Domestic Residential Construction Project Profitability
In 2021, the GLCM team worked closely with Vertex on an in-depth look at the overall profitability for the domestic residential construction market. The team went through literature reviews of over one hundred relevant academic sources, industry professional interviews, and data analyses to arrive at their final findings. After reaching the main research topic, the team came up with a series of questions stemming from the main research topic. For example, what is the profit margin? What are some mathematical formulas to calculate construction project profit margin? What is the average construction profit margin in the United States? Is there a correlation between construction project size and profit margin? What are the direct factors to profit margin? Are there researches from other countries that align with this topic? Why is there a shortage of construction profit margin research? And finally, if there are not enough research materials available, how can we improve and design a study for this specific topic?
The team’s research methodology consisted of three phases that covered both qualitative and quantitative approaches. The first phase focused on literature review and the identification of sources relevant to profitability margins as well as factors that affect profits on construction projects. In the second phase, the team connected with industry leaders across several sectors to conduct interviews designed to obtain unique professional opinions. Lastly, in Phase Three, the team analyzed the data that was captured during the interview process. The team displayed findings in graphs and charts and shared additional comments on the high-rise construction industry as well as highlighted common factors from different sources within the industry.
The research has confirmed the team’s hypothesis, that the profit margin for domestic construction projects is low, and profit margin in percentage further decreases as project size increases. The following chart illustrates the interview result for an average industry general contractor fees (profit margin, or markup) as a percentage of the cost of the work for a domestic residential construction project.