Cost prices in the construction industry: how to preserve your profit margin in the face of rising costs

How to secure your margins and adapt your management to this new economic reality?

Cost price, an essential benchmark for construction companies

The cost price represents all the costs incurred by the company to perform a service or complete a project. It serves as the basis for calculating the selling price and allows for an assessment of the true profitability of an operation.

In an inflationary context, traditional cost calculation methods quickly become unreliable. A cost estimated several months before a project begins may no longer reflect the actual cost at the time of execution. Discrepancies between forecasts and actual expenses then multiply, sometimes significantly.

Hence the need to update cost bases more frequently. Material prices, hourly labor rates, transportation costs, energy: all these parameters must be reviewed regularly to reflect the current situation as closely as possible. The goal is twofold: to produce more accurate quotes and to better anticipate the profitability of projects before committing.

Include all costs in the cost price calculation

One of the most frequent mistakes is to only look at the most visible expenses of the construction project. However, a significant portion of the profitability gaps often comes from an underestimation of indirect costs.

Direct costs include materials and supplies, labor assigned to the site, subcontracting, and rental of specific equipment.

In addition to this, there are indirect costs that are often less visible, but just as crucial: supervision and management of works, administrative functions, insurance, depreciation, vehicle costs, premises, general expenses or financial costs.

Overhead costs, an often underestimated point

In a context of generally rising costs, the allocation of overhead expenses deserves particular attention. A company can maintain its level of activity while seeing its profitability decline if its structural costs increase faster than its revenue.

Analytical monitoring of construction sites then becomes a valuable tool. It makes it possible to identify sensitive areas, detect deviations earlier, and adjust management decisions without waiting for the project to be completed.

Calculating the cost price: a practice to be maintained over the long term

Calculating the cost price cannot be limited to a one-off exercise at the time of the quote. It must be part of continuous management, with updated data and regular adjustments.

Several practices can contribute to this:

Update cost data regularly

Pricing bases must be reviewed several times a year to incorporate changes in suppliers, wages and operating costs.

Compare what was planned and what actually happened

Systematic analysis of discrepancies helps to understand the origin of overruns and to improve, over time, the reliability of future estimates.

Secure the contractual terms whenever possible.

On long-term construction projects, price revision clauses or advance supply agreements can limit the impact of economic fluctuations.

Spreading a management culture

Cost price is not just a matter for the finance department. Project managers, account managers, and executives need to share the same benchmarks to react quickly in case of deviations.

In an unstable economic environment, controlling cost prices is much more than a calculation tool: it's a lever for competitiveness for construction companies. Beyond simply meeting management obligations, it helps secure margins, inform decision-making, and strengthen the company's long-term viability.

In a sector where each project requires significant resources, knowing costs precisely is not a management convenience. It is a prerequisite for effective management.

Opinion piece by Anaïs Foucher, chartered accountant and partner at ORCOM (LinkedIn).