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How to create profit margin certainty in uncertain times for the construction industry

How to create profit margin certainty in uncertain times for the construction industry

by | Aug 9, 2022 | Construction, Pricing | 0 comments

With materials, labour costs and interest rates increasing, it’s getting harder for trades and
construction businesses to predict their profit margins. But there is a way you can accurately
monitor what’s happening in your business and how much you should be quoting to make a profit.

It’s called Breakeven Analysis.

Budgeting with a difference

As you already know, quoting on a job is a delicate balance between:
 Covering costs
 Including sufficient margin for contingencies
 Making a decent profit
 And winning the business

You often won’t know if you have made a profit for the year until your accountant prepares
your tax return. However, the great news is, that it doesn’t need to be like this.

With Breakeven Analysis, you take a holistic view of your business.

It begins with looking at your average project value last year. Then you factor in the
gross profit you’d like to make this year along with your expected annual overheads (like
rent, asset finance repayments etc.). When you put these figures together, it will tell you how many projects you need to complete.

Generally, the higher the gross profit, the fewer projects you need to fulfil to achieve it.
However, completing the required number of projects isn’t a guarantee you will reach your target gross profit. You still need to monitor your costs – especially in this economic climate.

The best news is that when you follow the Breakeven Analysis process, you’ll be able to monitor your results throughout the year so you can make adjustments as required.

Adjust as you go to achieve your financial goals

The benefits of Breakeven Analysis go even further. It can help you determine the resources you’ll need to complete the required number of jobs to achieve your profit goals.

If prices continue to increase or other factors change, Breakeven Analysis will help you understand what you need to do to maintain your desired profit margin.

Are you ambitious about growing your business?

Growth doesn’t mean completing more projects. True business growth comes from understanding
your costs, desired profit margins, project capacity and efficiency. The Construction Business Navigator Growth Program helps trades and construction business owners scale their businesses and improve cash flow. To learn more, book your FREE no-obligation 15 Minute Construction Growth call. After the call, you may be invited to participate in the Construction Business Navigator Growth Program.