Understanding Revenue and Profit in Construction
In this article, we define revenue and profit so you can reach your business goals and ultimately make more money. Understanding the relationship between revenue and profit is crucial to your business’s success.
What is the Difference Between Revenue and Profit?
Revenue is any money that you collect in a certain period of time.
If you worked three jobs in one week, then the money that you invoice your clients is your revenue. It does not factor in any expenses or losses. It acts as a total sum of income.
Profit is what is left of your revenue after all of your expenses come out.
These expenses typically include employee pay, office rental, vehicle and equipment payments, cost of materials, and any other office expenses that you pay for. Anything that you pay for, on the job or beyond, comes out of your revenue and affects your profits.
High Revenue, Small Profit
One of the critical failures of many businesses is that they see large amounts of money coming in and they assume the best of the situation. While revenue is important, it isn’t the best indicator of how your business is doing.
If you have high revenue and small profits, you likely have accepted and completed a lot of work but paid a large amount of your revenue on overhead, costly mistakes on the job site, or haven’t set yourself up with a decent profit margin. In this scenario, it is possible to show high quantities of money and no signs of profit.
High Profit, Small Revenue
Businesses that structure themselves to find the balancing point for efficiency, accurate costs, and quality work have an easier time finding profit at the end of every job. Even with lower overall revenue, you can be prepared to make higher amounts of profit.
This most likely means that the business owner is creating accurate estimates, keeping expenses to a minimum, completing jobs quickly, and maximizing their team efficiency to take as little away from their profits as possible.
What Can Impact Revenue and Profits?
Multiple factors can impact your revenue and profits. Your back-office efficiency, time management, employees, quality of work, rent, payroll, vehicles, equipment, and how accurate your estimates and accounting are can all impact your revenue and profit. The largest factors are your business size, structure, quality of work, and any overarching systems that help you manage this.
Having a highly efficient and organized team can help override many of these factors, enabling you to focus on accepting more of the right jobs and creating a larger revenue stream, with the hopes to turn that into more profit. Ensuring you have accurately done a takeoff and estimate can also massively impact your bottom line.
Take a Step Towards Increasing Revenue and Profit
Selling projects with the right margins is a complex and time-consuming process that requires knowing your overhead and output. ConGenius will guide you through the preconstruction process, drastically reducing the time required to build high-quality, accurate, and winning proposals.
Sign up for a free trial for ConGenius to take the next step toward improving the accuracy and efficiency of your estimating process.
