Intuit Study Reveals Contractors Undercharge, Risking Business Failure
Words: Dan KamysContractors are undercharging customers, at the risk of their own business' success, according to the second annual Intuit Construction Business Solutions industry study, conducted to better understand the business needs and challenges of the industry.
One out of two contractors report they commonly omit general conditions costs such as supervision, phone calls and temporary power from their job estimates depriving themselves of deserved revenue and gross profit. Respondents seemed to recognize this tendency, citing greater job profitability (65%) and more accurate estimating (57%) as the areas of their business needing the most improvement.
Despite the obstacles in managing their businesses, contractors surveyed estimate their current gross profitability per job at 15.5% and anticipate double-digit industry growth (12%) over the next five years.
Conducted for Intuit by independent research firm Decipher, the study surveyed more than 500 commercial and residential contractors and subcontractors in the United States. The results were announced at the International Builders' Show.
"Contractors' reported areas of improvement and their perception of future revenue growth alludes to the industry's need to maintain profitability, especially as contractors strive to take their businesses to the next level of growth," says Carol Novello, President of Intuit Construction Business Solutions.
To meet growth projections, 66% of respondents said they would hire additional field employees. At the same time, nearly as many (65%) said hiring quality employees was the greatest challenge in the labor force. And when asked to name the most frustrating aspect of managing a contracting business, 50% of respondents cited scheduling labor and managing work crew productivity.
"Business growth is not simply about hiring more employees and winning more jobs," Novello adds. "Success in today's unpredictable economic landscape depends on effectively managing your business and crews to continuously uncover costly inefficiencies and new revenue opportunities.
"This study shows that the construction industry must make managing profitability and productivity a priority to ensure business success. The successful companies are those that strike a balance between trade expertise and business acumen," she says.
The Intuit study uncovered several other notable findings:
Respondent demographics
New construction vs. remodeling: Some 64% of respondents run new construction businesses rather than remodeling.
Years on the job: Commercial contractors surveyed average nearly 20 years in business. Residential contractors average nearly 15 years, while subcontractors average nearly 18 years.
Retirement planning: A total of 67% of respondents have no exit strategy in place, although 60% of contractors in business for more than 10 years do.
Successors: Of those respondents with exit strategies, 38% would sell or give their company to family members.
Business outlook
The economy: 72% see interest rates and the economy as the key factors driving construction industry growth.
Decipher Inc., an independent, full-service market research firm, conducted the Intuit Construction Business Solutions Study from Oct. 14 through Nov. 20, 2004. A sample of 500 residential and commercial contractors and subcontractors accessed the survey via Decipher's online CATI system.