How to make a profit on every building project

Big profit and building project don’t always go together. Inaccuracies, delays and problems can all conspire to eat away at your already slim profit margin until there’s nothing left. For so many builders, despite relentless activity, profitability remains elusive. But it doesn’t have to be that way. This article is about transforming your business into a sustainable venture that will thrive in any economic climate. And to do it you need to change your customer type. The question is – are you prepared to take the gamble? Are you going to start calling the shots?

What’s your priority? Keeping busy?

The temptation to stay busy with one job after another is real. No one wants an empty order book. Plus, you don’t want to lay off your guys even for a couple of days – the worry is you’ll lose them permanently as a result. And anyway, your happy place is the building site not the sofa, supermarket or school run… The thing is busy doesn’t automatically equal profit. You can find yourself in a race to the bottom offering the cheapest price just to win the work. It’s time to stop taking jobs on indiscriminately – even if it means the odd quiet spell…

Decent profit comes from better work not more work

It’s a tough shift of mindset, but worth sticking with it. It really is possible to work sensible hours, with money in the bank, and have a good, committed team around you. It means finding high-value projects that have the potential for a decent profit margin. It means cultivating relationships with discerning clients who appreciate quality craftsmanship and professionalism. It means winning work on merit.

Get out of the Recommendation Rut

If you say ‘yes’ to every referral profit will continue to be elusive. It becomes Groundhog Day. By quoting what you also charged the person doing the referring, you’ll be earning way less than you should because what you quoted before was already a reduced price, because that too was a referral… And so it goes on. Simon Lazarus, from the Better Business Group and a valued partner of HBXL’s, calls it the ‘recommendation rut’. As Simon advises, “Climb out of the recommendation rut. Stop doing referral work that forces you to continue charging the same low price. Year on year you will make less and less money – unlike your suppliers and subbies…”

Profit isn’t just a ‘nice to have’

What is it with the UK and profit? Profit isn’t a nice-to-have. It’s not greed (unless you put an obscene margin on the job). It’s what you need and deserve for the quality of work you produce. According to PBC Today, “a 2021 study found that the UK construction sector has the lowest profit margins in the world, at just 3.9%. This is compared to 4.6% in North America and 6.1% in continental Europe. The top 100 firms in the UK have an average profit margin of 2.6% and the top 10 UK contractors are running at an average loss of -0.1%.” Admittedly that’s construction across the board, but hey? Trying to earn a living here guys!

Why profit on every building project matters

Delays in projects, unexpected cost escalations, and inadequate planning can disrupt financial projections. Then there’s the estimating itself. If your quantities, resource allocations and prices are out from the off, you’re already eating into your profit.

Profit is essential to give you something to fall back on when problems arise or there are inevitable quiet times. On a more positive note, you can use the profit to upgrade equipment, provide bonuses, add to pensions, and importantly, reserves for quieter times over holiday periods etc. You may want to sell your building firm in the future or bring it to a close with a decent lump sum to show for it. The profit margin gives you options.

All of this requires you adding 25-30 percent of the whole job costs to the final total. That’s pure profit (not overheads or VAT). And you need to be adding it to each job – month on month. And Joanna Mulgrew, HBXL’s Managing Director, talks more about making money in an article in Professional Builder magazine and their website.

Redefining success: quality over quantity

As I say, it’s essential to recognise that success in the construction industry shouldn’t be measured by the sheer volume of projects undertaken but by the ability to generate sustainable profits. Rather than chasing after every opportunity, it’s time to prioritise projects that align with your financial objectives. Each job needs to do more than ‘wipe its face’ – it’s got to cover all the material, plant and labour costs, all your overheads and separately provide a margin of profit that will help you sustain your business.

Change up your client base and produce a business model

So how do you turn it around? A path to profitability, that’s what you need. Produce yourself a business model that reflects your new way of working. You need to factor in all your outgoings, what you want to earn, what you need for a pension etc. Then consider what size jobs you should work on to make the money you’re after.

Think about offering design as well as build. It’s an additional source of income and will fit with the kind of work you want to go after. It also eliminates all the comings and goings with the architects that you have to endure currently!

Read an example of getting it right >>

Invest in an accurate estimation tool

  • Accurate estimation is at the root of decent profits. EstimatorXpress is the bedrock for thousands of building firms across the UK. The impact of EstimatorXpress isn’t just a theory – it’s backed by numerous success stories. Take Newman Construction, a Gloucester-based residential building firm. Since implementing EstimatorXpress, they’re now making more money, even though their estimates are higher (because of accurate pricing) and setting a higher profit margin. Watch Emma’s short video testimonial.
  • Professional looking customer quotations: Impress your customers with quotes that detail every aspect of the project (you have the option to show less). Clear and transparent proposals instil confidence in customers and reduce the chances of misunderstandings that could lead to additional costs. It’s time to out-estimate your competitors!
  • Valuable reports: EstimatorXpress takes the details of the estimate and automatically feeds it into a set of reports – a significant set of reports. For example, the cash flow analysis report helps you plan your income and expenditure. The Materials Schedule makes it easier to order materials in one hit rather than every other day. It’s all about working smarter not harder.

What next?

By reframing success as the ability to generate sustainable profits rather than simply staying busy, you can drive profitability and business growth. It requires taking a more strategic approach to project selection, estimating accurately and prioritising presentation. Yes there’s an element of luck required, but you can decide the outcome if you plan well.

As for accurate estimates, EstimatorXpress does most of the number crunching for you. Explain the job and it will allocate all the materials, the labour hours, prompt you for a profit margin and much, much more. Download a free 14-day trial. And start your mission to make the profit on each building project you deserve.