It’s innate in the construction industry that most companies focus on winning contracts and overlooking the financial aspect. The problem is just not one-sided. Clients, especially in the public sector, incline to award construction tenders to the lowest bidder, ignoring other determinant factors.
The factors above, combined with stiff competition and escalating costs in construction materials, have left many construction companies grappling for profitability. But should this be the case? Construction companies are businesses. And just like other businesses, profit motivation should be a priority.
The article below gives a rundown of tips to increase profitability in the construction companies. So, if you are in the construction industry, you may want to stick on.
When bidding for a job, estimate the likely profits and overheads from the project. Are you wondering how to calculate overhead and profit in construction?
Well, to determine your profits, add a mark-up to the actual cost, you are likely to incur in the project. For overheads, apportion a percentage of your overall overheads to each project. The size of the project dictates the rate.
Even as you mull over the project’s execution details, prepare financial projections to guide your spending.
Study your costs
Use your experience to anticipate most of the cost areas of your project. This also extends to your overheads. It’s vital to have a full picture of the costs as it saves you the risk of underquoting. In your quote, cover as many expenses to avoid meeting deficits from your pocket.
If you are undertaking a project that you are unfamiliar with, factor in contingencies to cater for incidental costs. Also, conduct adequate research to establish the likely cost centers.
Efficiency and effectiveness are essential for optimal productivity in the construction industry. But what exactly do they mean?
Effectiveness is doing things right. Efficiency implies reduced errors. Both metrics are achievable by conducting proper training to your employees. The results are improved speed and reduced error rate.
Is that all? Not. To increase productivity, stretch your efforts beyond your employees. Look into other inefficiencies, such as repeat jobs, poor planning, and substandard supply chain management. All these eat into your profits.
Set profitability goals
Where people lack vision, people perish. It’s an adage that is so true in every business—goals birth purpose.
Set up realistic profitability goals and work towards that. Where do you see your construction company in the next coming years? How will your profits look like in the next two years? Six years? Set both short-term and long-term profitability goals.
Along the way, monitor and analyze your profitability to measure progress. You could monitor monthly, quarterly, and so forth. The trick is to evaluate frequently to develop corrective measures in ample time.
After every construction project, generate a post-project analysis report. Identify areas you overspent. Also, identify areas that you spent optimally. Use this experience when executing future projects.
To conclude, profits won’t just happen magically in your construction company. Prior planning is vital for your business. Follow the tips above, and you will surely take your business to new horizons.