It comes as no surprise that construction spending has dropped 3.3%, the lowest since July 2004. According to the Associated Press, residential fell 2.3% and nonresidential fell 4.3% - ouch! Until recently, the strength in nonresidential building was offsetting the weakness in residential building. That doesn’t seem to be the case anymore.
This downturn makes historical data more important than ever before. Here are a few points to consider:
- When local and federal government spending drops, it makes winning jobs more competitive. That means contractors have to bid against many more competitors, making profit margins lower and jobs harder to win. This can be problematic if you don’t know what your costs are going to be. Contractors that have historical data know exactly how much they can trim off a bid and still turn a profit - because they can look back and analyze previous jobs and come up with an Estimate VS Actual Cost.
- Historical Job Cost information like fully burdened labor rates. Price per Unit. Or Price per sft can be priceless in tight market.
- If you have this kind of historical Job Cost information to rely on, you can bid projects with confidence that you will still turn a profit. If you don’t have this kind of information and you’re just giving a best guess, you may find yourself in trouble.
- With historical information you can drop profit margins to win the bid. For example, normally you may bid your job with 15% profit. Now study your historical projects and see what profit margin you completed the project with. Was it higher or lower and why?
- Did change orders give you a higher profit than originally expected? Will the job you’re bidding potentially have change orders? With this kind of information you can work smarter to win projects.
In a tough economy we all have to trim the fat off our pricing. If you don’t know how much fat there is, how will you know how much to trim?
Tags: construction projects profit margin, Construction Software, construction spending, historical data, nonresidential news
