Margin Erosion

margin erosion

is a silent killer

You might be winning work and staying busy, yet still find there’s less in the bank than expected. Over time, small leaks in profitability can become a serious issue.

The good news? With awareness and the right systems, you can identify margin erosion early and take steps to stop it from becoming a problem.

margin erosion

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Understand your overheads

Have a clear understanding of your fixed and variable costs. This includes everything from wages, vehicles and rent, to software subscriptions, admin support and marketing. These costs, your overheads, need to be covered in your charge-out rates or you’re effectively working for free.

It’s easy to underestimate just how much it costs to run a building business. If you haven’t reviewed your overheads in the last 6–12 months, do it now. Expenses shift, prices rise and what worked last year may no longer be enough to keep your margins healthy.

Know your numbers

Many builders set their rates based on what competitors are charging or what they think clients will tolerate. But without knowing your true costs and break-even point, you risk undercharging and eroding your margins right from the start.

Calculate your true costs, then set your rates to cover those expenses with a healthy margin built in for profit. Your business shouldn’t just survive, it deserves to thrive.

Stay on top of project costs

Track every project against budget in real time. If you’re not using project management software or work-in-progress reports, it’s worth the investment.

Regular reviews allow you to see if labour costs are running over, materials are more expensive than expected or if variations are eating into your margin.

Charge for every variation, extra and delay that falls outside the original scope. Too often, builders absorb these small costs to keep the client happy, but ‘small’ can quickly add up to thousands.

Builder reviewing project costs
Builder reviewing project costs

Review regularly

Don’t wait for year-end financials to spot an issue; by then it may be too late. Your business isn’t static, and neither are your costs. Set a regular schedule (ideally quarterly) to review your charge-out rates, supplier prices, subcontractor rates and overheads.

If your only contact with your accountant is after year-end, consider one who offers business advisory services. Looking back on a full year of trading won’t help fix problems in real time. A good advisor can help you monitor cashflow, pricing and profit before issues like IRD debt start to pile up.

Protect your profit

At the end of the day, profit isn’t a dirty word, it’s what allows you to reinvest in your business, hire great people, take time off and grow sustainably. Staying profitable doesn’t mean charging top dollar at every opportunity. It’s knowing your costs, pricing with confidence, tracking project performance and not letting avoidable mistakes eat into your bottom line.

By knowing and protecting your margins, you’re not just staying in business, you’re building a better one.

Quote smart

Being too eager to win the job can lead to rushed pricing, missed items or not allowing enough for time and materials. Don’t leave money on the table just to stay competitive. Be thorough, include realistic allowances and clearly define what is and isn’t included.

If you’re still pricing manually, consider using estimating software to streamline the process and reduce human error. A professional, well-prepared quote sets the tone for the job and positions you as a confident, capable builder.

a close up of a white marble wall

Amanda is a regular contributor to Inhouse

Published bi-monthly in print and online, InHouse is the official magazine for NZ Certified Builders.

This article featured in the September 2025 issue.

NZCB InHouse September 2025
NZCB InHouse September 2025