Construction ROI: Definition and how to calculate

Do you have any plans to invest further in your construction business? One of the most important factors is the potential profit you could make, called construction return on investment. 

Calculating ROI in construction can be tricky, and mistakes can be expensive. The benefit is that it can help you make smart choices and invest in profitable decisions that grow your company and bottom line. 

You need to know how to calculate ROI to get the best returns for your construction business. You can take control of your investments by following the steps below that will guide you through the process.

What is ROI in construction?

Construction return on investment refers to how profitable an investment is compared to its cost. To calculate ROI, you divide the net profit of a project by its total cost and express the result as a percentage. 

A positive ROI shows that the project is profitable, while a negative ROI shows it isn’t. So, when you invest $100,000 in a construction project and earn $120,000 in net profit, the ROI is 120%.

While calculating construction ROI can be challenging, understanding this metric can help home builders decide which projects to pursue.

Why is it important to consider ROI?

Construction businesses need to calculate ROI because it helps them understand how profitable a project could be. By looking at construction ROI, they can decide which investments to make, use resources wisely, test how well they’re doing and communicate with others who have a stake in the project.

Financial decision-making

Businesses can use ROI to make smart financial decisions. It helps them assess the potential profitability of various construction projects and decide which ones will bring in the most returns. This way, companies can invest wisely and optimize their financial outcomes.

Resource allocation

Analyzing ROI allows businesses to allocate resources effectively by focusing on construction projects with the highest ROI. Labor, material and equipment are then efficiently used to minimize waste, maximize profits and ensure efficiency.

Risk assessment

Calculating construction ROI helps businesses assess the risks associated with a construction project by determining project duration, labor costs and material expenses. This enables companies to decide whether a project is worth pursuing or if the risks outweigh the potential returns.

Performance evaluation

Businesses use ROI to evaluate how well their construction projects performed. They compare the actual returns with the projected returns to see if they meet their goals. This results in companies being able to make their processes more efficient and lucrative in the future.

How to calculate the ROI of construction software

Return on Investment is a critical financial metric for measuring the success of a construction project. However, ROI can be used for more than just determining the health of certain jobs. You can use this calculation throughout your business. From marketing campaigns to software investments, it’s important to know what you’re getting out of any of your efforts.

Customer acquisition costs. Advertising spend. Product development costs. These are all different factors that can measure ROI for the practices that grow your business beyond the builds themselves. 

If you’re a business using construction software, calculating the ROI of your investment can help you determine if the platform is generating the expected returns.

Here are the steps to calculate the ROI of construction software:

1. Determine the cost of the software – This includes the purchase price, installation fees and any ongoing maintenance costs.
2. Identify the benefits of the software – Include time savings, improved efficiency and increased productivity. These benefits should be quantified in monetary terms.
3. Calculate the net gain – Subtract the cost of the software from the total benefits generated by using it.
4. Calculate the ROI – Divide the net gain by the software cost and multiply the result by 100 to get a percentage.

For example, let’s say a construction business invested $10,000 annually in new technology and realized $15,000 in benefits. The net gain would be $5,000 ($15,000 – $10,000), and the ROI would be 50% ((5,000/10,000) x 100).

Remember, ROI calculations may vary depending on the construction job and software used. However, by following these steps, a general contractor can get an understanding of the ROI of their construction technology investment.

What factors can impact ROI in construction software?

Several factors can affect the ROI of construction software. Understanding these factors is crucial to making informed decisions about software investments. 

Here are some of the key factors to consider:

Cost of software

The upfront cost of the software is a major factor in determining the ROI. It includes the purchase price of the software as well as maintenance and subscription fees.

Implementation costs

There may also be additional costs associated with the software, such as training and consulting.

Time savings

One of the main benefits of construction software is its potential time savings. The more time saved, the greater the possible ROI.

Increased accuracy

The use of software can improve project planning, estimation and other tasks by eliminating errors and improving accuracy. As a result, you can save money and achieve better results, even on larger projects.

Cost savings

By improving construction efficiency and accuracy, construction software can help reduce labor, materials and equipment costs.

Increased revenue

By improving project bidding, change order management and other revenue-generating activities, some software can increase revenue.

Long-term benefits

As a construction contractor, you’ll need to consider the long-term benefits of using construction software, such as improved project outcomes, better collaboration and a more streamlined workflow.

Adoption and utilization

Finally, construction software value depends on how well the team adopts and uses it. The ROI may be lower than anticipated if the software isn’t used to its full potential.

How to increase construction software ROI

Improving the ROI of construction software can be done by following a few simple strategies. Here are some tips to increase your construction software ROI:

1. Streamline processes 

Look for areas where software can reduce manual labor. Construction time wasters that save cash flow. For example, using Buildertrend’s scheduling feature to automate tasks can help keep projects on track. 

When a project gets delayed or tasks are rescheduled, you no longer have to take the time to communicate with all parties involved. Instead, platforms like Buildertrend send alerts to team members, subs and clients as changes are made without you having to lift a finger. 

2. Train your team 

Ensure your team is fully trained on how to use new software effectively. This can help maximize the benefits of the software. Buildertrend offers personalized training sessions for all users, including Onsite Consulting. Members of our team will come to your office for two days and teach the entire team how to best use Buildertrend to reach your goals. 

Additionally, for no additional cost, users of Buildertrend can take advantage of our 24/7 Help Center, webinars and Buildertrend Learning Academy. 

3. Regularly review data and metrics 

As a construction manager, you should regularly review data and metrics to track the software’s effectiveness and identify improvement areas. This can help optimize workflows and identify opportunities for cost savings. 

Buildertrend’s reporting feature allows users to generate construction reports on project data and KPIs.

4. Use the right features 

Make sure to use the software features that are the right fit for your business to get the most out of any tech platform. This can include project planning, financial management, lead generation and customer relationship management tools. Buildertrend offers many features to help businesses manage all aspects of their construction projects.

Learning all the features at once is like drinking from a firehose. It’s important to implement the tools that will make the greatest immediate impact on your business first. Then slowly introduce more and more as your team gets more comfortable making the transition to tech. 

By following these strategies, companies can increase their ROI and get the most out of their construction software investment.

Improve your construction software ROI with Buildertrend

Have you been looking for construction management software that’s easy to use and can help you make more money? Look no further than Buildertrend. With its powerful tools and easy-to-understand interface, Buildertrend can help you streamline your business and increase your profits.

Using this construction management software, you can easily track construction costs, manage changes and keep everyone informed. Also, since it’s a cloud-based platform, you can access your projects from anywhere, anytime. 

Check out our case studies below to see how other businesses have used Buildertrend to increase revenue and improve their operations. And, if you’re ready to give Buildertrend a try, you won’t have to go in blind. From the start, we want to make sure you know the impact our platform can have on your business. Tell us about your company for an industry ROI report here.

Doubling sales in 3 years with the help of construction CRM software [The Bridge Group] 

The Bridge Group, a Colorado-based construction company, faced challenges managing client communication and relationships. They needed to keep track of interactions and streamline their processes.

To solve this problem, they used Buildertrend’s construction CRM software. It centralized client communication and project details in one place, automated some processes and gave clients easy access to project updates.

Using Buildertrend, The Bridge Group doubled its sales in three years. They improved communication and relationship management, providing a better client experience and increased revenue.

Remodeler sees 300% growth in revenue with construction software [McManus Kitchen and Bath]

McManus Kitchen and Bath, a remodeling company, saw a 300% increase in revenue by using construction software like Buildertrend. 

The software improved their processes and client communication, allowing them to track project progress and costs in real time. Now, this company is able to make better business decisions and increase its profitability.

Saving thousands with change orders [Sneller Custom Homes & Remodeling]

Sneller Custom Homes & Remodeling a home building and remodeling company, saved thousands of dollars with the help of Buildertrend. They struggled with managing change orders, which resulted in lost profits. 

Using Buildertrend’s construction technology allowed them to eliminate errors in change orders, reduce rework, save time and money and improve client communication. As a result, they improved their ROI and increased their efficiency, leading to a better bottom line.

Construction ROI FAQs

Check out these answers to common questions about construction ROI.