Where the other nine points of margin go

I have looked at the books of three Sydney remediation crews this year. All three quoted at 18 percent margin. All three ended the year at between 8 and 11 percent. None of them were unlucky. The gap was the same gap, in the same four places, in all three businesses. The good news is the same four leaks are fixable. The bad news is most builders only find them when an accountant asks awkward questions in March.

01Quoting margin is not job margin

The quote applied 18 percent on top of trade rates. Then the job ran four days over because of a wet week. The subbie put a foot through a soffit, which got patched but never costed. The supplier raised mortar prices mid-job and nobody told the senior estimator. Three small events, none of them anyone's fault, and the margin walked.

Real margin compounds downward from quote to invoice to bank. Each step has a leak. Each leak has a name.

02Leak one: scope creep

The client asks for "just one extra balcony". The senior estimator says yes because the relationship is good and the work is similar. The variation is verbal, undocumented, and eats two days of crew time that nobody bills for. The relationship stays good. The margin does not.

The cost is rarely the direct labour. It is the displacement: the next job starts two days late, which means the next quote was promised against a schedule that does not exist. Scope creep is recursive.

03Leak two: quote errors absorbed

The quote missed a trade. The senior estimator notices on day three of the job and quietly eats the cost rather than re-opening a price conversation that would damage the relationship. Total cost to the business: $4,800. Total likelihood of this happening on the next job: high. Nobody is keeping score.

04Leak three: timesheet drift

A crew quoted on 7-hour days. The crew worked 9-hour days because the access window was tight. The extra two hours per crew member per day, across a six-person crew for three weeks, is 180 paid hours that nobody factored. The crew is happy with the overtime. The job is no longer profitable.

05Leak four: variation amnesia

The variation was discussed on site. Both parties shook on it. The estimator wrote it on a notepad. The notepad ended up in a glovebox. The invoice was issued from the original quote, with the variation forgotten. The job ran $11,000 of un-billed work. The strata manager would have paid it. They never got an invoice.

06The annual math

For a crew doing $4M in annual turnover, nine points of margin leakage is $360,000. That is a foreman's salary, a new ute, a profit share for the team, and a Christmas party that is not awkward. It is also the cost of running estimating on Excel and goodwill.

07What makes leakage visible

You do not need accounting software with twelve modules. You need rigour, in one place. A quote that links to a job that links to invoices that links to variations. When all four are connected, leakage becomes visible. Visible leakage gets fixed, usually within two weeks of being noticed.

The crews that close the 9-point gap rarely do it through better estimating. They do it by making the leaks impossible to hide. The estimating was always good enough. The bookkeeping needed help.