The bestselling author Robert Kiyosaki famously said that when it comes to wealth, "It's not how much money you make, but how much money you keep."
This quote primarily relates to personal finance, but his advice also rings true in the construction industry. While bringing in large projects and generating revenue is essential, it's equally important to manage profit effectively and ensure healthy margins.
Failing to do so can lead to financial instability and unsustainable operations. And while profit margins in construction are notoriously tight (4-6%), there are steps you can take to increase your profitability without compromising the quality of your work.
To help you navigate this challenge, we discussed protecting margins with global construction professionals for effective strategies for profitability.
Have a look below.
Construction projects are made up of several stakeholders, phases, and components. To keep everything—and everyone—aligned, teams must plan, communicate clearly, and be open to collaboration. Done right, these steps will help minimize costly errors, streamline processes, and ultimately improve your profitability.
Start with a solid plan
Planning in construction sets the foundation for project execution, so make sure to get this step right. According to our guests, improving the preconstruction stage helps you stay ahead of the curve, align stakeholders, and enhance profit margins.
“There's going to be a really big focus on preconstruction and planning. Lately, there's been a spotlight on cost implications in the field and how we can improve field mobility and efficiency. The next iteration to increase your profit margins is to get ahead of the curve with everything you decide on and align with all the stakeholders in the procurement.” - Ross Wagner, Manager, Technical Solutions, Autodesk
“We have to think of what we can do as general contractors to limit our risks, avoid rework, and all these things that might cost money and scope gaps. And a big part of that is planning—a lot of planning.”- Camille Hardin, Project Manager, Flint Builders
“When we talk about protecting margins, what we're really talking about is delivering as promised. It's about putting together a plan, executing that plan, and providing those predictable results to your customer to keep them happy. The goal is to build that partnership and move to more work.” - Giana Morini, Operations Technology Leader, DPR
Communicate with internal and external stakeholders
Whether you're communicating your vision and values to your internal team or negotiating prices with suppliers, keeping information flowing smoothly and transparently is essential. Not only does this improve accountability, it also fosters a sense of trust and builds your reputation.
“Protect your reputation. Make sure you maintain the integrity of your people, your decisions, and your commitment to others. That's really important. If you lose your reputation in a tough time, you might not ever get it back.
You should also keep a laser focus on price. It does matter. Ensure that you are chasing your subcontractors and suppliers and getting the best possible prices because it does come down to the table stakes of construction.”- Jon Marks, CEO, Corvus Star Consulting/Former CTO at Swinerton
“Suppose you can use a software tool that allows for digital collaboration, trade partner contribution, and realistic time checks on a week-to-week basis. In that case, you can iron out what you can actually complete in the field." - Kelsey Gauger, National Director of Operational Excellence, Suffolk
Help teams be more productive
Happy team members are more productive and less likely to switch employers. To that end, streamlining your workflows can reduce working hours and improve morale. Similarly, taking control of labor by self-performing paves the way for competitiveness and cost control.
“It's so hard to hire a project engineer or even a project manager or superintendent. So if you can cut their hours from 15-hour days or even ten-hour days by smoothing out that RFI process so they can spend those extra hours at home with their families—those are profit margins right there. And you'll see returns by having happy employees and happy companies.” - Lisa Chen, Technical Sales Executive, Autodesk
“Self-performing allows you to be more competitive because you're in control of the labor. As a general contractor, you can start thinking, "Okay, how can we put some of this work back into our own guys?" You can also deal with the profit from there to be more competitive.” - Camille Hardin, Project Manager, Flint Builders
Strategic construction professionals are always thinking about mitigating risks and lowering expenses. Here's some advice from previous podcast guests on how to do just that.
Recognize that risks are part of the territory
Reducing risk starts by recognizing it. Identify your risk areas and strive to limit them through disciplined decision-making, technology, and streamlined project execution.
“We typically become more accepting of risk. And as a company, we have specific criteria to take on new work. These are markets that we are confident and we're skilled at. We have a proven record there, and I think we need to stay disciplined in the work that we take on and not make decisions because we're nervous or concerned about the markets changing.” - Giana Morini, Operations Technology Leader, DPR
“With contractors protecting their profit margins, one thing that we can do is reduce risks together with supporting greater collaboration across all parties. And technology is a key part of enabling that.”- Ivana Tudja, BIM and Digital Engineering Lead, Mace
"It's all about risk mitigation. Risk mitigation is very important. Using, for example, laser scanning drone surveys in real-time and communicating that between the factory, like, for example, we do a lot of modular construction to our challenges to offsite construction is that what's built it in the factory might not fit perfectly in what's built on. So connecting those dots, using real-time reality capture insight, communicating in real-time."
"This information with the factory can really make sure when all these boxes or these elements of AVL insights will fit perfectly. That's how we can avoid costly delays in delivery and schedule, as well as huge cost savings, because any of these discrepancies can cost thousands and thousands of dollars of cost added cost over time and time is cost actually as well as it's became a Q IQ C process to define all the discrepancies from the early planning towards completion." - Amr Raafat, Chief Innovation Officer, Windover Construction
Make sure you're insured
Another good way to minimize risk is to have the right insurance. If you haven't done so yet, review your policies and see to it that you have the best coverage.
“Insurance is a big deal. It's a big swing in terms of profit margins, at least in the U.S., And so how we manage risk is a big part of it.” - Todd Mercer, Senior Vice President, Webcor
Many of our guests also stress the importance of not putting all your eggs in one basket. This means spreading investments and efforts across multiple projects or sectors to mitigate risks if one venture doesn't perform as expected.
Diversify your product or service offerings
Diversifying your product and service offerings creates a buffer against the cyclical nature of the construction industry, so you can thrive no matter where the economic winds take you.
“Diversity in product and client type is a is a big part of protecting profit margins. As we know, construction is very cyclical. Diversity in product types and customers helps us limit those swings. We've all heard the adage, we need to do more with less. Leveraging technology is one of the key ways we can get more efficient and actually do more with less and protect our profit margins.” - Todd Mercer, Senior Vice President, Webcor
Spread risk across different projects or industries
Also, make sure you're spreading your investments and efforts across different types of work. That way, you can maintain business stability during downturns.
“Diversification of your portfolio is a big piece as well, ensuring that you're taking on different types of work.” - Kelsey Gauger, National Director, Operational Excellence, Suffolk
“In my mind, it's diversity. Every time I've seen a downturn, there's been some other technology or industry that has been right there to pick up the downturn, and all of a sudden, it becomes an upturn again.” - Alan Dillon, Senior Superintendent, Truebeck Construction
Construction tech enables you to automate workflows, increase efficiency, and reduce errors—all of which contribute to improved profitability. Consider the following areas when investing in new technology.
BIM and design
Enhance your BIM and design capabilities by equipping your teams with digital tools and platforms.
“We've seen a big transformation in the last few years of GCs migrating towards BIM, and with that in mind, they're going through digital maturity. That is just going to be almost a hockey stick in the next five-plus years of seeing people getting very close to the digital twin, which is the ideal state.” - Ross Wagner, Manager, Technical Solutions, Autodesk
Use tech to automate and move faster
Construction platforms and automation are a must, particularly in today's environment where companies are strapped for labor. Implementing digital tools also helps you be more agile so you can be prepared for market changes.
“The customers and the general contractors out there that are celebrating and deploying innovation now are the ones that will be better suited to be agile and nimble as the markets continue to change. There's no one best practice for everyone. But certainly, if you're always asking yourself and challenging your teams to try something new or working on something different when that time comes to pivot and go after a new market, your team is already agile and nimble enough to take that next step.”- Andrew Cameron, Project Manager, Hensel Phelps
“It'd be wise for contractors to adopt construction platforms and automate their processes because the construction labor is very slim these days.” - Lisa Chen, Technical Sales Executive, Autodesk
Utilize data
Finally, ensure that you're tapping into project data to make smarter decisions and reduce risks and issues in current and future projects.
“If we can leverage technology coupled with that historical knowledge and use business logic and expertise in-house, that can help mitigate issues downstream, which tend to result in margin erosion.” - Kelsey Gauger, National Director, Operational Excellence, Suffolk
Maintaining profitability and protecting your margins requires more than winning projects and generating revenue. Keeping healthy margins requires thoughtful planning, along with streamlined processes and tools.
Hopefully, the insights above inspire you to keep working smarter and value the importance of profitability as a key measure of our success.
