Introduction to Profit 

Read time: 4 minutes

After reading this article you will have a better understanding of how to ensure your building or trade business remains profitable through accurate estimating.

Let’s not beat around the bush here, the aim of your building business is to make a profit. 

You may have a variety of different goals you are trying to achieve in your business or personal life, for example;

- Growing your revenue to prepare the business for sale

- Becoming the number one operation in your chosen industry/location

- Increasing the number of staff you employ and acquiring a new fleet of vehicles

- Improving your work/life balance so you can spend more time with your family

Ultimately, if your business is profitable and running efficiently then you are much more likely to achieve any one of these different goals. In short, become profitable, and the rest will follow.

So how do you ensure that your business is profitable? The first step is to make sure your estimates are accurate and reflect the true cost. Any errors during the estimating process will flow downstream and hurt you at job completion. And in an industry with such long project timelines and tight margins, every dollar counts.

Ensuring you are running a profitable business is actually quite simple if you carry out the following steps:

How to invoice? Cost-plus vs. Fixed-price Contract

So, next, we need to sort out how you should quote your jobs. Should you be using the Cost-plus method or the Fixed-price contract method?

There is no one-size-fits-all approach here. Your decision will depend on the type of jobs you are doing, how much experience you have quoting similar jobs, your appetite for risk, and the customers you are working for.

For the purpose of this article, I’m going to break this down very simply:

Cost-plus jobs are most appropriate for small to medium-sized tradies and small builders. 

Those who are doing smaller, simpler jobs, and have a lower appetite for risk. 

During a cost-plus job, you will always know how much you are spending and how much you will pass on to your customers. 

You know your profit margin through the entirety of the job. 

This will increase your customer’s focus on cost, and they are much more likely to question every single line item you charge. 

There is also very little motivation for you to reduce costs to improve your profit margin as all costs are passed onto the customer.

Fixed-price contracts are good for larger tradies and larger, experienced builders with a higher appetite for risk. 

Your profit margin will vary depending on how the job goes. 

On fixed-price contracts, you are responsible for covering the cost of any mistakes, but you also get the upside savings on any windfalls or if any expenses come in under budget. 

Your customer will focus more on the quality of the work and the timeliness of completion rather than the cost.

Decide which is the most appropriate way to invoice your client and then let's jump into estimating.

Accurate estimating for your building or trade business

Now, you have got this far, which means you care about improving your business. 

So please, please tell me you aren’t still using Excel spreadsheets to prepare your estimates!

Using a spreadsheet to quote up your jobs is just asking for trouble: one small mistake, an accidentally deleted formula, or a single misplaced decimal point, and your whole estimate becomes inaccurate. 

This could result in you under-quoting and eventually making a loss on the job. 

Operating in the building and construction industry means tight margins, so every little loss adds up.

I can't be alone in my experience of opening a spreadsheet first thing in the morning only to find the dreaded #VALUE error because a single link has been broken or a tab has been deleted. 

Or what about when someone has accidentally saved over your version of the file, and you need to start the whole estimate over again?

Many software products are now offering digital estimating features for builders and trades so let's dig into how a software solution could improve your business. 

People are naturally always hesitant to implement change, and you may feel like applying the ‘if it ain't broke’ rule. 

But trust me, implementing a software solution will make your estimating faster and more accurate. 

This will allow you to win more jobs and have confidence in your resulting profit margins. 

It is time to ditch the spreadsheets and save yourself time and money.

Operating in the building and construction industry means tight margins, so every little loss adds up.

Advantages of using construction management software for estimating

Below are just some of the many advantages of using a software solution to prepare your estimates:

1. Templated documents: Software solutions allow you to build a customised template that works for your business. Templated cost categories, estimates, and quote letters can be saved within the software and used repeatedly. Your staff can always access the correct template and you are never starting from scratch.

2. Digital takeoffs: Ditch the ruler, pen, and calculator and complete your takeoffs on-screen from a digital plan. Simply upload your plan, set your scale, and then you will be able to draw shapes, and lines, or count on the plan to automatically calculate linear metres, m2, or m3.

3. Estimates: will flow straight into your proposals/quote letters: Avoid double entry as your estimate flows straight into your customer-facing documents. You can customise how much or how little you share with your clients and whether an item is included, excluded, or related to an allowance. Providing a professional-looking quote will give your client more confidence in your work.

Now, I may be a little biased, but I am confident that JACK offers the most user-friendly estimating software in the market.

Our platform can improve your accuracy and reduce the time required to provide a quote. We would love to show you a 10-to-15 minute demo of how JACK can help you streamline your processes.

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Liam Cook is JACK’s financial management expert. 

With 10+ years of experience as a chartered accountant ranging from small business advisory to CFO of an ASX-listed company, Liam can provide important insights into the financial management of your building or trade business.