For construction contractors, profit margins are the lifeblood of business. A hard-fought battle between revenue and costs haunts contractors while generating reports. Profit margins – the hard-fought battle between revenue and costs – are your company's lifeblood. 

The yearly trend of spending January trimming fat and getting lean has motivated us to take action against one of the construction industry's biggest questions: why are construction profit margins so small?

Construction Financial Management Association's report shows that the average pre-tax net profit for general contractors is between 1.4 and 2.4 percent, and for subcontractors, between 2.2 and 3.5 percent.

Why does the construction industry struggle with low profits?

The majority of the construction industry continues to contribute less than 1% of yearly sales volume to information technology compared to other sectors that have embraced the digital age. 

Maybe construction contractors don’t have the capital to invest in technology or maybe they lack resources. There could be a hundred reasons for low-profit margins. 

The following four methods can help you start revising your technology investment plan.

1. Review and develop a solid plan

According to Intermedia, the typical organization employs 14 apps across the board. Integrating the many single-point software solutions necessary for success is one of the main pain areas for a construction company of any size. Start by updating old infrastructure. 

The software isn't optimized to manage the complexity and speed at which your teams must work now if VCRs were a thing when your business initially bought it. Make sure your construction accounting software is integratable, and regularly improves the process for firms.

In the end, determining the true effectiveness of your tools will give you a simpler approach to managing your margins, improving job costing effectiveness in the field, and reducing risks that could reduce your margins.

2. Save time and money by investing in a better tech

Profit or growth? You often have to spend money if you want to expand your construction business.  But when does pursuing growth at any costs turn into a risky tactic? How can you achieve the ideal balance between burn and growth? 

Technological change can be difficult to handle and might make you feel like you're looking into the darkness, which can make you question your leadership abilities. An existential crisis is indeed not worth a solution. 

Simple questions are a good place to start. What advantages does this technology bring to your sector and the business as a whole? What impact does this technology have on your current IT investments and strategy? What return on investment should this project provide? Utilize your knowledge and consult experts within your construction business. 

3. Collaborate with Technical Team

In construction's digital age, your IT staff is no longer a server babysitter. As a result, consider IT as separate from your company's business objectives.

Give your IT department business-focused key performance indicators (KPIs), not simply numbers and digits. 

Harness their experience to assist with your technology investment strategy. Give them the authority to choose and oversee a range of services that efficiently meet corporate needs while consuming the fewest resources.

Successful IT departments will transform from cost centers to significant output, innovation, and expansion generators for the company. 

Businesses that are prepared for this transformation will be more aggressive and flexible.

4. Take a look into financial tools and integrations

Prior to now, the majority of construction companies switched from using paper ledgers to computers and ERP solutions. Admins, business leaders, and accountants all needed improved efficiency right away. 

Therefore, keeping your company's finances organized no longer just requires having an accounting solution in the office. An invoice and contractor software can help you streamline your finances efficiently.

The back office and trailer are not where construction takes place. 

Why, then, do most projects still require the use of mobile job-costing solutions in the field today? 

Businesses must have field-to-office interfaces to operate more effectively and prevent dumpster diving for sticky note-written change requests. 

Enabling both teams on either side of the project site-office barrier to having faith that there are no manual double-entry mistakes in your financial data.

Bottom Line

It can be intimidating to reevaluate your company's tech investment plan, but starting with these steps will be successful. You will receive a lot greater return from this small time commitment than if you keep doing nothing.