How to Make Money in Construction Business [10 Key Strategies]

To build a successful construction business, you can make money and increase profit in two ways:

• By increasing income
• Cutting expenses

Now, you might be thinking of increasing the working hours to increase your income. However, let us tell you it is not a great strategy – for your business and personal health.

The other option is cutting your expenses.

Keep in mind that we are not telling you to be frugal and under-compensate your workers. We are suggesting you a better business model that doesn’t have any unnecessary holes leaking money.

Here are some cool techniques to make more money, cut costs and increase the profitability of your construction projects.

10 Strategies for Making Money in Construction Business

The gross margin for construction industry businesses has averaged 17.08-23.53% over 2020. But with the 10 strategies we have discussed below, you can move even further to expand your margins and make more money.

1. Improve productivity

Simply put, productivity is a way to gauge an effective endeavor. Total output divided by input unit is used to calculate productivity rates. Square footage of roofing erected or cubic yards of earth removed could be examples of output in the construction industry, while the input is normally measured in person-hours. 

On a job site, maximizing productivity entails working quickly and effectively to keep expenses under control and meet deadlines. Construction companies constantly strive to increase productivity since projects finished on time and under budget typically have larger profit margins.

Planning and scheduling your work is necessary to increase productivity. To ensure that work is carried out to maximize the productivity of all project participants, general contractors and trade contractors must cooperate. 

Because field employees are a crucial component of productivity, they must understand how to carry out jobs properly and safely. This entails ensuring that each employee has the appropriate instruction and is provided with the equipment and resources needed to perform their duties efficiently. 

Remember that productivity encompasses many factors than just employee efficiency. Poor supply chain management, shoddy scheduling mishaps, and unnecessary rework are additional elements that might affect production, and consequently profitability as well.

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2. Recognize your costs

It would help if you understand the costs related to finishing each project with profitability. This covers both your service charges and your construction overhead expenses and how to reduce it. You can’t determine your profits if you don’t know how much your projects cost to execute.

All expenses directly related to finishing a project are included in costs. These include:

1. Labor
2. Supplies
3. Equipment
4. Premiums for sureties
5. Fuel
6. Permits, etc.

Recognizing your costs and reducing them will give you the following benefits:

• The more you know your sources of expense and how you can mitigate them, the better off you will be in increasing your profits.
• The lower your expense, the more you will be flexible in providing a competitive price and yet stay profitable.

Thus, it is absolutely crucial that you know your numbers and keep them on the positive side.

3. Analyze your profit

As a business owner, you hope to be chosen when you bid on a project. You anticipate making money when you are given the contract after winning the bid. Your projections must be accurate and reasonable for that to occur. No amount of project management or productivity improvements will make you profitable if your estimates are too low. 

This is why precisely accounting for your service costs and overhead is crucial. It enables your estimators to calculate markups and apply them appropriately to meet your profit objectives. Make sure to consider the risk factors associated with each project and include a contingency line in your proposal that can absorb extra expenditures if the risk materializes. 

For estimators to produce accurate task prices, they also need to be aware of the productivity levels of their field personnel. 

Please keep track of the differences between actual and estimated service costs for each project, particularly labor costs and productivity levels. This enables your estimators to assess the accuracy of their projections and decide on any revisions that may be required for your subsequent bid.

By constantly attempting to be the lowest bidder, avoid going for the lowest price. You’ll never be lucrative if you undercut your bids to win. Profitability, risk analysis, and your company’s ability to do the work should all be considered when you decide whether to bid. The bottom line is not to forgo earnings to secure additional business.

4. Prioritize profitability 

Setting profit margin objectives is necessary to increase your company’s total profitability. Where does your business plan to be in a year? 5-year period? A decade?
Perhaps you want to expand into new areas and countries or build your company. Perhaps you wish to take on larger projects or move from public to private ventures.

Setting attainable revenue and profitability targets can help you achieve where you want to be. And knowing your long-term company plans will help you do that. It will also influence the kinds of jobs you embark on and direct your estimators regarding the markup percentage they should aim for on each project.

5. Track costs and manage profitability

Profitability can be increased through effective project management. Focusing on your business side, keep your expenditures low and complete the project by the stated completion date if you want to meet your profit target. Please keep track of the costs associated with modification orders so you can correctly bill for them and raise your profit margin. Never work on a project further until a fee has been decided upon and the client has given their approval. 

Keep these points in mind:

• Avoid having employees stand around doing nothing.
• Keep track of your material management
• Organize the job site to maximize worker productivity.
• Provide each employee with the appropriate safety instructions and personal protective gear.

A skilled project manager should be able to recognize the warning signs of a potential problem and take the appropriate action to keep the project on track. They must look for approaches to increase output.

Keep thorough records of all the charges associated with your work. It’s not necessary to record every screw and nail, but you will need to be able to compare the job’s prices to the budget so you can perform a full study after it is finished.

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6. Review your findings

There is work to be done when a project is finished. Do a post-mortem analysis with your team to determine how closely your predicted profit matched your actual profit.

• Did your estimate of the job’s expenses match the actual costs?
• Were overhead costs correctly taken into account in your bid?
• Have there been problems at the job site that have cost you money or caused productivity losses?

Examine your projections and real expenditures carefully. Note any costs that were higher or lower than you had anticipated so you can improve next time.

When planning and scheduling your next project, if you have experienced productivity problems, consider training your staff members and looking for strategies to cut downtime.

Profits in construction don’t just happen. That isn’t how the business is designed to run.

Many things could go wrong and ruin a project that would otherwise be successful. It takes perseverance and hard effort to go from scraping by on razor-thin margins to being profitable enough to build your firm and achieve your business goals.

7. Manage your employees

Let everyone on site know how many people will work on each task.

For example, FORECAST-framing 70 hours, int. One hundred hours and extended clad. 80 hours.

And align the labor distribution according to each person’s aptitude – who performs what?

• Log daily site visits.
• Introduce incentives to promote efficiency to reduce labor time.
• Encourage on-time arrivals.
• Monitor output by breaking the project into real-time stages and back-costing.

8. Use a project management software

Set your KPIs, understand your data, and act accordingly.

For instance, if framing goes over by 20+ hours, discuss it in a toolbox meeting and ask your employee how to get the hours back.

It would help if you also allowed all staff to access your project management software so they can feel informed and understand how each person contributed to the project’s success.

Here is some project management software you can try:

• Microsoft Project
• RaveBuild
• Co-Construct
• Buildertrend

9. Utilize extra material 

Utilize the leftovers from the previous job and apply the remaining material to new projects. Encourage the site to change its “rubbish culture” by offering incentives for material conservation.

If you cannot repurpose the materials, return them for a refund (where free returns of extra merchandise may be available), and double-check your orders before proceeding.

10. Use the correct tools 

Get the foreman to inform your crew of their plans for at least two days to gather the necessary equipment. Ensure that every employee always has a “minimum” toolkit on-site:

1. Tool belt
2. Handsaw
3. Hammer
4. Ruler
5. Nips/pullers
6. Nail punch
7. Craft knife & blades
8. Steel cap boots
9. Safety glasses
10. Earplugs
11. Set square
12. Pencils
13. Tape measure
14. Safety glasses

Here are some rules you can introduce for increased productivity:

• No talking on mobile phones.
• No smoking while working.
• Apprentices must have access to their tools.

Such rules should be followed in construction companies.

Conclusion

To conclude, keep track of all your financial transactions, even when you pay with cash. Search for strategies to boost your margins and consider raising your prices slightly. Use a construction invoice template to keep track of your invoices to enhance your cash flow.

And, since every company requires an invoicing system to manage estimates and bills, InvoiceOwl is a invoice software for construction contractors.

But it is an excellent option if you have trouble keeping track of paper estimates and bills. With the help of InvoiceOwl, you can quickly create professional-looking estimates and invoices.