To be profitable, Building and public works companies must be particularly vigilant on key indicators. You still have to know them. Jean-Michel Laidin, partner Walter France, explains how entrepreneurs in this highly competitive sector can succeed.
The first essential analysis consists of being able to break down your turnover between the material part and the labor part.. This distinction will then make it possible to carry out the necessary analyzes.
Calculating gross margin
Construction companies, like all companies elsewhere, must know and analyze their gross margin rate. What is gross margin ? In the construction sector, this is the overall turnover, from which we subtract subcontracting and the cost of materials. This is what allows you to know whether the company will be able to generate profit or not.. The evolution of this indicator allows us to understand what happened in the company. If this gross margin increases or decreases, we still need to know the reasons for this fluctuation. The first questions to ask yourself are as follows: : were there more materials purchased than the previous year ? Were they better or worse purchased ? Were they better or worse re-invoiced ?
Labor profitability
There is a very simple way to calculate labor turnover. Indeed, companies cannot “play” much with materials, that they have to buy anyway, then resell with a margin. If an artisan decides to apply a margin of 10%, very logically, by adding 10% to the amount of materials purchased, he obtains the materials turnover. It is therefore sufficient to subtract this materials turnover from the overall turnover to obtain the labor turnover.. How to analyze this turnover achieved thanks to labor ? The boss is supposed to apply an hourly rate sufficient to cover the cost of his labor, that is to say including employer and employee social security contributions. The labor turnover divided by the number of hours spent on the site will provide the price per hour actually invoiced.. The comparison between the theoretical hourly rate and the hourly rate actually charged to clients is often very informative.. If the latter is lower, the contractor must analyze the reasons for the discrepancy. This may reveal organizational or performance problems.
Aim for at least 80% billed hours
The ratio between the number of hours actually billed in relation to the number of hours worked must not be less than 80%. This relatively inevitable “loss” is due to unforeseen events, tasks that take longer than expected, etc. The entrepreneur must obviously have the permanent objective of reducing it as much as possible..
Vigilance of all indicators
To do this, the entrepreneur must monitor all indicators very closely. It is therefore appropriate, for materials, to clearly define your margin rate and apply it. Certainly, reality may be different : for example a quote revised downwards to win a contract or material prices which increased between the establishment of the quote and the start of the project ; especially when we know that the time elapsed between the estimate and the construction site can be very long, of several months, even more than a year. The statement concerning the validity period of the quote, in these times of strong fluctuation in material prices, can be very wise, provided, like always, to explain it well to the client or prospect in advance if you want to have a chance that they will accept a revaluation when signing. On the hourly cost, the company must know precisely the “floor cost” below which it cannot go and the margin it wants to achieve. Of course, it will have to position itself in relation to the competition and have room for maneuver, but without ever sacrificing its minimum profitability.
Reasoning in package, another possibility
Another solution is to define a price per m2, per linear meter, in m3 for bags or in pallets, depending on the activity. for example, to lay a square meter of tiles, it is interesting to study what is the dose of glue necessary, time to pass, etc., in order to have these standards. After establishing a quote using the materials and time spent method, the entrepreneur will be able to compare it to this last method to check the consistency of his prices.
Satisfy the customer without sacrificing profitability
The craftsman is by nature conscientious. He wants to satisfy his customer. If properly building a wall and laying the tiles straight are indisputable prerequisites, However, be careful of new requests from the client during construction or last minute requirements which can completely derail profitability. For Jean-Michel Laidin, “the entrepreneur must have constant concern for his profitability and be able to carefully analyze his costs and his margin. As for customer satisfaction, it is very commendable, but this should not be done at all costs. If quality must be there, profitability too. »
