Construction businesses can be very profitable, but the industry also has one of the highest failure rates. The difference usually comes down to whether the owner actually knows their numbers or just stays busy hoping it works out.

Typical net profit margins in construction range from 2% to 10% depending on the type of work. Custom home builders and specialty contractors often hit the higher end. General contractors working competitive bid projects sometimes barely break 5%. Those numbers assume you’re tracking costs accurately. Many contractors don’t, which means they don’t actually know their margins until tax time reveals the damage.

Revenue isn’t profit. A contractor doing $2 million in annual revenue sounds successful. But if materials, labor, subs, equipment, insurance, and overhead eat up $1.95 million, that’s a $50,000 profit on a lot of risk and headaches. Some W-2 employees make more with less stress.

The profitable construction businesses share a few things in common. They know their actual costs per job, not estimates based on gut feeling. They track labor hours against budgets during the project, not after it’s done. They price work based on real overhead recovery needs, not just what competitors are charging. And they understand the difference between cash in the bank and actual profit earned.

Cash flow is where many profitable businesses still fail. You front $40,000 in materials, pay subs, cover payroll for six weeks, then wait 60 days for the draw request to get approved. The job might show a 12% margin on paper, but if you can’t make payroll while waiting for payment, profitability doesn’t matter.

Job costing discipline separates the contractors who build wealth from those who just survive. Every job should have a budget. Every expense should hit that job. Every week you should know if you’re on track or bleeding money. Without this, you’re running blind.

If you’re considering starting a construction business or already running one without clear financials, the question isn’t whether construction is profitable. It’s whether you have the systems to capture that profit. A Phoenix area enrolled agent who understands construction can help you set up the tracking and reporting you need to see what’s actually happening with your money.