- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 07 Nov 2020
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.
 Profitability ratios
- Net profit margin measures the business’ ability to generate revenue. Net profit margin = (net income / net sales) x 100.
- Gross profit margin measures the cost of production. Gross profit margin = (gross profit / net sales) x 100.
- Operating margin is a measure of the percentage of revenue left after covering additional operating expense, i.e. those unrelated to the actual work itself, such as office rent. Operating margin = (operating profit / net sales) x 100
 Increasing profitability
However, some general techniques that businesses can adopt to increase profitability include:
- Effective analysis of potential new projects prior to tendering.
- Reflecting on previous projects to make improvements and efficiencies.
- A good understanding of risks and mitigation strategies.
- Accurate cost planning.
- Control of fixed cost overheads such as; rent, utilities, equipment, salaries, and so on.
- Making more effective use of resources.
- Improving productivity.
- Reducing waste.
- Maintaining a tight control on variations and change orders.
- Use of accounting software and establishing robust accounting practices so that invoices and so on can be processed accurately and efficiently and cash flow maintained.
- Implementing staff training so that employees can grow their skills and responsibilities rather than finding work elsewhere.
- Investing in new technologies and systems and adapting them effectively to the business.
 Related articles on Designing Buildings Wiki
Featured articles and news
Improving facilities, accessibility and overall appearance.
Free download of TG 12/2021 available.
TESP works with The Youth Group to form skill sharing network.
Big tech collaborates on platform for the built environment.
Letter signed by 21 organisations sent to MHCLG.
A look at the Government's strategic approach.
Steps to help reduce the spread of infection inside buildings.
This social media-centred hobby can be both dangerous and illegal.
Millwork wall treatment with a long and illustrious history.
HSE introduces cumulative exposure calculator.
The Edwardians and their houses.
Cut off from civilian life for over 900 years.
Gaining green support from the carbon giants.
Click the button to subscribe.