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5 Ways Technology Improves Profit Margins in Construction

May 16, 2019

Contractors Outgrowing QuickBooks

A recent article posted on the Sage Advice Blog provided what we think is valuable insight on the value of technology in the construction industry. In this article, we pass along some of the key aspects of that article to our readers here on the Accordant Company blog.

Why Are Construction Profit Margins So Low?

The article points out that according to the Construction Financial Management Association, the average pre-tax net profit for general contractors is between 1.4 and 2.4 percent and for subcontractors between 2.2 to 3.5 percent.

That’s pretty low!

Some might say it’s just the nature of the industry. But the data suggests otherwise. On average, the construction industry budgets less than 1% of annual sales to technology investments. That’s far less than almost every other major industry out there who have stepped into the digital age in order to stay competitive and profitable.

No matter what industry you’re in, technology plays an important role in running a profitable business. While manual paper-based processes or tools like Excel are cheap and easy to use, they almost always end up costing much more money in the long run in the form of inefficiency, wasted time and labor costs, project delays, and errors.

Here are five ways construction companies can begin reassessing your technology strategy.

1. Audit Your Current Technology

A good first step is to consider replacing aging technology. If VCRs were a thing when your company first purchased the software, odds are it’s not optimized to handle the complexity and speed at which your teams need to work today. Getting down to the truth of how effective your project management and reporting tools actually are will provide you with an easier way to take control of your margins, increase job costing efficiency in the field, and mitigate risks that could shrink your margins.

2. Use Technology Wisely

If you want to grow your business, you generally have to spend a little money. But when does growth at all costs become a reckless strategy? How do you find the right balance between growth and burn? Technological changes can sometimes be costly and difficult to manage.  No construction software or technology is worth an existential crisis.

A good approach is to focus on what’s important by asking yourself simple questions. How does this technology strengthen your department and the company as a whole? How does this technology impact your current IT strategy and investments? What ROI can you expect to see from this project?

3. Make IT More Strategic

In construction’s digital age, your IT department is no longer just babysitting your server and making sure email works.  Give your IT department strategic goals and key performance indicators (KPIs) for the business.  Harness their expertise to advise on your technology investment strategy so that IT is no longer just a cost center, but rather plays an important role in company growth and success.

And if you’re business isn’t at a point where you have a dedicated IT department, find a qualified construction technology expert like Accordant Company that you can trust and partner with.

4. Look Into the Field

In the mid 80s and early 90s, most offices made the transition from pen and paper ledgers to computers and ERP solutions. Quickly, admins, accountants, and company executives found efficiencies that were not possible before.

In 2019, running accounting software in the office is no longer enough to keep your business running efficiently and company financials in order.  Construction doesn’t happen in the trailer or back office.  That’s why job costing solutions that run on mobile devices have become so critical for workers in the field.

To work more efficiently and avoid dumpster diving for change orders written on sticky notes, construction companies need to set up field-to-office integrations. Bridging the jobsite-office divide with mobile technology provides confidence that your financial data is available in real-time and free from manual double-entry errors.

5. Dive Into the Data

According to Forrester, “most construction companies are drowning in data, but starving for insights. Worse, they have no systematic way to consistently turn data into action.” Don’t just empower your field team to collect project data with new, mobile-enabled tools. Get a system that automates data analysis, and feed that data to the people who need it so that they have the answers they need to make the right decision at the right time. Answers to questions like:

Should you keep your fees the same, lower them, or raise them? And how will it affect your ability to win more bids?

How can you combat potential changes to your cost of labor?

Are your materials suppliers likely to raise or lower prices? And if you switch to lower-cost suppliers, will quality suffer as a result?

The right technology does more than just gather data and make things easier to track, it also provides critical insight to help you make the right decisions and set your business on a path to profitable growth.

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