4 Tips for Improving Construction Project Profitability

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If you work in the construction industry, it’s probably no surprise that overall profits are shrinking. Rising building material and labor costs have caused delays on multiple housing projects, even as the nation faces a shortage of affordable living spaces. Supply chain issues have added to the list of woes facing contractors today.

It’s imperative to reduce overall costs and examine all aspects of job performance to improve your margins. You can still earn money, but you have to use a higher degree of savvy. Here are four tips for improving construction project profitability.

1. Get the Right Tools for the Job

You’ve undoubtedly noticed the considerable time savings from using a nail gun over old-fashioned handheld hammers. You can drive quickly and accurately, eliminating bent nails and broken thumbs. The moral of this story is the right tools save time — and time is money. Completing a job on time or ahead of schedule means reduced labor costs.

The issue starts with the logistics of transporting equipment to your job site. Waiting on multiple workers and subcontractors to arrive with materials and supplies in numerous trucks can stall your entire operation as people stand by idly awaiting the arrival of key components. Investing in the right transportation solution to carry all your equipment to the site at once is a wise investment that saves time. It’s also more fuel-efficient than using various smaller vehicles.

What if you don’t have the requisite capital to invest in a backhoe or other heavy equipment? First, consider looking into equipment financing to support these costs. Financing helps growing businesses expand their operations and secure necessary machinery without needing tens of thousands in liquid cash on hand.

If purchasing doesn’t make sense right now, explore the wide world of rentals. You can find anything from aerial cranes to earthmoving machines for reasonable daily rates. Use it as long as you need it, then return it and save yourself the monthly payment plus interest.

2. Protect Team Safety

On-the-job accidents cost construction companies billions of dollars each year. Here’s one area where trying to get away cheap could cost you more in the end. Investing in safety can save money in many ways — including fewer workflow interruptions, less worker’s compensation, and avoidance of potential fees.

Jobsite accidents can cause avoidable delays, creating a ripple effect. Subcontractors may adjust their estimates based on convenience factors — waiting a week to start your work means postponing a different project and they will pass those costs on to you.

Furthermore, you could end up paying a small fortune in workman’s compensation. Egregious errors could lead to outside lawsuits — such as a trespasser venturing onto unfenced grounds, suffering an injury, and suing you for negligence. It isn’t worth the risk to try to get around OSHA guidelines. Invest in the safety equipment you need and host regular training to keep everyone up to snuff on procedures.

3. Get a Correct Estimate on Costs

Underestimating material costs delayed countless construction projects in the past two years for lack of financing alone. Building supplies have gone up over 40% since January 2020, nearly doubling — and those that lowballed their initial estimates now have to find alternative ways to shave expenses or leave projects incomplete. The latter option can get even pricier down the road, as weather and pests can damage the existing framework, causing the need for replacement.

Your best bet is to keep your material estimate on the high end and pay attention to market trends. It’s also beneficial to perform routine analyses to measure the degree of project completion against the total budget percentage spent. If you have gone through 60% of your budget but only completed 40% of the contracted labor, look for savings now or risk running out of money before you reach completion.

4. Improve Staffing Productivity

Improving staff productivity doesn’t mean demanding longer or harder hours — quite the opposite. Savvy business owners familiar with the conditions driving the labor shortage know workers have had enough of barely eking by while their productivity far outstripped income gains over the past 40 years. They’re now pushed to the brink and collectively saying, “Enough.”

However, there’s a running joke in construction about one person doing the work while five or six stand around and observe. Inherent in that jape is one solution to your productivity problems.

Look carefully at your schedule. Who do you need on the job site at certain times and who has downtime? It’s unreasonable to schedule laborers for a 10 or 12-hour shift when their presence is only necessary for eight.

While they might be happy with the paycheck, they’ll resent wasting hours of their life when they could be at home with their families or undertaking side projects that supplement their income. Instead, guarantee regular, productive hours with options for overtime should a project require longer days.

Making Construction Projects More Profitable

The construction industry has taken a collective profit hit as rising materials costs and labor disputes have cut into margins. However, you can remain viable and thrive with the right approach. Consider the above four tips for improving construction project profitability.

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Author

Evelyn Long is a writer and editor focused on home building and construction. She is the co-founder of Renovated, a web magazine for the home industry.