Monitoring margins in construction: controlling the numbers

Problem: many construction businesses know their revenue, but not their margins. They work hard, but don't know whether they're genuinely making money.

Solution: a simple system to calculate and monitor three levels of margin weekly: gross, real and net.

Result: a clear picture of actual profitability, to decide which projects to take and which to decline.

The revenue problem

"Last year we did 530.000 € in revenue." That's the sentence I hear most often in initial conversations with construction business owners. The second sentence, which I never hear: "And the net margin was X%."

Revenue is a vanity number. It tells you how much money passed through your business. It doesn't tell you how much stayed.

In construction, this difference is enormous. Because of the high cost of materials, labour costs and the unpredictability of construction sites, a business with high revenue and poor margin control can lose money for years without noticing.

The three levels of margin

Level 1: Gross margin

Gross margin is the difference between revenue (what you invoice the client) and direct costs (materials + direct labour + subcontracting).

Formula: Gross margin = (Revenue – direct costs) / Revenue × 100

Example: you invoice 33.000 € for a project. Direct costs: materials 12.000 €, labour 8000 €, subcontracting 3300 €. Total direct costs: 23.300 €.

Gross margin = (50,000 – 35,000) / 50,000 × 100 = 30%

A gross margin of 30% is a good benchmark in construction. Below 25% is difficult, above 40% is excellent.

What the gross margin doesn't show: all fixed costs (rent, office staff costs, vehicles, insurance). That's level 2.

Level 2: Real margin

The real margin takes account of business fixed costs and gives a more realistic picture of profitability per project.

Formula: Real margin = Gross margin – (Fixed costs allocated per project)

If you have monthly fixed costs of 10.000 € and do an average of 5 projects per month, the allocated fixed costs per project are 2000 €.

For the example project with 10.000 € gross margin: real margin = 15,000 – 3,000 = 8000 €. That gives a real margin rate of 24%.

Level 3: Net margin

The net margin is what genuinely remains after all costs, taxes and everything else. It's the ultimate profitability metric.

In construction, a net margin of 8-12% is good, 5-7% is acceptable, below 5% is critical.

If you don't know your net margin, you don't know whether your business is genuinely profitable.

The small project phenomenon

One of the most counter-intuitive discoveries we make when working with construction businesses: small projects are often the biggest margin destroyers.

Why? Because:

• Fixed costs are the same regardless of whether the project is 2000 € or 20.000 €
• The setup time (travel, preparation, wrap-up) for small projects is proportionally much higher
• The coordination complexity (client conversations, handovers, corrections) is disproportionately large on small projects

Concretely: a 2000 € project can show a 30% gross margin on paper. But when you factor in 3 hours of travel, 2 hours of administration and the allocated fixed costs, the real margin is often negative.

This doesn't mean avoiding small projects. It means knowing them and deciding whether you take them anyway (for example to fill capacity or retain a client) or whether you introduce a minimum project size.

BAU Gest

Track margins in real time with BAU Gest

BAU Gest calculates gross, real and net margin for every project in real time. The Monday report shows the week's margins and flags projects below the threshold.

See how it works

Swiss
Made

BAU Gest

Net margin24,2%

Active jobs8

Hours deviation+12%

Weekly margin monitoring: 30 minutes a week

To monitor margins, you don't need a complex system. A simple spreadsheet with these columns is enough:

Every Monday: 30 minutes to enter the previous week's data and read the trends. What outperformed expectations, what underperformed and why.

After 3 months you have enough data to:

• See which type of work gives you the best margin
• Identify which client types are the most profitable
• Adjust quote prices if you're consistently falling below target

This isn't bureaucratic monitoring. It's the tool that lets you make informed decisions about your business's future.

If you want to understand how to monitor the margins of your business

Book 30 minutes with us. We'll show you how to set up simple and effective margin control. No commitment, no cost.