How Should a Contractor Review Project Profitability?
Ask most contractors how a job did, and you'll get one of two answers. "It went great," or "We got killed on that one." Ask them how they know, and the answer usually gets fuzzy.
That's the problem. Too many contractors find out whether a job made money months after it's finished, when the final numbers come back from accounting. By then, the crew has moved on, the details are forgotten, and nothing can be done to change the outcome. The profit, or the loss, is already locked in.
Reviewing project profitability shouldn't be a post-mortem. It should be a habit that runs through the life of every job.
The Problem: Profit Is Measured Too Late
In my 28 years working with trade business owners, and more than 10,000 conversations along the way, one pattern shows up again and again. Contractors know their revenue. They know their backlog. Many know their company-wide gross margin for last year. But very few can tell you, today, whether the job they're running right now is on track to hit the margin they bid.
When profitability is only measured at closeout, the review becomes a scorecard instead of a steering wheel. You can see where you ended up, but you couldn't do anything about it while it mattered.
Why It Matters
Construction margins are thin. A few percentage points can be the difference between a healthy year and a stressful one. When a job slips from the margin you bid to something less, that gap comes straight out of the money you use to pay overhead, fund growth, and pay yourself.
There's a second cost that's easy to miss. If you don't know which jobs made money and which didn't, you can't make smart decisions about what to bid next. You may keep chasing a type of work that looks good on paper but quietly loses money every time. Or you may walk away from work that's actually your most profitable.
Project profitability reviews give you three things:
What Causes the Problem
Most contractors aren't careless. They're busy. And the systems they rely on weren't built to give them timely answers. Here are the most common causes I see.
Job costs aren't coded consistently. If labor, materials, and subcontractor costs aren't tied to the right job and cost code, the numbers can't be trusted. Garbage in, garbage out.
The estimate and the budget don't match. Many companies bid a job one way and then set up the job in their accounting system another way. When the categories don't line up, you can't compare what you bid to what you're spending.
Costs are recorded late. Timecards come in a week late. Supplier invoices sit on someone's desk. Committed costs, like purchase orders and subcontracts, aren't tracked at all. The job looks profitable until the bills catch up.
Nobody owns the review. The project manager assumes accounting is watching. Accounting assumes the PM knows what's happening in the field. The owner assumes someone has it handled.
Change orders float. Work gets done without approved paperwork, so the cost shows up but the revenue doesn't. On paper, the job is losing money. In reality, you just haven't billed for it.
There's no regular rhythm. Without a set time to review each job, the review happens only when something feels wrong, and by then it's often too late.
Practical Steps to Review Project Profitability
1. Build the budget from the estimate
When you win a job, turn your estimate into the job budget, using the same cost codes. Labor, materials, equipment, subcontractors, and general conditions should all line up. This is your baseline. Every review compares back to it.
2. Track committed costs, not just spent costs
A purchase order or subcontract is money you've already promised, even if you haven't paid it yet. Include committed costs in your job reports so you see the full picture, not just the bills that have arrived.
3. Estimate cost to complete
This is the step most contractors skip, and it's the most important. Each month, have the project manager estimate what it will take to finish each cost category. Spent to date plus cost to complete gives you a forecast of the final cost. Compare that to the budget, and you know whether the job is heading for the margin you bid.
4. Review your WIP schedule monthly
Your work-in-progress schedule shows, job by job, how much you've earned, how much you've billed, and whether you're over-billed or under-billed. Under-billing can mean you're doing work you haven't charged for. Over-billing can hide a job that's in trouble. Either way, the WIP schedule tells you where to look.
5. Hold a monthly job review meeting
Set a standing meeting with the project manager, the superintendent, and whoever handles accounting. Keep it short and focused. For each active job, ask:
Are we on budget by cost category?
What is the forecast final margin, and how does it compare to the bid?
Are there unapproved or unbilled change orders?
What risks could affect cost or schedule before completion?
Write down the answers and the actions. Then follow up next month.
6. Keep change orders current
Make it a firm rule: no change gets built without written approval, and every approved change is billed on the next pay application. This keeps your revenue in line with your costs and gives you an honest view of each job.
7. Close the loop at closeout
When the job is done, compare the final cost to the original estimate, line by line. Where did you gain? Where did you lose? Feed those lessons back to your estimator so the next bid reflects what really happened.
Make It Part of How You Run the Business
Profitability reviews work best when they're part of a bigger system. Job costing, estimating, project management, and accounting are all connected. When one is weak, the others suffer. A review process won't fix bad data, and good data won't help if nobody looks at it.
That's why I look at profitability as part of the business side of construction, not just a report from the accounting department. When the field and the office share the same numbers and meet on a regular rhythm, decisions improve, and so does the bottom line.
The Takeaway
Don't wait until closeout to find out whether a job made money. Build your budget from your estimate, track committed costs, forecast cost to complete, review your WIP every month, and hold a short job review meeting with the people who run the work. Do that consistently, and you'll catch problems while you can still fix them, bid smarter on the next job, and keep more of the margin you earned.
If you're not sure where your jobs are leaking profit, start with our free [Contractor Profit Leak Check](https://shapcottlauber.com/profit-leak-check). It takes about five minutes, and you'll get an instant one-page summary of where to look first.
Bill Shapcott is the founder of Shapcott Lauber, a fixed-fee advisory firm in Greensboro, NC, that works on the business side of construction with general and specialty contractors.
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