Taming the Rate Beast: Open Enrollment Strategies for Lower Mid-Market Construction and Manufacturing 🚧🏭

Open Enrollment (OE) is a critical annual event, and for lower mid-market companies in the construction and manufacturing sectors, it’s often a high-stakes balancing act. You need a competitive benefits package to attract and retain your workforce, but you are also highly sensitive to the ever-increasing costs—especially healthcare.

This year, don’t just react to rate increases—get proactive by exploring cost pooling techniques and strategic OE management.

The Unique HR Benefits Challenges in Your Industry

Construction and manufacturing companies face distinct employee benefits issues that impact plan costs and employee needs:

• Higher Risk, Higher Claims: The nature of the work—physical labor, machinery, and potential for injury—often results in a higher frequency of Workers’ Compensation and medical claims. This drives up your medical loss ratio and subsequently, your renewal premiums.

• Talent Scarcity: Both sectors are battling a competitive labor market. A robust benefits package, including quality health, dental, and disability insurance, is essential for recruitment and retention.

• The ACA Mandate Squeeze: As a mid-market company (often defined as having 50–1,000 employees), you are typically considered an Applicable Large Employer (ALE) under the Affordable Care Act (ACA). You’re large enough to be mandated to offer Minimum Essential Coverage (MEC) but often too small to self-insure and absorb large claims without significant financial impact.

Navigating Open Enrollment: Key Considerations

For a successful, cost-effective Open Enrollment, HR teams should focus on these strategies:

1. Prioritize Physical and Financial Health Benefits

• Disability Insurance: Strong Short-Term and Long-Term Disability plans are crucial. These physically demanding roles mean employees value coverage that protects their income following an injury or illness.

• Voluntary Benefits: Offer a robust suite of voluntary benefits like Accident Insurance and Critical Illness Insurance. These plans pay a lump sum upon diagnosis or injury, helping employees cover high deductibles and out-of-pocket costs, which can increase satisfaction even if you’ve had to raise medical plan deductibles.

• Wellness Programs: Implement wellness initiatives focused on injury prevention and general health. Healthier workers reduce claims, which is a direct long-term cost-mitigation strategy.

2. Optimize Communication for Your Workforce

• Multi-Channel Approach: Use a mix of digital (mobile app, email) and traditional methods (posters, breakroom flyers, in-person meetings).

• Focus on Cost and Value: Employees want to know, “How much is this going to cost me, and what value am I getting?” Clearly break down the employer/employee cost-share percentage and use simple examples to explain plan changes.

• Utilize a Digital Platform: Ditch the paper. Use an online enrollment system to streamline the process, reduce HR administration errors, and provide a single source of truth for benefit documents.

The Power of the Pool: Mitigating Rate Increases

When your renewal rates come in too high, you have options beyond simply passing the cost to employees. Cost pooling is a powerful technique for mid-market companies to gain the financial leverage of a much larger organization.

What is Cost Pooling (or Multi-Employer Pooling)?

Cost pooling involves your company joining a plan with other, non-related businesses, creating a much larger and more diverse group of insured individuals. This is often achieved through:

• Association Health Plans (AHPs): These plans allow small businesses and mid-market companies within a specific industry or region to band together. The larger pool size means the risk of a few high-cost claims is spread across many employers, leading to more stable and lower premiums.

• Professional Employer Organization (PEO) Master Plans: By joining a PEO, your employees are co-employed, allowing you to access their large-group health plan. This provides an immediate, massive pooling effect, significantly lowering administrative burden and often offering superior rates and plan designs.

• Pooled Employer Plans (PEPs) for Retirement: While not a health strategy, PEPs are a new cost pooling model for 401(k) and retirement plans. They pool administrative and fiduciary services, dramatically lowering management fees and compliance risk—a significant win for HR teams.

Why Level Funded Plans Or Pooling Work for Some Lower Mid-Market Firms

Level or Self Funding is another cost effective option.  Blair Stientjes, President of TotalBenefitsCA states,“Level funded plans offer transparency that many fully insured, small group plans can’t provide. While plan designs and coverages are very similar to fully insured plans, level funded plans are much more competitively priced. And if there is underutilization, then there is a possibility for a rebate back to the employer.”.

This is a great option for some employers with as few as 50 employees.  This delivery of health insurance has become very popular over the last few years as a tool to combat higher premium costs.  

Another option is pooling plans.  The primary advantage of pooling is smoothing out volatility. For a company with 50–300 employees, one or two catastrophic claims in a year can lead to a 20–30% rate increase at renewal.

By entering a pool with hundreds or thousands of other members, those same few high-cost claims have a negligible impact on the overall rate, giving you:

• Lower Administrative Costs: Fees are negotiated on behalf of the massive pool.

• Increased Buying Power: You can access the networks and pricing tiers reserved for Fortune 500 companies.

• Predictable Renewals: Rates are based on the aggregate experience of the large pool, making them far more stable year-over-year

Take Action: A Proactive OE Checklist

1. Start Q3 Budget Analysis

   • Don’t wait for renewal rates — model “what-if” scenarios for cost-share percentages and new plan designs.

2. Evaluate PEO/AHP Options

   • Consult a broker specializing in pooled options to compare rates against your current fully insured plan.

3. Review Ancillary Benefits

   • Ensure Disability, Accident, and Life Insurance align with your high-risk workplace needs.

4. Simplify Communication

   • Draft easy-to-understand materials (videos, short guides) to explain value and changes clearly.

5. Mandate Digital Enrollment

   • Transition to an HRIS or benefits platform to reduce errors and collect compliance data efficiently.

Ready to Get Ahead of Open Enrollment?

Don’t wait for rate shocks. Let’s discuss how proactive planning, data modeling, and pooled strategies can stabilize costs and improve your benefits ROI.

Contact us today.

Q3 2025 Update: What Middle-Market Manufacturing & Construction Owners Need to Know

After attending a few Mid-market Q3 2025 updates over the past 2 weeks for US Manufacturing & Construction, I have summarized ssome market dynamics. Also, I took the libery to cross-reference a few sources that I rely upon to help with some observations.

Market snapshot (Q3 2025)

• Macro demand & activity. US construction spending slipped again in July (-0.1% m/m; +0.3% y/y), with private nonresidential soft and public spend slightly higher—signaling a cooler topline but continued government support. (Census.gov, Reuters)

• Manufacturing pulse. Survey signals are mixed: ISM Manufacturing PMI fell to 48.7 in August (contraction), while S&P Global’s PMI rose to 53.0 (expansion). Translation: conditions vary by subsector and region, but the cliff-edge scenario hasn’t materialized. (PR Newswire, pmi.spglobal.com)

• Costs & inputs. Hot-rolled coil steel is hovering ~$800/ton and down on the month; futures curve into Q4 is flat-to-slightly higher. Eases cost pressure for fabricators/contractors vs. 2024. (Trading Economics, MarketWatch)

• Policy tailwinds. IIJA funding continues to flow (programs authorized through Sept 2026), supporting transportation, utilities and heavy civil backlogs even as private work wobbles. (Department of Transportation, Federal Highway Administration)

Deal environment

• Volume & pipeline. Overall M&A remained subdued through Q2, but sell-side prep is building with expectations for a Q4 pickup as rate-cut hopes and improved credit terms bring buyers/sellers closer. (PitchBook)

• Valuations. Multiples are bifurcated: resilient niches with durable backlog (e.g., infrastructure services, industrial tech/automation, specialty testing) hold up; cyclical resi-exposed contractors/machining job shops see wider bid-ask spreads. (Inference from dealflow commentary and sector PMIs.) (PitchBook, Institute for Supply Management, pmi.spglobal.com)

• Financing. Private credit remains the primary engine; lender appetite is healthy for cash-generative, asset-light service models and platform-plus-add-on plays. Structures favor tighter covenants and higher equity checks than 2021–22, but pricing has stabilized versus early 2025. (Blue Owl Capital)

Sector takeaways for PE

• Construction & field services. Publicly funded work (transportation, power, water) offsets weakness in office/industrial new starts. Expect continued strength in transportation/power packages and data-center-adjacent scopes (MEP, controls, site/civil), but watch labor availability and fixed-price risk. (FMI Corp, Census.gov)

• Discrete manufacturing. Mixed backdrop: electronics/metal goods face uneven orders, but reshoring, inventory normalization, and cost relief on steel support margins for high-mix/low-volume shops. Automation and quality/inspection assets remain attractive add-ons. (pmi.spglobal.com, Trading Economics)

• Energy transition. Policy volatility is a watch item (e.g., federal pullbacks on select offshore-wind projects), yet grid, T&D, and utility-scale maintenance remain investable with contracted cash flows. (San Francisco Chronicle)

What’s working now (themes & theses)

1. Infra-linked contractors & specialty subs. Backlog tied to IIJA/utility spend (bridges, roads, T&D, water) with disciplined bid governance; prioritize self-perform and recurring maintenance contracts. (Department of Transportation, Federal Highway Administration)

2. Industrial services w/ recurring revenue. Testing/inspection, rotating equipment/MRO, controls & automation, and OEM-agnostic field services that monetize uptime vs. greenfield capex cycles. (Synthesis of sector reports and M&A commentary.) (PitchBook)

3. Data-center supply chain. Electrical contractors, switchgear assembly, cooling, and site work benefiting from hyperscale builds—pricing power persists where capacity is scarce. (Industry outlook synthesis.) (FMI Corp, DPR Construction)

4. Precision manufacturing platforms. Aggregation plays emphasizing AS9100/ISO-cert quality, short-run complexity, and engineering services; input-cost relief and capacity utilization are modest tailwinds. (Trading Economics)

Watch list / risks

• Momentum divergence. Conflicting PMIs underline uneven sector health; diligence should underwrite order quality, change-order recoverability, and working-capital intensity at the job level. (PR Newswire, pmi.spglobal.com)

• Backlog quality. Public work cushions volumes but can compress margins on fixed-price, labor-tight projects; test historical gross-margin slippage and claim recovery rates. (Census.gov)

• Commodity reversals. Steel softness helps now; a snapback (or tariff shifts) could squeeze fabricators with thin pricing power—hedge/price-adjustment clauses matter. (MarketWatch)

• Policy whiplash. Project-level exposure to changing federal/state support (e.g., offshore wind) warrants scenario analysis. (San Francisco Chronicle)

Q3 2025 PE Playbook (practical steps)

• Underwrite cash conversion. Build 13-week WC bridges to test billing timing, retainage, and inventory turns; require AR aging and WIP by job before IOI. (Guided by softer spend data and uneven PMI.) (Census.gov, PR Newswire)

• Favor add-ons, prepare platforms. Keep stacking accretive tuck-ins now; line up platform processes (QoE, customer interviews, contract audits) for a potential Q4 window. (PitchBook)

• Lock financing early. Engage private credit pre-LOI for structure read (leverage, amortization, covenants) and to gauge appetite for construction risk profiles. (Blue Owl Capital)

• Be claims-literate. For contractors, analyze change-order aging, liquidated damages history, and pass-through indices (fuel, steel, copper) in contracts. (Cost and policy context above.) (Trading Economics, MarketWatch, Census.gov)

• Lean into public-funded niches. Prioritize targets tied to IIJA-backed line items (bridges, highways, water, T&D) and municipal repeat business. (Department of Transportation, Federal Highway Administration)

Forward look (Q4 setup)

• Baseline: flat to modestly improving activity with public work and data-center-related demand offsetting private nonresidential softness; cost inputs manageable; financing available for quality credits. If rate-cut expectations hold and credit stays open, expect a busier Q4 for processes that have been incubating since mid-year. (FMI Corp, Census.gov, PitchBook)

The coming quarters may open a more favorable M&A window as rates stabilize, credit conditions ease, and strategic/PE buyers return with capital to deploy. Owners who are not yet prepared risk leaving value on the table.

This is where Cline Consulting Solutions (CCS) steps in:

• Financial Clarity. We tighten reporting, WIP schedules, and backlog analysis so buyers and lenders see predictable cash flow, not volatility.

• Process Readiness. From job-costing discipline to system integration (ERP, Yardi, Smartsheet, FloQast), we prepare clean data rooms that withstand diligence.

• Value Storytelling. We frame your growth levers—recurring revenue, contract durability, margin expansion—in investor language.

• Transaction Support. Whether buy-side (platform diligence, accretive add-ons) or sell-side (exit prep, QoE, working capital bridges), we sit at the table with you and your advisors.

• Bridging Vision & Value. As a Fractional CFO with deep M&A experience, CCS helps middle-market owners move from “numbers in QuickBooks” to “narrative investors will pay for.”

The Bottom line

If Q4 2025 delivers the deal volume many expect, the time to get your house in order is now.

CCS partners with owners, sponsors, and management teams to ensure when opportunity knocks, you’re ready to capture full enterprise value. Contact Us to help get ready!

🏗️ A Major Win for Equity in Construction: SB 61 Signed Into Law

📜 What Happened?

Governor Gavin Newsom signed California Senate Bill 61 (SB 61) into law, placing a statewide cap on retention payments in private construction contracts.

This new legislation aligns private-sector retainage rules with the 5% standard already in place for public works—providing a more equitable, cash flow–friendly environment for contractors, subcontractors, and small businesses across the state.

🔍 What SB 61 Does

Effective for contracts entered into on or after January 1, 2026

• Caps retention at 5% of each payment and no more than 5% of total contract value.

• Requires consistency across tiers — retention withheld from subcontractors can’t exceed what’s withheld from the contractor.

• Invalidates higher retainage terms in contracts — such provisions are now unenforceable.

• Includes key exemptions:

  • Subcontractors who don’t furnish requested performance/payment bonds.

  • Residential buildings under 4 stories (not mixed-use).

• Allows legal enforcement — prevailing parties in retention disputes can recover reasonable attorney’s fees.

💡 Why This Matters

California’s previous 10% retention rule on private projects was a serious cash strain—especially for small, minority, and emerging contractors. SB 61 brings much-needed relief:

✅ Improved cash flow
✅ Less reliance on costly financing
✅ Faster payments for labor and materials
✅ More predictable project funding and bidding

🗣️ Voices of Support

“SB 61 levels the playing field and reduces financial barriers for small contractors.”
— Senator Dave Cortese

“Without this reform, we’re forced to use expensive credit to finance our own work. SB 61 helps us stay competitive.”
— Rob Meadows, President, Morrow-Meadows Corporation

“This is a game-changer for subcontractors in California.”
— Eddie Bernacchi, NECA Legislative Advocate

🧭 What to Do Next

If you’re an owner, developer, or contractor working in California:

• Review your contract templates for compliance.

• Update your retention language before Jan 1, 2026.

• Educate your project teams and subcontractors about the upcoming changes.

📞 Need Help Preparing?

We help construction firms, real estate developers, and subcontractors navigate California’s evolving contract and compliance landscape. If you have questions about how SB 61 affects your business,  let’s discuss how we can help assist you.

Why Your Business Needs a Financial Model for Bank Covenant Compliance

📊 Why Financial Models Matter for Covenant Compliance

Maintaining bank covenant compliance is no longer just a requirement—it's a financial strategy. A robust financial model not only ensures compliance but unlocks competitive advantages.

“Companies with robust covenant tracking systems negotiate loan terms that are, on average, 25-50 basis points more favorable than those without systematic monitoring.” – Corporate Finance Institute

🚨 Early Warning Systems That Safeguard Your Business

Benefits of continuous monitoring through a financial model:

• Spot potential violations early

• Apply corrective actions in time

• Negotiate from a position of strength

• Reduce waiver fees and interest penalties

🎯 Make Smarter Business Decisions

Track the compliance impact of every decision:

• Acquisition Analysis: Understand the effect of new entities on ratios

• Capital Planning: Schedule spending while preserving compliance

• Working Capital: Align liquidity strategies with covenant requirements

💰 Optimize Financing Terms

Sophisticated monitoring supports better lender relationships:

• Secure lower interest rates

• Gain flexible loan terms

• Cut modification and commitment fees

• Strengthen your credit profile

“Proactive covenant management can save millions over a debt facility’s life.”

⚡ Streamline Compliance with Automation

Manual tracking creates risk. A model helps you:

• Auto-calculate financial ratios

• Standardize lender reports

• Reduce errors

• Focus on analysis, not admin

📈 Prepare for Uncertainty with Scenario Planning

Test your compliance in different conditions:

• Downturns: Predict covenant challenges

• Seasonal Swings: Plan around cash cycles

• Growth Phases: Align expansion with ratios

• Market Volatility: Prepare backup plans

🏛️ Strengthen Governance and Internal Controls

Good compliance modeling supports transparency and oversight:

• Strong audit trail

• Clear reporting for boards

• Greater investor trust

• Reduced regulatory risk

🚀 Build Your Model: Key Considerations

Ensure your model is effective by focusing on:

• Data integration with finance systems

• Automation to minimize errors

• Flexibility for changing terms

• Dashboards for visibility

• Clear documentation for audits

🎯 Conclusion: Turn Compliance into a Strategic Asset

A financial model helps shift from reactive to proactive management. Beyond compliance, it empowers strategic planning, cost savings, and better lender relationships.

Don’t just meet your covenants—use them to grow your business.

Need modeling help to empower your business’s strategic advantage?  Contact us - we are here to help as part of business modeling services we can provide.

Demystifying Work in Progress (WIP) in the Construction and Manufacturing Sectors

In the world of construction accounting, Work in Progress (WIP) refers to the value of work that has been completed but has not yet been billed. Accurate WIP tracking is vital for financial reporting, effective project management, and ensuring that revenue recognition aligns with actual project progress. WIP reporting is a critical foundational building block when optimizing product and service mix for profitability.

What is WIP Accounting?

WIP accounting is a method of tracking and reporting the progress of construction or manufacturing projects. It reflects the value of labor and materials used in projects that are underway but not finished. Understanding WIP is essential for managing cash flow, forecasting revenue, and maintaining transparency with stakeholders.

Key Components of WIP Accounting

WIP Reports

WIP reports offer a detailed breakdown of:

• Work completed

• Work still in progress

• Work not yet started

• Related costs, billings, and revenue recognition

These reports are critical tools for project managers, accountants, and financial stakeholders to monitor project health and ensure proper accounting practices.

Overbilling vs. Underbilling

• Overbilling: When a contractor invoices more than the actual value of work completed.

• Underbilling: When less is billed than the actual work performed.

Both situations can distort financial statements and impact cash flow, which makes regular monitoring essential.

Revenue Recognition

Construction companies often recognize revenue based on a percentage-of-completion method. Proper WIP tracking ensures that recognized revenue reflects true progress, providing a more accurate representation of a company’s financial performance.

Effective WIP Management Best Practices

Conduct Regular WIP Reviews

Routine analysis helps identify discrepancies between the work completed and billing status, allowing timely corrections and better financial forecasting.

Maintain Comprehensive Documentation

Detailed records—such as signed contracts, approved change orders, and progress updates—are crucial for accurate WIP calculation and transparent reporting.

The Role of Ethical, Competent Project Managers

One of the most critical elements in effective WIP management is having skilled project managers who are both ethical and financially literate. These professionals serve as the bridge between the field and the financial team, ensuring that what happens on-site aligns with what’s reported in the books. To be clear, the project manager should stand behind their estimates; not owners nor executive leaders.

Why It Matters:

• Integrity in Reporting: Ethical project managers ensure that work progress and costs are reported accurately, preventing fraud and financial misstatements.

• Dual Competency: Those with strong foundations in both project management and financial management can better forecast timelines, manage budgets, and contribute to accurate WIP reporting.

• Improved Collaboration: Competent managers facilitate clearer communication between operations, accounting, and executive leadership.

• Risk Reduction: Ethical leadership helps reduce risks related to billing disputes, compliance issues, and delays.

The Importance of Separation of Duties

To preserve the objectivity and integrity of WIP reporting, it’s essential to implement a clear separation of duties between ownership, executive leadership, project managers, and the accounting team.

Why This Matters:

• Prevents Conflicts of Interest: When those who stand to benefit from financial results (e.g., owners or executives) are involved in generating WIP estimates, there’s a risk of intentional or unconscious bias. Hearing “We have certain obligations” is a red flag & alarm bells should ring. Improper interference and pressure to manipulate a person to alter their will or trust to arrive at a predetermined or “engineered” result will jeopardize the integrity of reporting and ultimately lead to misleading results. 

• Protects Financial Accuracy: WIP estimates often involve subjective judgments. Without checks and balances, these estimates can be manipulated to inflate profitability or hide project issues. The most important aspects of maintining integrity are not having the Project Management fox in the Controller’s henhouse.

• Enhances Accountability: Segregating duties ensures that no single individual or department controls both the project execution and its financial reporting. Having a strong controllership is a critical success factor.

• Supports Audits & Compliance: Independent oversight of WIP calculations strengthens internal controls, facilitates audits, and builds trust with stakeholders, banks, and investors. Too many revisions/rework in WIP reporting, adds risk and compromises integrity.

Establishing clear boundaries between who manages the work, who reports on it, and who verifies the numbers is fundamental to accurate, trustworthy financial reporting.

Final Thoughts

By adopting solid WIP management practices—and reinforcing them with ethical leadership and proper internal controls—construction and manufacturing businesses can:

• Achieve more accurate financial reporting

• Improve project visibility and control

• Enhance cash flow and overall profitability

  • This is particularly important when you’re assessing margin performance as we outlined before.

WIP management isn’t just a finance function—it’s a leadership responsibility, an ethical obligation, and a strategic advantage when done properly.

If you’re looking to transform your WIP reporting into a strategic advantage, CCS is here to help!

Stay tuned for the next installment as we explore the benefits of a CCS Financial Checkup.

Optimizing Product and Service Mix for Profitability

In our previous article, we discussed the importance of balancing efficiency, profitability, and strategic execution over mere expansion.

Building on that foundation, this article delves into product and service mix profitability analysis—a critical component of sustainable success in construction and manufacturing.

Beyond increasing sales, businesses must assess the profitability of their offerings to maximize returns and allocate resources efficiently. A well-structured product and service mix strategy ensures that companies focus on high-margin offerings while mitigating risks associated with low-margin or loss-leading projects.

Profitability hinges on more than just generating revenue or expanding offerings. For companies in construction and manufacturing, it depends on optimizing the product and service mix, understanding labor utilization, and carefully managing overhead and burden costs.

When leaders combine strategic portfolio management with operational cost awareness, they gain a clearer picture of what drives margins—and where profitability is quietly slipping away.

Understanding Product and Service Mix Profitability

A company’s product and service mix refers to the range of goods and services it offers.

In industries like construction and manufacturing, this mix can vary widely, from standard, high-volume products to customized, project-based services.

The key to profitability lies in assessing the contribution of each offering to the bottom line and making data-driven decisions about which to prioritize.

Key Metrics to Evaluate Your Mix:

• Gross Margin – Revenue minus direct production costs.

• Net Profit Margin – Profit after all operating expenses, taxes, and interest.

• Contribution Margin – Revenue from a product/service minus its variable costs.

• Customer Lifetime Value (CLV) – Long-term profitability of customers by offering.

These metrics are essential—but they don’t tell the full story unless paired with a deep understanding of labor and overhead dynamics.

Labor Utilization, Overhead, and Burden: The Cost Side of the Equation

Labor Utilization

Labor utilization measures how effectively direct labor hours are spent on billable or productive work versus idle or administrative time. In project-based industries, low utilization can crush profitability, even when revenue is high.

• Pro Tip: Track actual versus expected labor utilization by department or project type. Flag areas with consistent underperformance.

Overhead Costs

Overhead includes indirect expenses such as rent, insurance, administrative salaries, and tools that don’t directly tie to a single job. These costs must be absorbed by your revenue-generating activities—and can significantly impact profitability if not aligned with output.

• Pro Tip: Regularly reassess how overhead is allocated across product and service lines. Some “profitable” offerings may be subsidized by others once true overhead impact is considered.

Burden Rate

Burden includes indirect labor costs—think benefits, payroll taxes, training, and safety programs. Accurately calculating burden rates helps you understand the true cost of employing your workforce and setting project rates accordingly.

Steps to Analyze and Optimize Profitability

1. Conduct a Profitability Analysis

• Break down revenue and costs by product or service line.

• Identify high-margin versus low-margin offerings.

• Consider overhead allocation—some services may appear profitable until indirect costs are factored in.

2. Prioritize High-Margin Offerings

• Focus on products and services that generate the highest return relative to their costs.

• Identify underperforming offerings and assess whether they should be improved, repositioned, or eliminated.

3. Evaluate Market Demand and Scalability

• Analyze market trends to determine which offerings have growing demand.

• Ensure that high-margin offerings are scalable without disproportionately increasing costs.

4. Align with Operational Efficiency

• Assess whether high-profitability offerings align with operational strengths.

• Streamline production or service delivery processes to enhance margins further.

5. Implement Dynamic Pricing Strategies

• Adjust pricing models based on value delivered rather than cost alone.

• Leverage data analytics to optimize pricing for different market segments.

Balancing Growth with Profitability

While expanding the product and service mix can open new revenue streams, it’s crucial to ensure that growth does not dilute overall profitability.

Companies must find the right balance between innovation, customer demand, and financial sustainability.

Strategic decisions about product and service offerings should be based on thorough financial analysis, market intelligence, and operational capabilities.

By continually refining mix, construction and manufacturing firms can drive sustainable profitability while maintaining competitive strength.

Conclusion: Profitability is in the Mix—And the Metrics

Revenue growth without profitability is a short-term win at best. By focusing on a well-optimized product and service mix, companies in construction and manufacturing can maximize financial performance, improve operational efficiency, and position themselves for long-term success.

Maximizing profitability in construction and manufacturing requires more than choosing the “right” projects. It requires understanding the real costs behind every labor hour, every overhead dollar, and every burden rate.

When combined with strategic product and service mix planning, these cost metrics offer powerful insight into what’s working, what’s draining resources, and where the real opportunities lie.

By aligning product strategy with operational efficiency, companies can:

• Improve margins

• Enhance competitiveness

• Reduce waste

• And drive sustainable growth—without chasing unprofitable volume

If the above sounds all too familiar, don’t worry – we are here to help!

Stay tuned for the next installment focusing on Work in Progress reporting!

Beyond the Boom: Why Margins Trump Top-Line Revenue

The clang of machinery and the rising skyline are potent symbols of progress in construction and manufacturing. These industries often equate success with sheer volume: more projects, more backlog, more units produced, more revenue generated.

However, this relentless pursuit of top-line growth can obscure a critical truth: profitability, not just activity, dictates long-term survival and success.

In these capital-intensive sectors, the fallacy of prioritizing revenue over margins is particularly perilous. The high fixed costs, fluctuating material prices, and complex project timelines make margin management a non-negotiable imperative.

The Construction Conundrum
Construction projects are notorious for cost overruns and schedule delays. Chasing larger, more complex projects without rigorous cost control can quickly erode profits, even if the top-line revenue appears impressive.

• The Bid Trap: Winning bids at razor-thin margins to secure market share can lead to significant losses if unforeseen costs arise.

• Material Volatility: Fluctuations in material prices, such as steel, rebar, lumber, and concrete, can drastically impact project profitability.

• Labor Costs: Skilled labor shortages and rising wages can strain budgets, especially on long-term projects.

• Change Orders: Frequent change orders, often due to design flaws or client requests, can lead to costly rework and delays, eating into margins if not prudently managed.

• Equipment Costs: Maintenance, fuel and depreciation costs of heavy machinery can quickly eat into profits.

Manufacturing’s Margin Maze
Manufacturing faces its own set of challenges, including intense competition, global supply chains, and the constant pressure to innovate.

• Overproduction: Producing excess inventory to meet projected demand can lead to storage costs, obsolescence, and price markdowns, negatively impacting margins.

• Supply Chain Disruptions: Global supply chain disruptions can lead to material shortages, production delays, and increased costs.

• Automation Costs: Investing in automation to improve efficiency can be costly, and the return on investment may take time.

• Quality Control: Defects and rework can significantly increase production costs and damage a company’s reputation, affecting future sales.

• Commodity Pricing: Manufacturers dealing with commodity products are often at the mercy of market prices, which can fluctuate wildly.

Strategies for Margin Mastery in Construction and Manufacturing
Instead of solely focusing on top-line revenue, construction and manufacturing companies should prioritize strategies that enhance profitability:

• Precise Estimating and Bidding: Develop accurate cost estimates and bid strategically, factoring in potential risks and contingencies. Competent personnel is critical to success from owners to project management.

• Supply Chain Management: Build strong relationships with reliable suppliers, negotiate favorable contracts, and mitigate supply chain disruptions.

• Project Management: Implement robust project management systems with competent personnel to track costs, schedules, and resources, and minimize delays and cost overruns. Sales personnel are not project managers. Role consolidation to save perceived cost creates cross-contamination and pollutes margin attainment.

• Lean Manufacturing and Construction: Implement lean principles to eliminate waste, improve efficiency, and reduce costs.

• Value Engineering: Identify opportunities to reduce costs without sacrificing quality or performance.

• Technology Integration: Leverage technology, such as Building Information Modeling (BIM) and automation, to improve efficiency and reduce errors.

• Cost Control: Implement strict cost control measures, monitor expenses closely, and identify areas for improvement.

• Equipment Maintenance: Implement preventative maintenance schedules to minimize equipment downtime and extend the lifespan of assets. Granted, this implies equipment has bona fide life left in it.

• Focused Product Lines: For manufacturing, focus on high margin products, and eliminate or reduce low margin products.

The Concrete Reality
In construction and manufacturing, the focus should shift from “how much are we building?” to “how much are we profiting?”

By prioritizing margin improvement, companies can build a solid foundation for long-term success, even in the face of economic uncertainty and market volatility. A well-managed, profitable project or production line is far more valuable than a high-volume, low-margin one. Margins are the lauchpad for cash – and the economy’s pendulum is swinging back toward a Cash is King mantra.

If the above sounds all too familar, don’t fret – we are here to help!

The next installment focusing on product/service margin mix optimization. Stay tuned!

Lead the Pack

Leadership Development and Execution: Building Relationships and High-Performing Teams

Leadership lessons can often be found in nature, where teamwork, trust, and adaptability are key to survival. Jeff Ruley’s article, Leadership in Nature: The Wolf Pack, highlights how wolves exemplify strong leadership by maintaining structure, collaboration, and accountability within their pack. Just like in a wolf pack, effective leadership in organizations requires clear vision, trust, and the ability to foster high-performing teams.

Strong leadership goes beyond setting goals and making decisions—it’s about inspiring people, fostering relationships, and building teams that consistently deliver results. Leadership is both an art and a science, requiring self-awareness, emotional intelligence, and execution discipline.

For aspiring leaders, mastering relationship-building and team dynamics is crucial for long-term success. Research from Harvard Business Review (HBR) highlights that the most effective leaders cultivate trust, set a clear vision, and empower their teams to take ownership of their work.

Here are key strategies, backed by leadership insights, to help you develop as a leader and cultivate a high-performing team.

1. Develop Self-Awareness and Emotional Intelligence

Great leadership starts from within. Before you can effectively lead others, you need to understand your own strengths, weaknesses, and triggers. A 2018 study emphasizes that self-aware leaders make better decisions, communicate more effectively, and are more trusted by their teams.

How to Improve:

• Seek feedback → Regularly ask for input from peers, mentors, and team members.

• Practice reflection → Keep a journal or review key interactions to identify areas for improvement.

• Develop empathy → Actively listen to your team and understand their challenges.

2. Build Genuine Relationships

Leadership is about influence, and influence comes from trust and relationships. The most effective leaders balance warmth and strength. Your team needs to believe that you have their best interests in mind. Strong relationships create a culture of loyalty, accountability, and collaboration.

Relationship-Building Tips:

• Be present → Engage in one-on-one conversations beyond just work topics.

• Follow through → If you make a commitment, keep it. Reliability builds trust.

• Show appreciation → Recognize and celebrate contributions regularly.

3. Set a Clear Vision and Direction

A high-performing team needs clarity. Without a shared vision, even the most talented individuals will struggle to align their efforts. Effective leaders communicate a compelling vision and ensure everyone understands their role in achieving it. A leader who can turn a great strategy into a great performance understands that a well-defined vision is only as strong as its execution.

Execution Strategies:

• Define success → Set clear, measurable goals for the team.

• Communicate frequently → Keep everyone informed on progress and priorities.

• Lead by example → Demonstrate the work ethic, attitude, and commitment you expect.

4. Foster a Culture of Accountability

Accountability isn’t about micromanaging—it’s about creating an environment where team members take ownership of their work. Successful leaders who set clear expectations and model accountability inspire higher levels of engagement and responsibility in their teams.

How to Create Accountability:

• Set expectations early → Define roles, responsibilities, and key performance indicators (KPIs).

• Encourage autonomy → Give your team space to make decisions while holding them accountable for results.

• Provide constructive feedback → Offer timely, specific feedback to help individuals grow.

5. Hire and Develop Top Talent

Your team is only as strong as the people in it. Great leaders know how to attract, retain, and develop top talent. Studies suggest that the Best Leaders Are Constant Learners and stress the importance of investing in team development to ensure engagement and long-term performance.

Tips for Building a Strong Team:

• Hire for attitude and adaptability → Skills can be trained, but mindset and culture fit are harder to change.

• Invest in development → Provide mentorship, training, and stretch opportunities.

• Encourage collaboration → Foster a team environment where knowledge-sharing is the norm.

6. Adapt and Evolve with Your Team

The best leaders don’t just set the direction and walk away—they adjust, iterate, and improve along the way. They practice adaptability underscoring that agility in leadership is a critical factor in long-term success.

How to Stay Agile:

• Embrace feedback loops → Regularly check in with your team to see what’s working and what’s not.

• Be open to change → Encourage innovation and be willing to pivot strategies when necessary.

• Lead with resilience → Stay calm and solution-focused in the face of challenges.

Final Thoughts

Leadership is a journey, not a destination. The best leaders continually develop their skills, build strong relationships, and create environments where teams thrive. By focusing on trust, accountability, and adaptability, you’ll set yourself up for long-term leadership success.

What leadership lessons have been most valuable to you? Share your thoughts in the comments!