If you’re running a construction business, here’s something you need to know: Your competitors are already figuring out their gross margin and understanding exactly what it says about their business.
Are you doing the same?
Your gross margin is more than just a number, it’s a powerful indicator of your business’s health and profitability. It’s trying to tell you something, but if you’re not paying attention, you’re leaving money on the table.
Why Gross Margin Matters in Construction
Gross margin measures the difference between your revenue and the direct costs of your projects. In simpler terms, it tells you how much money you’re actually making on each job after covering materials, labour, and other direct expenses.
The problem is, most construction businesses don’t track their gross margin properly. They just hope for the best and assume a profitable project means everything is working fine. But that’s not always the case.
Your gross margin is constantly talking to you. Are you listening?
When Your Gross Margin Is Lower Than Expected
If your gross margin is lower than expected, it’s a big red flag. And it’s trying to tell you something important. It could mean:
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Labour Inefficiency: You’ve spent too much compared to the progress of the job. Labour costs are overshooting your estimates.
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Poor Management: Your site manager or project manager isn’t performing effectively, leading to inefficiencies.
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Material Price Increases: Material costs have risen since you signed off on the project, and your pricing hasn’t adjusted to match.
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Pricing Model Errors: You’re undercharging, plain and simple. Your pricing model doesn’t reflect the true costs of completing the work.
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Uninvoiced Retentions: You’ve simply forgotten to invoice for retentions, which means you’re missing out on money you’re owed.
And that’s just scratching the surface. The list is endless. But if you’re not reviewing your gross margin regularly, you’re giving away profits for free.
When Your Gross Margin Is Better Than Expected
A better-than-expected gross margin sounds like good news. And maybe it is. But it can also hide potential problems you need to address.
It could mean:
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Over-Applied Projects: You’re sitting on cash that looks good now, but it’s temporary and could soon disappear.
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Cutting Corners: Your labour worked too fast and possibly cut corners, which means you’re not going to get your retention.
Or maybe it is telling you:
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Better Buying: Your team managed to get materials at a better price, if so, reward them for it.
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Excellent Management: Your site and project managers are killing it. Figure out what they’re doing right so you can do more of it.
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Better Clients: Maybe you’re working with higher-quality clients who are easier to deal with. If that’s the case, figure out how you attracted them so you can do it again.
The point is, your gross margin isn’t just telling you what’s wrong, it’s also showing you what’s working.
How To Use Gross Margin Insights To Improve Your Business
Your margins are a goldmine of information. It’s telling you what’s working, what’s not, and where you can make more money. But only if you’re paying attention.
The good news? You don’t need a full-time finance director to get this information. A good accountant can gather this data and present it to you for a fraction of the cost.
It’s never been easier, or more important, to have this data at your fingertips. With the right insights, you can:
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Improve your pricing models
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Make your site managers more efficient
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Keep track of rising material costs
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Identify better clients and repeat your successes
Why You Shouldn’t Ignore Your Margins
If you don’t feel you can ask your accountant for this information, or worse, if you don’t trust them to provide it, it’s time to make a change.
Your competitors are already doing this. They understand their numbers, and they’re using that information to make better decisions and improve profitability.
Are you ready to do the same?
Take Action Now
Don’t let your gross margin be a mystery. Book a call with or visit our website and start turning your numbers into profits.
The competition is already listening to what their gross margin is telling them. Are you?
