Here’s a scenario all too common for builders: A job that seemed perfectly estimated in early spring starts hemorrhaging margins by June.
Why? That’s typically when builders first see real profitability data from spring starts—and because they don’t have systems in place to properly track jobs, what they find is often worse than expected.
“The most common reason that estimated projects are losing money by June is we’re doing extra work and not getting paid for it,” says Nick Baldo, owner of Oakvale Homes & Development.
Here’s a breakdown of the five key reasons builders start losing profits, and solutions to each:
1. You don’t know a job is losing money until it’s too late. Too often, builders are just looking at their bank accounts without having a clear picture of whether the job is actually making money.
“It looks so good until that last week. And then all those costs come in, and we just realize, ‘Whoa, we didn’t reach our margins,’” Baldo says.
The solution is a system that gives you real-time control over your budget, not a bank balance check at the end of the month.
“If everything is delayed getting into the system, you have lost real-time control of this budget,” says Karin Chandler, product director for Buildertrend, a cloud-based construction management software solution. “You’re missing out on those work-in-progress (WIP) insights, those over-billing, under-billing moments and that single source of truth.”
2. Delayed approvals are quietly eating your margins. All jobs have change orders, but too many builders are reluctant to properly initiate and track those changes, leading to scope creep. Baldo calls it, a “We’ll figure it out later,” budgeting mentality.
But that mentality quickly produces serious issues. “A delayed approval means your cash flow is delayed and you miss that next invoice run,” Chandler explains. “But there’s also that real schedule element—if you are delayed on making that approval and then that thing is backordered, your whole schedule can be impacted.”
The solution is having transparent conversations with clients when changes come up—and then implementing strict change order deadlines with consequences.
3. A single budget mistake can snowball into big costs. Typically, this mistake begins with underestimating the square footage of framing the jobs requires, especially on remodeling jobs, Baldo says. “When that’s off, we see the rest is off too,” he explains.
A good way to avoid budgeting mistakes is using more granular cost codes that better reflect real expenses. “You really do need a cost code system that your field crew and your office can both be following because that is how you tie all this data together to actually be estimating accurately,” Chandler says.
The right platform ties cost codes to real-time actuals, so when framing runs long, you see it before it cascades and not after the fact.
4. Slow payments are draining profit, not just cash flow. Cash is like oxygen for the business, and too often, it gets constrained because small issues delay final payments. A good example is a $500,000 project with a typical final hold of 10% until the customer is satisfied. If a small fix, such as an extra coat of paint is in question, “$400 worth of work can hold up $50,000 in revenue,” Baldo says.
When that happens, builders must either find new ways of generating cashflow—leading them to take jobs out of desperation—or cover expenses from their own pockets.
“The problem is that money in the bank— even though it feels like it’s the builder’s—it’s really not. It’s money that builder owes back out the door,” Chandler says.
The solution is having a system in place that incentivizes the client to continue making payments on time and ensures that the final payment is only a small percentage of the whole job.
5. You’re reviewing the wrong numbers. Too many builders look at their bank account to determine their profitability when they really need to be looking at another line item. “They should be looking at earned profitability at a project level—that comes from the WIP report,” Baldo says.
The solution to avoiding margin loss is having a system in place that allows builders to review and update as the job changes.
“The builders that seem to be doing better are the ones who are looking at that budget day in and day out,” Chandler says. “They’re having weekly reviews with their full team because everyone plays a part in running a profitable business.”
Margin loss rarely comes from a single mistake. It compounds: delayed approvals feeding slow payments feeding the wrong numbers reviewed too late. The builders who protect their profits aren’t just better estimators. They’re running tighter systems.
For more information on how to stop profit leaks and protect your margins, visit buildertrend.com.
