Margin compression could be an unfamiliar phrase, but it certainly won’t be an unfamiliar feeling for most construction professionals right now.
On average, UK profit margins have shrunk from 4% in the 2010s to a meagre 2.5% in the 2020s (Construction Careers UK, 2024), and for some, this is declining.
This year, commercial planning activity had increased despite dimming confidence in the previous year, giving construction companies hope that work was on the way. However, over 80% of companies reported a noticeable increase in material prices, particularly steel, timber, concrete and insulation. This is all due to manufacturing, shipping and geopolitical issues affecting these factors.
If these costs are not forecasted for in the initial tender stages, this poses a massive concern and further hits company margins. Allowing for unexpected costs in your tenders and jobs prevents unneeded stress. It also reduces the need to stretch budgets or risk running over budget on jobs in which every penny counts.
Estimation software helps to create an estimate using built-in contingency calculators to prevent pricing errors, budget overruns, inaccurate cash flow projections and lost margin opportunities. Having dedicated software also speeds up the process of tendering and estimating for jobs, so companies have more chances at the work.
There are a few strategies to forecast smarter:
- Engage early with suppliers and create valuable trade partners to lock in prices. If buying power isn’t there, use this to better understand lead times and keep up with upcoming cost fluctuations and anticipate trends.
- Implement price validity clauses such as ‘proposal valid for 30 days’ and contingency thresholds of, for example, +5%. Consider proposing price fluctuation clauses for materials to prevent sudden price shifts. This all helps to manage uncertainty and protect margins.
When looking for a way to protect margins, first look at how your processes and software help you to manage this. Smartstruct’s construction management software can help everyone in your business contribute to your success. It helps to track, manage and predict cost fluctuations, and we make it easier to do so.
Get in touch or book a demo today, and we can guide you through how Smartstruct can help your business.
