Contractors Risking Business Success By Undercharging
Fifty percent of commercial and residential contractors responding to a recent construction industry survey reported omitting general conditions costs from their job estimates, thus depriving themselves revenue and gross profit, and ultimately risking their business' success.
Survey conductor Intuit Construction Business Solutions found commonly omitted from job estimates were costs such as supervision, phone calls and temporary power. But respondents recognize the error of their ways, the study shows, with nearly 65 percent saying they would like to see greater job profitability, and 57 percent acknowledging that "more accurate estimating" is an area for improvement for their business.
"Business growth is not simply about hiring more employees and winning more jobs," reported Carol Novello, president of Intuit, about the survey's findings. "Success in today's unpredictable economic landscape depends on effectively managing your business and crews to continuously uncover costly inefficiencies and new revenue opportunities."
Also uncovered in the survey was the more than 500 survey respondents who reported an average gross profitability at 15.5 percent, and anticipate 12 percent industry growth over the next five years.
In order to meet this expected growth, two-thirds said they would hire additional field employees, but admittedly the study found that 65 percent cite hiring quality employees the greatest challenge. Scheduling labor and managing productivity were found to be the most frustrating aspect of managing a contracting business.
Not surprisingly, the study found that companies that have been in business longer were more successful because they have adopted an integrated business management approach to managing profitability and productivity.
Other findings include:
- About 64 percent of respondents run new construction businesses rather than remodeling.
- Nearly 67 percent have no exit strategy in place. Of those with exit strategies, 38 percent will pass them on to family members.
- Interest rates and the economy are the key factors driving the construction industry according to 72 percent.