How to make money in construction industry as a contractor is always tricky. This is simply because the profit margin are affected by few factor. The Five TOP FACTOR are as following.
1. Labour Cost.
2. Plant, Equipment and Machinery Cost.
3. Time ( how long will you be able to complete the works)
4. Construction Material.
5. Negotiation skills to secure a contract.
There is almost no contractor that can do all the construction work on their own. Most of them will categorized the works according to the scope of work and sub-let it to smaller contractor. By doing this the Main Contractor will have a better control over their own profit margin.
For example. Contractor A had secure a road project. throughout the whole contract the expected profit margin during the tendering or negotiation process was 12%. He then Split the works in to various category or trade with his profit margin of Maximum 7% to 10%. The balance, 2% is set apart for his subcontractor. With that scenario he already secure at least 7% to 10% of the project profit. His only problem is to make sure his Subcontractor can complete their works with-in the agreed contract period. If the Sub contractor failed to delivered the works, it is the Subcontractor duty to to ensure that what ever scope of work he undertake he need to complete it even with the extra cost incurred. Due to this possible extra cost had been taken over by subcontractor, it can be seen that the main contractor profit is almost undisturbed. At the end of the process Main Contractor can easily secure at least 5% profit from the project.
This strategy normally being applied by almost all contractor after considering the TOP 5 factor that will directly affect their profit margin.
1. Labour Cost.
2. Plant, Equipment and Machinery Cost.
3. Time ( how long will you be able to complete the works)
4. Construction Material.
5. Negotiation skills to secure a contract.
There is almost no contractor that can do all the construction work on their own. Most of them will categorized the works according to the scope of work and sub-let it to smaller contractor. By doing this the Main Contractor will have a better control over their own profit margin.
For example. Contractor A had secure a road project. throughout the whole contract the expected profit margin during the tendering or negotiation process was 12%. He then Split the works in to various category or trade with his profit margin of Maximum 7% to 10%. The balance, 2% is set apart for his subcontractor. With that scenario he already secure at least 7% to 10% of the project profit. His only problem is to make sure his Subcontractor can complete their works with-in the agreed contract period. If the Sub contractor failed to delivered the works, it is the Subcontractor duty to to ensure that what ever scope of work he undertake he need to complete it even with the extra cost incurred. Due to this possible extra cost had been taken over by subcontractor, it can be seen that the main contractor profit is almost undisturbed. At the end of the process Main Contractor can easily secure at least 5% profit from the project.
This strategy normally being applied by almost all contractor after considering the TOP 5 factor that will directly affect their profit margin.
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