As a builder or remodeler your margins are your livelihood. So if projected profits and actual profits don’t align and you can’t find the cause, you need to sound the alarm. Throughout the life of the project, unexpected costs creep up on your business. Any one individual cost creep is not a margin killer but that’s the danger of these costs. At the time they don’t seem like a big deal. However, over the course of a project and the year, they quickly add up. The end results are devastating to your business’s bottom line.
So how do you conquer silent and invisible costs ruining your business? Here are four ways to get ahead of unexpected construction profit margin killers.
You likely eat most of the cost when mistakes are made on your side of the business. With rework costing anywhere from 4 to 6% of your project, you should avoid it as much as possible. One way to get ahead of potential problems is by ending poor communication with your team members and trade partners. Ensure everyone is on the same page and has the latest information to reduce mistakes and get work done right the first time.
You can also limit rework by creating a timely and accurate selection process. Set clear deadlines with your clients on when decisions need to be made and stay organized with client questions, feedback, and concerns to keep the process moving forward. Reducing miscommunications will keep your timeline on track and your clients happy.
Stop Doing Work for Free
Imagine the following scenario: You’re discussing the project scope with your client. Your client mentions they actually would like their deck to extend further into the backyard than the original estimate. Great - more work and more money for you and your team members!
But the deck is only one of a number of changes discussed in a meeting where you were feverishly taking notes. Later when you actually have a chance to input these changes you are reviewing your notes and racking your brain just to make sure you didn’t miss details.
When the materials arrive and the deck starts to come together you realize you never charged your clients for the changes. Suddenly you are stuck between a rock and a hard place. Do you take one on the chin and eat the cost of the deck additions or do you have a potentially awkward billing conversation with your client?
Neither option is a winner. Instead, you should set up a system to submit change orders, issue invoices, and get paid no matter how insignificant the additional cost may seem at the time. Have a process and stick with it so clients know what to expect and don’t feel blindsided by an unexpected bill.
Limit Material Losses
As the onsite work for a project begins the original schedule will change. Whether trade partner availability changes or you need team members at a different project, schedule disruptions will inevitably have a domino effect on the rest of your project. One of the unintended consequences of this is materials arriving early.
While you would rather have materials arrive early than late, early or unexpected deliveries can also be costly. A delivery of framing lumber at a job site that’s not prepared can lead to ruined lumber and an additional spend. Unaccounted for appliance drop-offs can lead to theft. The best way to protect your business from material losses at your job site is to utilize a scheduling system to prevent early or unexpected deliveries. Incorporating material order and delivery dates into your schedule keeps team members and trade partners in the loop if any changes arise and allows you to be on the lookout for incoming shipments. If you are using construction software you can create dependent schedule events so that one delay doesn’t derail the entire project.
Minimize Lost Productivity
Your team members are your revenue producers. So it’s in your best interest to keep them working for your project to stay on schedule. How often does a trip to a big-box retailer for additional or missing supplies lead to a lost hour in the day?
Again, any one trip for last-minute supplies is not a budget killer but over the course of a project or the year these trips add up against your bottom line. An accurate estimate can help ensure the proper amount of materials are ready for the work day and prevent unnecessary trips away from the job site.
Ready for more ways to focus on your business’s bottom line in the upcoming year? Watch a webinar to learn more about building a resilient business and boosting your construction profit margins.