How to Combat Rising Construction Overhead Costs

With construction overhead costs up by as much as 15% over the last half year or so, it’s becoming difficult for the construction industry to bounce back. With this in mind, managing your construction costs in a way that limits waste and excessive expenditures is extremely important for your profitability. Read on to learn more about how to compete with increasing construction costs.

Dollars and Cents Construction

When the cost of doing business increases, it tacks additional costs onto the price of services. This is a very simple summary of the economic dilemma the construction industry is facing right now, but it brings up the needed point: if the cost of construction increases, and thus increases the cost of services offered by a construction company, then it’s going to effect business in a negative way.

While this all sounds rather gloomy, there are steps that you can take to limit the effect rising costs will have on your construction business. Consider the following steps to ensure that you not only weather the storm, but also profit during it:

Manage Your Inventory Wisely

Regularly manage your inventory during prosperous time and recessive times. Pay close attention to the materials required for a specific project. Avoid over purchasing materials that are not returnable to the manufacturer. Making sure you aren’t maintaining a supply surplus is one very effective and simple way to nip over-spending in the bud. When you are saving and storing materials for future jobs, ensure they are stored properly especially during periods of hot and cold weather.

Take Control of Your Overhead

Overhead expenses are the accumulative business expenses that keep your construction company operating. The construction industry divides these expenses into 2 categories: General (indirect) overhead, and Job (direct) overhead.

Indirect Overhead

General or indirect overhead refers to expenses that are ongoing and not related to a specific project. It can include: office rental space, utilities, insurance, business taxes, etc. Divide and proportionally share these costs across all projects depending on their size. If you complete a project representing 25% of your yearly business, then 25% of your general overhead can be applied to that invoice.

Direct Overhead

Job or direct overhead refers to expenses that are unique and required for a specific project. These expenses can include: project specific salaries, temporary structures, equipment purchased or rented for a specific project, temporary sanitation facilities, inspection fees, etc. Apply these costs directly to that project’s invoice instead of sharing or dividing them across multiple projects.

Contractors sometimes buy or rent heating and cooling equipment needed to get a job done. These weather related expenses typically fall under the direct overhead category. For example, any snow and ice removal costs would be applied to the direct overhead costs for a specific project.

Focus on What Makes the Most Profit

When business gets tight, it makes sense to focus your efforts at what you do best. Identify  where you are likely to make the highest profit margin and re-focus your attention. Manage your employee assignments accordingly to make sure your workers are putting in the most hours where it really matters. 

Continue to Market Your Business

Sometimes we’re inclined to think that marketing is something we do when we can afford it. But a recession is no time to bring your marketing efforts to a halt. In fact, it’s a time to double your efforts. Consider investing in marketing materials such as signage and vehicle decals to increase your visibility in the community. Offer incentives to your clients for referrals and capitalize on the power of word-of-mouth marketing. Photograph and document your work so you can build up a shareable portfolio. Network with other trusted contractors and sub-contractors for collaboration on future projects.

Protect Your Assets and Capital

One surefire way to go out of business is being careless with the materials that help you make your living. If you’re in the concrete business, for example, you need to make certain your precious concrete isn’t wasted or ruined. Look closely at your waste generation and where you can stem the flow. How often are you repairing or replacing damaged equipment? How many building materials are being thrown away after being improperly stored? Does your waste increase during times of hot or cold weather? Investing in temperature control products to protect your equipment and materials will prevent waste, save you money, and help you finish jobs on time.

Powerblanket® Can Help

Thankfully, Powerblanket® has cold weather construction solutions to help you manage your assets during the good times and the bad. We specialize in total temperature control that ensures your precious profit-enabling materials are safe from the elements. If you can build it, haul it, or store it…we can heat it. Contact us to help you find the right construction solutions for your needs 855.901.3105 or [email protected].