I’ve been asked to identify the average margins in the construction industry. Honestly, there is no such thing. I tried and after several hours of research I couldn’t even get one of the types of contractors to have consistency in their numbers.
Direct margin is equal to the net revenues less the actual direct cost of materials, land, subcontractors, payroll, and other direct (prime) costs. From the direct margin is subtracted the indirect costs to determine the gross margin.
QuickBooks does not have a seamless subrountine to transfer costs from construction in process control accout to the profit in loss statement’s cost of construction section. Therefore, the accountant has to export data to a spreadsheet and then sum the respective functional costs of materials, subcontractors, labor, land etc. and then make a general journal entry to complete the transfer. This article explains this process in detail.
Every construction project has costs beyond the direct costs and the contractor wants to earn a profit. To cover these costs he must have an appropriate markup. The contractor must give consideration to many variables and circumstances to calculate the best markup for a construction project. To determine the best markup percentage on costs, the contractor should consider his indirect costs, overhead, taxes, and final profit desired.