How much profit?

"Too much profit and you won't win the project. Too little and you've left money on the table."

​You are about to submit your construction project quotation (tender, bid, or price) and you have to decide how much profit to add to your price. Add too much and your price may become too expensive and won't be considered by the client. Add too little and you could be much cheaper than your competitors. So what is the right profit?

What impact the profit you add on construction projects

The amount depends on a number of factors including:

• The current market conditions. The more competitive they are the lower the margin will be.
  
• The other bidders or contractors pricing the project. If you know who they are you may have an indication of how desperate they are for the construction project or what level their prices normally are.
  
• How desperate you are for the work.
  
• How confident you are in your project pricing. If there is some uncertainty about the accuracy of your price you may add additional profit to cover for any possible mistakes in your price.
  
• The amount of risk on the construction project. The more risk there is the higher your profit should be to recompense for the risk you are taking on. 
• The client's budget. You may consider tailoring your price to fit the client's budget provided this doesn't make you lose money or isn't going to make your price uncompetitive.
  
• The desirability of the construction project to your company such as: possible further work from the client, a good location, a prestigious project or an easy project with potential to make additional profit. 
  
• Whether the construction project will use resources you currently have available.
  
• You may want to keep other contractors away from your client or market.
  
• You may want the construction project so you can enter a new construction market, or work with a new client.

Adding the right amount of profit is one of the most important decisions in the project pricing process. 

"What I personally liked about this book were the case studies; they were great. Also, the proper explanation of every thing talked about." Reader review on Amazon

For more information on pricing projects read 'Building a Successful Construction Company: The Practical Guide' by Paul Netscher. Available on Amazon and other online stores.

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