Contractors are undercharging customers, at the risk of their own businesses' success, according to the second annual Intuit Construction Business Solutions industry study, conducted to better understand the business needs and challenges of the industry.
One out of two contractors report they commonly omit general conditions costs such as supervision, phone calls and temporary power from their job estimates, depriving themselves of deserved revenue and gross profit. Respondents seemed to recognize this tendency; they cite greater job profitability (65 percent) and more accurate estimating (57 percent) as the areas of their business needing the most improvement.
Despite the obstacles in managing their businesses, contractors surveyed estimate their current gross profitability per job at 15.5 percent and anticipate double-digit industry growth (12 percent) over the next five years.
To meet growth projections, 66 percent of respondents said they would hire additional field employees. At the same time, nearly as many (65 percent) said hiring quality employees was the greatest challenge in the labor force. And when asked to name the most frustrating aspect of managing a contracting business, 50 percent of respondents cited scheduling labor and managing work crew productivity.
"Business growth is not simply about hiring more employees and winning more jobs," said Carol Novello, president of Intuit Construction Business Solutions. "Success in today's unpredictable economic landscape depends on effectively managing your business and crews to continuously uncover costly inefficiencies and new revenue opportunities.
"This study shows that the construction industry must make managing profitability and productivity a priority to ensure business success. The successful companies are those that strike a balance between trade expertise and business acumen," she said.
Companies posting revenue of $10 million or more per year were the most successful, according to the survey. They have been in business longer and have adopted an integrated business management approach to manage their profitability and productivity. This approach combines critical business functions, such as estimating, scheduling and accounting, instead of using disparate solutions and systems.
The Intuit study uncovered several other notable findings:
- Sixty-four percent of respondents run new-construction businesses rather than remodeling.
- Commercial contractors surveyed average nearly 20 years in business. Residential contractors average nearly 15 years while subcontractors average nearly 18 years.
- A total of 67 percent of respondents have no exit strategy in place, although 60 percent of contractors in business for more than 10 years do.
- Of those respondents with exit strategies, 38 percent would sell or give their company to family members.
- Seventy-two percent see interest rates and the economy as the key factors driving construction industry growth.
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