How to Increase Your Profit Margins in Your Contracting Business Without Cutting Corners

In your contracting business, you learn quickly that your margins will make or break your ability to pay your bills (and yourself). Setting fair prices for the work you do and improving your overall business efficiency is key to keeping your business afloat. This guide identifies ways that you can increase your profit margins wherever you can.

Market Value Over Price

It is true that many people make decisions about which contractor to use based on the estimated cost of the project. However, this does not need to be the heaviest consideration for a contracting business. The problem with framing your business as the low-cost leader is that it basically guarantees you’ll have to keep your margins as low as possible. Instead, make value or investment a major part of your marketing strategy. Show potential clients how you give them the best value for the money. This will allow you to set appropriate prices for your services, without worrying that you’ll be forcing yourself out of business.

Analyze Regional Pricing Standards

If you asked a bunch of homeowners or businesses all over California what they expect to pay for certain kinds of construction-related improvements or services, you might be shocked by the range of answers you get. The truth is that there are many factors that affect the average price in a region, such as:

• cost of living
• demand
• access to materials
• labor pool for hiring or subcontracting

Before you get too invested into your pricing structure, get a feel for what your established competitors charge in the area. You can always underbid a little if you feel it’s necessary. Just keep in mind that charging much less than everyone else does for labor may make clients wonder if you skimp on quality to make it up.

Innovate for Efficiency

Once you are sure that your prices are fair for the area and for the service you offer, you can look at ways that you can cut down on your expenses. The construction industry is always changing, and you can take advantage of technological innovations that make your workflow run more smoothly. Consider outsourcing or automating some of the processes that you do in-house, to shorten the amount of time you spend writing invoices or working on payroll. Invest in newer-but-tested strategies that will help you get a job done faster or better. It might cost you a little more at the outset, but make it easier to take on more work in the long run.

Minimize Waste

Wasted space, material and time is a huge barrier to your profit margins. If you have a lot of excess material left over once you are done with a project, ask yourself the following questions:

• How can I reuse supplies and materials I already have on future projects?
• Could I buy less and still complete the project according to specifications?
• Is there another approach I could try to cut down on waste?

There are a lot of tricks you can try to limit the time you spend handling byproducts. For example, many construction companies are starting to use 3D printing to save on materials and labor. New, efficient practices might also allow you to rent a smaller space to house supplies and equipment.

Stay Flexible

Of course, there will always be situations when you have to tweak your pricing approach to suit a particular project. When you first start out, you might find yourself working for less as a contractor or subcontractor to get your name out there establish yourself as a reliable business. Try to balance the low-margin work with jobs that bring in more money for what you spend on materials and labor. This will allow you the float that you need to vary your pricing based on the client and the project. Be careful about filling your day with lower-paying work, because it will be harder to invest into growing your business or finding those lucrative contracts.

Improving profits is a major reason people go into business in the first place. Widening your margins is a solid way to do it. To get started building your contracting business, visit us at CSLS today!