When it comes to construction businesses, precision in understanding your financials is not just helpful – it’s critical for survival and growth. This truth is vividly illustrated in a case story that Zak Krauss and Brandon Manning explore, demonstrating the powerful impact of knowing your margins.
The Backstory – Bidding Everything
A particular client, engaged in construction, took the approach of bidding on projects of all sizes, from the minuscule $5,000 jobs to the massive $3 million endeavors. However, a deep dive into the company’s financials revealed a startling pattern: the company was consistently losing money on projects below a specific financial threshold. Brandon Manning shares, “He wasn’t set up for efficiency in the smaller jobs, so every time he took on projects under a hundred thousand dollars, he was destined to lose.”
This was a revelation that shifted the entire strategy of the business. The larger projects had enough buffer to incorporate a higher profit margin, giving the company the wiggle room it needed to cover for inefficiencies and unexpected costs. On the contrary, the smaller projects were a drain, eroding the company’s profits.
The A-Ha Moment and a Shift in Strategy
Brandon Manning reflects on the turning point: “Once we pinpointed the profitability tipping point, we advised the client to adjust their bidding strategy accordingly.” This strategic shift led to the client moving from a perilous financial position to a state of robust profitability.
The lesson here is clear: understanding which projects to pursue and which to pass can make all the difference. It’s not just about winning bids; it’s about winning the right bids that will add to your bottom line.
If you’re in the construction business, taking a closer look at your project margins might just reveal similar opportunities for a financial turnaround. It’s not about the volume of work; it’s about the value of work. Knowing where you make money and where you don’t is essential to making strategic decisions that will lead to sustainable growth and success.
Taking These Lessons and Applying Them to Your Own Company
This case story is a testament to how essential financial insights and analysis are in steering a construction company toward profitability. It’s a lesson many in the industry could stand to benefit from, and it underscores the importance of not just knowing your numbers, but understanding what they mean for your business’s future.
To get the full scope of how this client transformed their financial trajectory by understanding their margins, watch our discussion in the embedded video. It’s more than just a story; it’s a potential roadmap to your company’s success.