3 Sneaky Problems that Hurt the Profitability of Plumbing and Piping Projects

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Thin margins are more often the norm than the exception for construction contractors. For many, cash flow is tight, too. According to the Construction Payments Report, 88% of contractors wait longer than 30 days for payment, with 46% of them waiting as long as 90 days.

With less access to financial resources, smaller contractors often feel the pain of money issues much more than their bigger counterparts. This makes ensuring the profitability of every project that much more critical.

88% of contractors wait longer than 30 days for payment.

—Construction Payments Report 2018

If you’re the person in your company who’s ultimately responsible for its financial health, you know how important maintaining profitability is. The first step to protecting your profit margins is taking a proactive look at where you might be losing money. Here are three problems that could be to blame.

1. Not Accurately Accounting for Your Costs

When you bid on a project, you expect to make money on the job. But there are no guarantees.  To ensure you do, your estimates need to be as accurate and thorough as possible. You need to make sure you’ve accounted for everything. If you haven’t, and your estimates contain mistakes, your profitability will surely suffer.

Estimating for profitability first requires an understanding of all of the costs you incur to do the work. For plumbing and piping contractors, these will typically include:

  • Labor
  • Materials
  • Supplies
  • Equipment rental costs
  • Permits

In addition to the direct costs of performing the work, you also need to account for the overhead costs associated with running your business. Typical overhead costs include:

  • Payroll for administrative staff
  • Owner’s salary
  • Insurance
  • Office mortgage or rental
  • Equipment and tools
  • Utilities
  • Taxes

When thinking about your own various direct and indirect costs, you will likely find additional expenses not mentioned here. Ensuring that you’ve accurately and thoroughly accounted for your costs is the key to making sure you’re profitable.

If you don’t have a complete understanding of what those costs are for you, you may be guessing at what your markup needs to be to turn a profit. But when you know for sure what it takes to operate your business and fully understand the costs required to do the work, you know what you need to make on every job to be profitable.

2. Unreliable & Error-prone Takeoff

Your ability to perform accurate material takeoff is necessary if you want to produce estimates that protect your profit margins. But if you’re performing manual takeoff, you must first print the plans, then undertake a labor-intensive process of manually counting, measuring, and making complicated calculations. This process can take hours if not days, and with all of the steps involved, the potential for human error is high.

There’s a more efficient way. Given the increasingly widespread use of digital plans and affordable and easy-to-use takeoff software, a contractor of any size can take advantage of graphical (aka digital) takeoff. Graphical takeoff uses the power of computing to help you digitally count the amount of material required, perform complex calculations, and assign material prices using a cost database. You can achieve greater accuracy while shaving 50% or more of the time required for manual takeoff.

Graphical takeoff takes half the time and greatly improves your accuracy.

When you perform takeoff digitally, you avoid the need to print paper plans. Using your mouse and the digital plan, you simply trace the pipe route line or click where a fitting belongs, and the software will automatically record the length and quantity. It even counts fixtures, such as water closets and drains. Easier than you may have thought, graphical takeoff is one of the simplest ways to produce more precise estimates and protect your profitability.

3. Risky Estimating Practices

If you’re growing a small business, you’re probably wearing a lot of hats. You’re not just responsible for the finances, you’re also responsible for the sales, the estimating, and maybe even doing the installation.

When juggling all of these responsibilities, it’s easy to fall back on doing things the fastest way possible. If you have several projects lined up to bid, you might be tempted to guesstimate upfront just to get the bid done and submitted. This may seem like a good idea—or your only option—at the time, but it can lead to more work and bigger problems later on as you try to make the estimate make sense and figure out your actual labour and material requirements to plan and schedule the work.

When you lack a consistent and repeatable way to produce estimates, you’ll always feel under the gun. And if you continue to do estimates this way, you’re basically leaving your profitability to chance. You need to be able to create estimates faster and with more accuracy from the get-go, so you can hold your profit margins. Ensuring an accurate estimate upfront can save you loads of time. You can even produce a bill of materials that can be used for ordering once you’ve won the job with no need for re-estimating.

You need your estimating process to be:

  • Faster, so you can produce professional and thorough estimates with minimal effort
  • Consistent, so you can use the same reliable formulas and processes each time
  • Accurate, so you can feel confident that you’ve accounted for all costs—and avoid the errors that kill profitability

Produce More Accurate and More Profitable Plumbing & Piping Estimates

If you’re seeing yourself in any of the situations described here, your estimating process is most likely hurting your profitability. But if you’re doing estimates manually, you’ll have a hard time identifying where your specific profitability problems are hiding.

If you want to grow your business, you need a better way to produce estimates and ensure you’re staying profitable on every project.

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