In the construction industry, the path to building a successful business is not just about managing projects; it’s about prioritizing your efforts on systems and strategies that prioritize making a profit. This involves developing robust customer relationships, motivating your workforce, and implementing systems that enhance your operational efficiency. The goal is to create a successful construction company that consistently generates high margins while navigating the inherent risks and pressures of the industry. 

If I followed you around for a day, what would be your focus? Would you be doing estimating, project management, or field supervision? Or would you be building a better construction business, including developing strong customer relationships, motivating talent, building capacity, implementing systems, and enhancing your innovative strategies to improve your bottom-line profits? The main reason to own a construction company is to make an above-market profit for the time, energy, and risk you take. Are you focused on building a company which produces high margins, or doing and getting work completed? Do you know and track your numbers weekly including job costs, production costs, sales, overhead, and profit?

UNDERSTANDING THE PROFIT IMPERATIVE

Following a recent presentation at a national construction convention, I encountered a business owner who was overwhelmed and stressed about his financial situation. He had not compensated himself in months, struggled with cash flow, and had lost sight of the essential business metrics that drive profitability. When quizzed on basic financial indicators like profit margins, overhead costs, and working capital, his blank stare revealed a critical gap in his business acumen. 

To succeed in construction, one must grasp that profit is not merely a byproduct of hard work, but a calculated outcome based on understanding, knowing, and tracking numbers diligently. Owners who build successful businesses are those who prioritize sales, customer satisfaction, talent development, and profit maximization.

IMPORTANCE OF A PROFIT-FOCUSED MINDSET

Successful construction owners recognize that focusing solely on project completion or managing day-to-day operations does not guarantee high profits. Instead, they commit themselves to understanding their business’s financial health. They ask themselves key questions, including: Are we hitting our sales and profit goals? What is our current cash flow? How does our backlog and working capital align with our vision and targets?

TAKE THE PROFIT-FOCUS TEST

Evaluate where your attention lies by answering the following statements:

  1. I know our annual sales, overhead, gross profit, and net profit goals.
  2. I am aware of our current bank balance.
  3. I can articulate our company’s backlog, equity, and working capital.
  4. I keep track of current receivables and payables.
  5. I understand our total liabilities and debt.
  6. I have detailed knowledge of our exact labor and equipment costs.
  7. I am aware of the differences between our bid markup and final markup on all jobs.
  8. I know the sales and profit margins we must achieve.
  9. I can differentiate between gross profit, margin, and markup.
  10. I have a strategy in place to maximize our bottom-line profits.

Successful contractors often affirm seven or more of these statements. If your score is low, it’s critical to reassess your focus. Failure to monitor these metrics can hinder your ability to define and achieve your business goals effectively.

THE VOLUME VERSUS PROFIT DILEMMA

Many construction companies fall into the trap of prioritizing volume over profit. They often pursue too many projects against too many competitors, with no competitive advantage, and therefore have little hope to win contracts. This poor strategy leads to poor bids based on inaccurate prices, missed items, and pricing wars with too little margins. This low-bid mentality can create a cycle of working harder for lesser returns. 

High-margin contractors, however, take a strategic approach. They focus on the profitability of projects and customer relationships, rather than merely increasing their volume of work. To be successful, establish clear goals such as pursuing projects that align with your capacity, capability, resources, and high odds of winning work. It’s essential to maintain strict standards about the work you undertake. Don’t hesitate to turn down low-margin projects against cheap contractors who don’t have high standards or integrity, or customers who always look for the lowest prices. 

When bidding on low-bid jobs, the only variables for achieving profitability are your profit markup and final sales price. By concentrating efforts on winning high-margin contracts and nurturing repeat customers, you can build a more resilient business model.

ESTABLISHING ACCOUNTABILITY AND METRICS

Profit-focused contractors are also methodical in setting measurable targets for their teams. They ensure that each team member understands their targets and contributes toward the company’s profitability. This involves developing a structured approach to project management with clear milestones, deadlines, measurable results, safety benchmarks, and quality control standards. The journey to high profits doesn’t occur overnight. It requires tough decisions and an unwavering commitment and focus. It’s crucial to hold team members accountable, streamline processes, delay buying decisions that don’t align with profitability, and always keep an eye on cash flow. 

Coaching and professional development programs can enhance this focus on profitability. Whether it’s investing in leadership training or financial education, coaching can empower you and your team to understand the financial levers that drive profits, ensure everyday accountability, and maintain a consistent focus on profitable growth.

NO PROFIT = NO FUTURE!

The magic of making lots of profit starts with making lots of money! To build a profitable business takes focus and tough decisions. I’m not in business to be liked. I’m in business to make a huge profit and grow my wealth. The construction landscape can be challenging, but the differentiating factor between survival and success lies in your ability to generate profit. Encourage a profit-focused culture in your business by keeping your team aligned with measurable goals and developing strategies that maximize profitability. Remember, without profit, there’s no future for your business. Embrace a mindset committed to financial growth, invest in coaching to refine your approach, and watch your construction company thrive. Let the focus on profit guide your operations, ensuring not only the survival of your construction business but also its prosperous evolution.

about the author

George Hedley CPBC is a certified professional construction business coach, consultant, and speaker. He shows contractors how to double their profits, grow, get organized, and get their company to work like a machine! He is the author of Get Your Construction Business To Always Make A Profit! available on Amazon.com. To talk, start a personalized BIZ-BUILDER program, or get his free e-newsletter, email gh@hardhatbizcoach.com. Visit his YouTube channel to watch his videos. To download online courses or get his contractor templates, visit www.constructionbusinesscoaching.com.