OUR THOUGHTS ON:

Margin Compression

Construction

By Theodore Pettko

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.

© 2013 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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