9 Money-Saving Tips for Contractors
Improve Your Bottom-Line in 2024
Typical construction profit margins are relatively slim. Almost every project requires a heavy investment in materials, manpower, design, and other resources, all of which cost the contractor and result in profit margins as low as 2%. The simple solution would be to charge more, but those in the industry know that 2% of something is better than the 0% they’ll receive if their customer goes with a lower bid.
What about simply working harder, on more projects? Well, that does nothing to improve profitability and only threatens to spread resources far too thin.
So, if we can’t increase our profits by charging more, and working more is out of the question, the other solution is to save money. Reducing spending by making smarter choices and automatic processes can boost profitability without sacrificing quality or customer satisfaction. If making more while also keeping your customers happy sounds like a win-win, keep reading to learn more about ways that contractors can save money.
9 Ways Contractors Can Save Money
Every dollar counts. And the more you save on the hard costs of running a business or building a project, the better your profitability. The following are some of the best ways that contractors can save money and boost their profitability.
1. Expand Your Supplier Network
One of the best ways to save money is to expand your materials supplier network. While you might have a preferred supplier, opening accounts with other suppliers often means reduced interest rates for a limited time. Also, if your supplier runs out of a material in the middle of a project, you may be able to find it with another supplier and reduce the delay.
Don’t underestimate the value of comparison shopping, as well. A supplier may have an overstock of a certain material, and if you strike it at the right time, you can benefit from significant discounts. And, if one supplier comes in cheaper than the other, you can leverage the quote to try to get a better price at your preferred supplier.
2. Know When To Rent Equipment and When To Own
When it comes to large, expensive equipment, it pays to know when to rent and when to own. Even if a tool or piece of equipment is very expensive, if you’re using it every day, it might be worth the purchase. However, if it's a tool you only use a few times a year, or just at the start of a project, it may be worth renting.
Be sure to consider leasing, as well. While your payments don’t go towards owning the equipment, many lease agreements include maintenance and repairs. And the payments are typically cheaper than purchase payments.
3. Schedule Smarter
Contractors can save money by taking an active role in the scheduling of subcontractors on a project. With smarter scheduling, contractors can avoid downtime caused by subs waiting for other subs to finish their work. You can avoid the waste involved in rework caused by subcontractors damaging or simply undoing a previous sub’s work.
4. Use Change Orders and Avoid Scope Creep
Scope creep is a profitability killer. Rather than eating the costs involved in the customer changing their mind, use change orders to document the change in scope and the cost. This will either protect your bottom line or make the customer second guess their new whim which will, once again, protect your profit margin.
5. Avoid Interest Accumulation
Construction is a cash-hungry business, and sometimes it’s hard to avoid taking out interest-bearing loans to float projects and purchase materials. However, if you have to take out a loan, consider making the payments before interest can accumulate.
While it might be tempting to use a progress payment to purchase equipment or float another project, contractors should consider taking care of any interest that would be accruing is taken care of first. Otherwise, you may be paying for it for a long time.
6. Improve Inventory Management
While a lot can be said about buying material and equipment for as low a price as possible, sometimes saving money comes down to managing what you already have.
Better inventory management can look different for every contractor. Some might have issues with overstocked items, in which case you could be paying interest on materials you didn’t use. Others might have issues with understocking, which can lead to expensive delays. Both of these issues can be solved with better inventory management and purchasing practices.
Likewise, inventory tools and equipment so you know what you have. Implementing a check-out or GPS tag for tools ensures they won’t simply walk away. This also makes developing a maintenance schedule easier, and everyone knows an ounce of prevention is worth a pound of cure.
7. Create Safer Work Sites
Losing good employees to workplace injuries is not only heartbreaking, but it’s also expensive. The time it takes to onboard a new employee or teach an existing employee and new skill will slow the project’s progress, resulting in money-sucking delays. Also, insurance premium hikes and lawsuits can be devastating.
Avoid these issues by creating safer job sites. You should send employees to safety training and implement practices that make safety everyone’s responsibility. Walk job sites and look for potential hazards, or appoint one employee to handle the task. Every accident avoided will pay dividends when it comes to safeguarding profitability across all of a company’s contracts.
8. Digitize Document Management
Moving documentation to a cloud-based, digital platform is key to saving money. These software programs allow users to store their drawings, contracts, agreements, licenses, insurance policies, and other documents on the cloud. They'll be able to pull them up on any internet-enabled device wherever they might be, rather than driving back and forth to the shop or paying office staff to scan and submit paperwork whenever on-site personnel or a stakeholder needs it.
Also, consider the value of knowing your crew is working from the latest revisions. Rather than moving forward with outdated revisions, ultimately resulting in rework, they can pull up the latest drawings every day when they reach the site and check for notes or changes before it’s too late.
9. Use Smart Communication
One of the best ways to save money is to focus on better communication. Communicating with their crews, clients, and stakeholders can empower contractors to avoid expensive mistakes. And, if done correctly, it can limit emergency meetings on the site or in the office, allowing contractors to spend more time making money rather than fielding questions or fixing delays.
What does smart communication look like? Most of the time, it comes down to automating processes like accounts payable and receivable, sending and receiving electronic documents and signatures, and leaving notes on cloud-based software through which contractors can ping other personnel on the job.
There are other forms of communication-enhancing technology, as well. Apps that allow subcontractors to submit daily reports with photos are incredibly helpful. The same applies to video conferencing, which a contractor can use on-site to share updates and challenges with stakeholders, customers, and subcontractors. Rather than in-person meetings on the site, these pros can simply dial up whoever they need to speak to, saving time and making sure everyone is up to date.
The Key To Profitability is Working Smarter, Not Harder
Those are just some of the ways that contractors can balance their current workloads while also increasing profitability. By looking at current business practices, implementing software solutions, and spending wisely, contractors can preserve and increase their bottom line in short order, positioning themselves for growth and success moving forward.