Many industries and companies in today’s economy have felt the effects of margin compression. This phenomenon has lingered for several years now and has challenged and puzzled management for a solution.
Margin compression occurs when operating costs have risen, but the market has not accepted price increases to cover the costs. Another means by which it occurs is when companies lower prices to stimulate demand. It also occurs when there is a fierce competition for work.
As it pertains to the construction industry, increased competition and smaller-sized projects have led to margin compression, and contractors can’t seem to control it.
To improve margins, construction companies have to be willing to adapt to the challenges they face. Innovative thinking, coupled with the courage to embrace change, will lead the way. Many contractors are finding opportunities to deliver value to their customers and increase profit margins on their work. But, it’s not easy.
Successful companies think outside the box for solutions. An interesting example was a contractor who sat down with a customer after finishing a job and compared the proposal to the completed project. Through this process, the contractor obtained input from the customer on his perceived value-added services received. The contractor then incorporated the suggestions in future proposals, which eventually made a difference in winning future bids, while maintaining profit margins.
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