How gutting is it when you get to the end of a big project that you’ve spent months working on, only to realise you’ve not made any net profit on the job?
You’ve spent all this time working for wages because you experienced budget blowouts and delays which destroyed any profit you originally had in the contract.
And to make matters worse, you now have a liability on your books in which case, if anything goes wrong, you have to fix it out of your own money!
According to KPMG, "Only 25% of projects came within 10% of their original deadlines in the past 3 years."
Which is why average builders lose up to 5% of their gross margin through cost overruns and delays.
However, professional builders actually increase their gross margin on every contract by monitoring the project’s KPIs monthly.
So stop working for wages and start building a profitable business by managing the key numbers for your projects every single month.
Finish On Time & On Budget (FOTOB)
One of the biggest myths in our industry is that you can’t increase the profit margin on a job once you’ve signed a fixed price contract.
The truth is you can, and more importantly, you can do it ethically.
Here’s the thing, once you start a project, it’s very easy to lose a lot of money on delays and cost overruns.
So if we accept that as being true, then the opposite must also be true.
If we lose money on delays then we save money when we finish a job early.
And if we make less money when a cost centre blows out, then we’ll make more money when we can bring a job home under budget.
So don’t listen to ‘experts’ out there who have never built a home or started their own business and yet feel entitled to call builders crooks for reaping the rewards from operating an efficient business.
Here are a couple of tips that may help you.
Monitor Your Margins All The Way Through
Start by monitoring your margin DURING a build.
Most builders only look at the gross margin when they sign a contract and then maybe once they’ve completed the project.
However, the truly successful builders are recalculating their gross margin every single month while the job is under construction.
This allows the builder to spot trends and potential problems long before the entire net profit on a contract gets completely wiped out.
Calculate The Cost Of Delays
Rather than setting a target completion date at the start of the job and hoping to come in somewhere close to it by the end, record the revised number of days you expect the job to run for, every month.
By subtracting the initial budgeted days from your revised forecast days you’ll know how many days the job is likely to blow out by.
Now multiply that figure by the cost per job, per day and that will give you the full financial cost of the delay.
And if you’re in front, this figure will be a negative which indicates the total cost saving achieved by finishing early.
Using Net Promoter Scores For Client Feedback
Another way to avoid potential costly delays is by using a Net Promoter Score or NPS as it’s known, within your build process.
This creates a client feedback loop within your construction process which enables you to monitor the company performance over a period of time.
By asking your existing clients one simple question on a regular basis, you not only get to measure your company performance, you also tap into a goldmine of information for client testimonials and address any potential conflicts long before they get out of hand.
When you use the NPS method in your building company, you’ll have happier clients, higher morale amongst team members and shorter build times.
So what if you could manage your projects so that instead of losing margin through the build, you actually increased your gross profit by up to 5%...ethically?
Would it help you to boost your profit on every contract you sign?
If you need some help get started, make sure you download the free Professional Builders' Secrets To Increasing Margins.