Construction Project Profitability Analysis: The What, Why & How | Workyard

Find out how profitable your projects are through a construction project profitability analysis, and forecast which projects are most likely to be profitable in the future. A profitability analysis digs into where you’re spending your money, which costs are highest, and where you might experience cost overruns.

A profitability analysis is one of the most straightforward reports you can run as an owner-operator of a small to midsized business (SMB). But while it’s not hard to create a profitability analysis, it can be hard to get the reliable data necessary to draw trustworthy conclusions.

Let’s look at the what, why, and how behind construction project profitability analysis.

What Is a Construction Project Profitability Analysis?

A construction project profitability analysis compares a project’s revenue generated to its total costs—including labor, materials, equipment, and administrative overhead. The result is the total profit gained. 

A construction project profitability analysis is similar to a project cost report. Both reports outline what the company gained and lost on a per-project basis. But whereas project cost reports emphasize the total cash required to complete a project, profitability reports emphasize how much cash the company is expected to gain.

Why Do You Need a Profitability Analysis?

Profitability analysis is a helpful tool for budgeting projects and analyzing them.

Short-term, a profitability analysis tells you whether you’ve made or lost money on a job. If you complete a profitability analysis before taking a job, or while on the job, you can project whether the job is likely to be profitable.

Long-term, a profitability analysis tells you how much you need to charge for similar jobs in the future—and how the jobs you take are trending. If you see that your profitability is moving downward, you need to determine why. 

Without a thorough analysis, it’s difficult to say how much your company makes with each project. It’s easy to run into cash flow issues if you don’t know how much each project brings in, especially if you’re relying on cash from current projects to carry future ones.

How Do You Create a Construction Project Profitability Analysis?

Like calculating labor burden or construction overtime, a construction project profitability analysis must begin with the correct numbers: labor costs, equipment, and supplies. If you haven’t been booking them correctly, your analysis will be off.

Step 1. Completely Tally the Revenue of the Project

This includes the initial invoices, change requests, and other revenue generated from the project you’re analyzing. If you have reimbursed expenses, don’t include them in revenue, but the more reimbursed expenses you have, the less you’ll be paying out of pocket.

Step 2. Create an Expense Report

Pull reports for the labor, materials, supplies, tools, and equipment used. Workyard makes it easy to create a complete, accurate labor expense report for each project by automatically assigning labor to each site via GPS.

Step 3. Calculate the Project’s Overall Profitability

A project’s profitability will be the project’s revenue less its expenses. If the project brought in $20,000 and cost $15,000, its total profit was $5,000. In a vacuum, this means little—once you begin to analyze your results, it will mean more.

Step 4. Analyze Your Results

Without thorough analysis, profitability reports just tell you whether you made or lost money—not why. Compare your profitability report with other similar jobs, and compare your expenses with your estimates. 

A construction project profitability analysis should give you insights into how much money you made and what you may need to improve in the future. Insights gleaned from a profitability analysis could include:

• Jobs that generally tend to be more profitable for your business
• The teams that tend to do a better and more profitable job
• Areas in which you tend to underestimate your expenses

A quick review of your profitability analysis will reveal important insights into your company’s income—and give you goals to achieve in the future.

Use Workyard To Increase the Accuracy of Your Profitability Analysis

Workyard’s all-in-one time clock app will provide you with the accurate numbers you need to safeguard your company’s profitability. 

With the push of a button, employees can track their time based on where they are, ensuring that you get the right hours assigned to the right projects. Workyard can help you increase the accuracy of your profit reports by reducing employee error and overbilled hours, while also making it easier for you to reduce overtime and increase client reimbursements.

A construction project profitability analysis relies on you having accurate numbers. It doesn’t get more accurate than Workyard. Sign up for a free trial of Workyard or call (650) 332-8623 to learn more.