The hidden impact: How ignoring monthly margins affects long-term business success

Every year, the Association of Professional Builders surveys hundreds of builders across the globe to gain insight into the state of their businesses and produce the industry’s leading report.

This year’s results seemed to hover around a consistent theme: Profitability.

76.9% of builders claimed their goal was to make more sales revenue in 2024. Meanwhile, 40% of builders reported that they don’t monitor the target gross margins on their projects each month.

This disconnect opens up the question, ‘What effect do monthly margins have on the profitability of the business as a whole – and is it a mistake to ignore them?’

We’re diving deep into the long-term results of ignoring monthly margins, how efficient cost management and strategic pricing strategies can help negate them and additional tips for boosting profit margins.

The consequences of not tracking monthly margins

Neglecting to actively monitor monthly gross margins can lead to a cascade of long-term consequences for a construction business. Here are three negative results builders tend to see when they can’t accurately track the profitability of their business.

1. Significant financial losses

Without regular supervision on monthly margins, it’s challenging to assess the profitability and efficiency of projects accurately. Over time, this lack of insight can result in major financial losses and slowly erode the company’s bottom line. Projects that initially seemed profitable may actually drain resources, leading to unsustainable operations and potential financial ruin.

2. Decreased competitiveness

One of the critical long-term ramifications of not monitoring monthly gross margins is the inability to identify and address inefficiencies within the business as a whole. Without regular tracking and analysis, pinpointing areas where costs are going over budget or where resources are being underused becomes difficult. This hampers the company’s ability to make informed decisions and implement strategies for improvement. Over time, these unchecked issues can snowball, leading to decreased competitiveness and profitability in the market.

3. Stunted expansion opportunities

Another negative result is the inability to forecast accurately and plan for the future. Accurate financial forecasting is essential for budgeting, resource allocation and strategic decision-making. Without a clear understanding of current profitability levels, it becomes nearly impossible to forecast future cash flow and make smart investments in growth opportunities. Ultimately, this can stunt the company’s expansion efforts and limit its potential for long-term success in the industry.

Actively monitoring monthly gross margins isn’t just about short-term gains. It’s a vital practice for ensuring the sustainability and profitability of a construction business for years to come.

Efficient cost management and pricing strategies

Efficient cost management and strategic pricing are crucial for the success of any home building or remodeling business. In an industry where margins can be tight and competition fierce, mastering these aspects can mean the difference between thriving and merely surviving.

Take a proactive approach

The foundation of effective cost management is precise budgeting and expense tracking. By closely monitoring expenses at every stage of a project, from purchasing materials to labor costs, builders can identify areas of overspending and quickly work to correct it. This proactive approach not only ensures that projects stay within budget, but also helps improve resource allocation for maximum efficiency.

Price based on the value of your services

When it comes to pricing, adopting a value-based strategy can set a construction business apart in a crowded market. Rather than simply pricing based on what everything costs, value-based pricing considers the perceived value of the services provided to the client. This approach allows businesses to capture more of the value they deliver, rather than competing solely on price.

Builders can justify higher prices and find clients willing to pay for superior craftsmanship and service through effective communication and proof – think testimonials and professional photos. Plus, value-based pricing encourages a focus on delivering exceptional results, fostering client satisfaction and positive word-of-mouth referrals, which further enhances the business’s reputation and demand.

Invest in technology

Leveraging technology and data analytics can streamline cost management and pricing strategies for home builders and remodeling businesses. Advanced software solutions, like Buildertrend, can automate budgeting processes, track expenses in real-time and provide valuable insights into cost trends and project performance.

Data analytics can also help identify pricing opportunities by analyzing market trends, competitor pricing strategies and customer preferences. By harnessing the power of technology and data, builders can make more informed decisions, optimize pricing structures and ultimately enhance profitability.

In today’s dynamic and competitive market, embracing innovation in cost management and pricing is essential for staying ahead of the curve and building a thriving home building or remodeling business.

Tips for boosting monthly profit margins

Boosting monthly profit margins as a construction business requires a combination of strategic planning, efficient operations and smart decision-making. Here are some highly actionable tips to help achieve this goal:

Negotiate supplier contracts

Establish long-term relationships with suppliers and negotiate favorable terms for bulk purchases. Discounts or rebates for large buys can significantly reduce material costs and increase profit margins.

Optimize resource allocation

Efficiently distribute resources such as labor, equipment and materials to minimize waste and downtime. Use project management software to schedule tasks effectively, track progress and identify potential bottlenecks before they impact profitability.

Streamline processes

Identify inefficiencies in your construction processes and create measures to streamline workflows. Standardizing procedures, improving communication between team members and investing in training programs can enhance productivity and reduce overhead costs.

Monitor project costs

Regularly track project costs against budgets to ensure expenses are kept in check. Identify areas of cost overruns early and take corrective actions quickly to avoid budget blowouts that can eat into profit margins.

Estimate accurately

Invest time and resources in accurate project estimation to avoid underquoting or overestimating costs. Detailed and precise estimates with the help of takeoff software help in setting competitive yet profitable prices for construction projects.

Focus on high-margin services

Identify services or specialties within the construction industry that offer higher profit margins and focus on developing expertise in those areas. This might involve diversifying into niche markets or offering value-added services that require premium pricing.

Implement value engineering

Incorporate value engineering principles into the design and construction process to optimize costs without sacrificing quality. Evaluate alternative materials, construction methods and designs to find more cost-effective solutions that meet clients’ needs.

Invest in technology

Embrace construction management software such as Buildertrend to improve efficiency and reduce errors. Automation and digitization can streamline processes, enhance collaboration and boost profitability.

Regularly review pricing strategy

Continuously assess your pricing strategy based on market conditions and what competitors are doing. Adjust pricing as necessary to maintain competitiveness while maximizing profit margins.

Provide exceptional customer service

Satisfied clients are more likely to provide repeat business and referrals, reducing the need for costly marketing efforts. Focus on delivering exceptional customer service, exceeding expectations and building long-term relationships to drive profitability through customer loyalty.

By acting on these tips, home builders and remodelers can improve their monthly profit margins, enhance competitiveness and achieve sustainable growth in a challenging industry landscape.

How other builders are seeing success

One of the best ways to grow your business is to learn from others.

In the 2024 State of Residential Construction Industry report by APB, you’ll not only get to see data and stats, but you’ll also gain insight from the experts on how to boost and maintain profitability for the year ahead.

Get your free copy of the report on us.