Last edited 16 Apr 2018

Profitability

Contents

[edit] Introduction

The term 'profitability' refers to the profit-earning capability of a business, product, project or programme. When all expenses and taxes have been paid, the revenue that is left is the profit.

To maximise profitability, a business must determine which of their activities are proving successful and which require improvement. An effective profitability strategy can only be developed if the key factors determining profitability are understood.

To maintain profitability in the construction industry, businesses must overcome the challenges posed by volatile material, labour and equipment costs and the complexity and risk of bidding on projects with long durations against tight competition.

The construction industry is notoriously susceptible to changes in economic outlook, and regularly goes through booms and busts as it is used to hold back or push forward the wider economy. The 2015 UK Industry Performance Report suggested that the profitability of the construction industry was around 3%, up from around 2% the previous year, but well below the peak of 9.9% in 2009.

[edit] Profitability ratios

A number of profitability ratios can be used to measure the ability of a business to generate revenue relative to the expenses incurred.

[edit] Increasing profitability

Strategies for increasing profitability will vary depending on the type of business, the nature of competition, the state of the market, and so on.

However, some general techniques that businesses can adopt to increase profitability include:

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