How to Maintain Profitable Construction Projects

As a business owner, it can be challenging to identify where you went wrong in a project and what obstacles prevented you from making a profit. However, you can track and maintain a profitable business by centering your project around your scope. This article outlines how to define your scope of work, implement a process for billing changes, estimate with healthy margins, and manage efficiency. By refocusing your projects around a scope, you'll be able to maintain profitable construction projects.

Defining the Scope of Work:

To ensure that you understand your client's expectations for tasks, quality, and price, make sure you ask the right questions. 

These questions include: 

1. what work needs to be done

2. where it needs to be done

3. how it needs to be done

Once you have a clear scope of work, you should specify the expectations in your bid or proposal. This way, you can bill for changes and define expectations when a change order is necessary.

If the customer needs multiple options of potential scopes, ensure this time is covered in an hourly rate or markup.

Implementing a Process for Billing Changes:

It's essential to have a scope of work to refer back to when billing changes occur. Material markups can help offset the cost of doing business, but you need to make it clear to your client if and when they will pay for significant changes in material costs. 

Quick action is necessary to present the cost of the change upfront and have the customers sign off on it. Ensure that you pass on the cost of changes to your client and you may consider a higher markup on change orders to compensate for the additional administrative cost to your company. Changes impact more than their financial bottom line and that has to be accounted for if you want to stay profitable.

Estimating with Healthy Margins:

Material and labor markups are necessary, and fair,  to cover the cost of doing business. You should add a material markup of at least 20% to cover the acquisition of quality materials, schedule management, and vendor relationships. 

If you aren't marking up materials, you may need to charge higher labor fees and allocate more hours to labor. Healthy markup will prohibit you from digging into your profit. Profit margins should be used to reinvest in the business rather than being used as a secondary bank to pull from when you come up short.

Managing Efficiency:

Efficiency speaks to how well a project is done and the value you provide while doing it. Maximizing your efficiency will allow you quicken processes and provide value in greater ways, increasing the amount you can bring in, which ultimately can impact your profit.

1. Create clear and open communication with your customers and team

2. Build an agile staff

3. Manage project schedules and the necessary gaps between them

4. Set clear financial goals that you can track from project to project

By focusing on these four things, you can maintain profitable construction projects and help your business thrive financially. To begin building a scope and set your business up for success, use ConGenius! ConGenius helps you scope projects, takeoff, estimate, and build presentation worthy proposals all in one place so you can estimate faster and more accurately. You'll know YOUR numbers and start winning the jobs you need to.