In the previous microblog on the Profit and the construction industry, we examined the overlooked benefits of Profit. This second microblog examines what Profit is. What figures should we use?
When discussing Profit in the building industry, we often don’t discuss the same thing.
What is Profit?
- The Profit Markup Percentage you put on each quote (Cost plus X%)
- The amount of money your accountant tells you you have made once a year (Year End Profit)?
- The Profit amount you made at the end of each project? (Contract Income – costs)? Net and gross.
In the building trade, we talk more about Profit Mark-Up Percentages and less about net and gross Profit on a project.
A sustainable, viable business needs net Profit on a single contract and net gains on contracts collectively.
Profit can vary from contract to contract. While one contract may be more profitable than another, it is essential to understand why.
Also, it is essential to understand why your actual Profit is better or worse than the percentage you quoted.
The final Profit on a contract shouldn’t be an unwanted surprise.
Understanding your business’s financial data and why you made the expected Profit or not is essential before you sharpen the pencil on a new contract.
Summary: There are many ways to categorise profit, but the most important is net profit. It is important to know why there is any variation between planned and actual profit and differing profits from contracts.
This microblog is part of the Profit and the Construction Industry series. The next microblog examines ‘The Two Critical Areas for Ensuring Profit’.
Stu Watson
Profit Partner
Modern Consulting Admin
Registered Quantity Surveyor, Vice President of the NZIQS (New Zealand Institute of Quantity Surveyors)
Stu’s mission is to help build a more resilient construction sector that will deliver increased supply and value for money and improve the lives of New Zealanders both within and outside the industry.
