If you’ve ever stared at your month-end and wondered where the profit went, this conversation is the flashlight you’ve been missing. We talk candidly about the real money leaks in contracting—underbilling, missing labor burden, ignored equipment repairs—and the uncomfortable leadership shift required to fix them. Profit isn’t a dirty word; it’s a discipline, and the Work In Progress (WIP) report is the tool that turns chaos into clarity.
With returning guest Nick Peters of Sterling Seacrest Pritchard, we break down how to compartmentalize your bids: direct costs you swing a shovel at, indirects that quietly drain your margin, and overhead that must be recovered before a single dollar is truly profit. We show how a timely WIP flags trouble fast, how daily production data from the field fuels smarter decisions, and why change orders should be priced with facts, not feelings. You’ll hear tough-love truths about denial, ego, and why growth without systems is just a faster way to lose money.
This is a playbook for owners and leaders who are ready to trade revenue drunk for profit sober. Expect practical tactics: set field production targets, capture quantities daily, align estimating and accounting, and run estimate-to-actual reviews that build accountability. Expect real-world decisions: when to cut a division that feeds pride but not profit, how to bid fewer but better jobs, and how to lead through the pushback that comes with culture change. Most of all, expect to leave with a clearer path: know your costs, watch your WIP, and build habits that repeat good results.
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More About this Episode
How Contractors Lose Money and How To Stop It: The Blueprint Every Crew Needs
There is one conversation I find myself having with contractors more than anything else. It always circles back to profit. Not revenue. Not top line hype. Real profit. The money you actually keep. The money that keeps the doors open, the crew paid, the shop stocked, and the business growing instead of collapsing under its own weight.
Profit is not a dirty word. It is the scoreboard of whether or not you are running your business or your business is running you. The hard truth is this. Most contractors are losing money long before they ever realize it. The real leak is almost never the owner, the weather, the engineer, the superintendent, the design, or the contract. These can wreck a job, sure, but they are not the root cause of consistent financial bleeding. The number one way contractors lose money is simple. They do not know their cost.
If you do not know your cost, you cannot estimate correctly. If you cannot estimate correctly, you cannot hold production accountable. If production is not accountable, your work in progress becomes chaos. Chaos always costs money. It never saves it.
Over the last decade in this business, and especially during the last two years implementing real systems, real job costing, and real financial controls, I have learned one thing above everything else. You cannot outrun bad numbers. You cannot buy enough equipment, hire enough people, or land enough revenue to beat flawed systems. Eventually the truth catches up.
It always catches up.
What I want to give you here is the foundation that every contractor needs before scaling, before adding crews, before chasing bigger projects, and before revenue gets you drunk. These principles come directly from the trenches. They come from the mistakes, the stress, the late nights, and the hard lessons that almost every contractor faces when they start to grow. I have lived them. I have paid dearly for them. You do not have to.
Why Contractors Really Lose Money
There are obvious ways to lose money. Bad site conditions. Bad drawings. Bad owners. Bad weather. Bad employees. Those happen, but they are not the biggest killers. The real financial damage happens from the inside.
Here are the hidden killers.
Not knowing your cost
If labor, equipment, fuel burn, labor burden, maintenance, depreciation, insurance, indirect costs, and overhead are not fully accounted for, your bids are wrong. When your bids are wrong, every project you touch is already bleeding before the first bucket hits the ground.
Indirect costs ignored or misapplied
Maintenance and repairs are massive numbers in a civil business. Undercarriages, pins, bushings, cutting edges, hydraulic failures, and shop repairs must be in the cost structure. Same with labor burden. If you pay a man 100 dollars, your real cost is usually 150 dollars after payroll taxes, insurance, workers comp, liability, benefits, and all the overhead the labor triggers.
Overhead not understood
If overhead is 500,000 dollars a year, you are not profitable until you clear the first 500,000 dollars of gross profit. Some contractors do not clear it until November. That leaves one month of actual profit. Many never clear it at all.
No real job costing
Guessing is not job costing. Walking the job and eyeballing progress is not job costing. Saying it will all average out is not job costing. Job costing requires actual numbers tied to actual production compared against actual estimates.
Lack of production visibility
Your crew may be putting 160 feet in the ground, but if you estimated 200 feet per day and the conditions have not changed, you are losing money. If you estimated 20 labor days but the job is tracking toward 28, you are losing money. Without production tracking, you do not know it until it is too late.
No Work in Progress report
If you want the single most important financial tool in construction, this is it. A WIP report tells you if you are underbilled, overbilled, profitable, bleeding money, or drifting into a loss long before the job ends. It is the red flag system every contractor needs.
Lack of accountability
Accountability is the difference between profitable contractors and broke contractors. Most do not hold their estimators accountable. Most do not hold production accountable. Most do not even hold themselves accountable.
When accountability does not start at the top, it never survives at the bottom.
The Work in Progress Report: The Contractor's Financial Lifeline
Every contractor who runs more than a couple projects needs a Work in Progress report. It is the most feared report in construction because it tells the truth. But it is also the most valuable.
A WIP report has four major inputs.
- Contract value
- Estimated cost
- Total cost to date
- Total billings to date
From those, it calculates overbilling and underbilling.
Overbilling means they are financing your project. Underbilling means you are financing theirs. Underbilling is a red flag. It means cost is outrunning revenue. It means something is wrong.
Maybe production is slow.Maybe equipment hours are excessive.Maybe material quantities were wrong.Maybe you cannot bill work that has already been built.Maybe you forgot to bill something entirely.
Without a WIP report, you find these issues at the end of the job. By then you are already broke on it.
With a WIP report, you find them early enough to correct them.
Direct Costs, Indirect Costs, and Overhead
Understanding these three categories is the key to estimating correctly.
Direct Costs
These are the costs that touch the job directly.
- Labor hours
- Pipe
- Stone
- Concrete
- Asphalt
- Trucking
- Fuel
- Subcontractors
If the cost disappears when the job ends, it is a direct cost.
Indirect Costs
These are the costs tied to production that must be allocated to jobs.
- Labor burden
- Payroll tax
- Insurance triggered by labor
- Equipment maintenance
- Equipment depreciation
- Fuel burn assumptions
This is the most overlooked category. It is also the category that kills the most contractors.
Overhead
If every job stopped tomorrow, what costs remain?
- Office rent
- Utilities
- Office staff
- Software
- Phones
- Marketing
- Professional services
Overhead must be covered before profit exists.
If your overhead is 500,000 dollars and you net 500,000 dollars, you made zero. If you do not know your overhead, you cannot know your profit.
Implementation: Where Most Contractors Fail
The hardest part of this entire process is not spreadsheets or accounting. It is change. Change exposes broken systems, broken habits, and broken thinking. Implementing job costing and WIP reporting reveals the truth. The truth is uncomfortable. The truth forces decisions. The truth forces accountability.
Here is what every contractor needs to understand.
It will get worse before it gets better
Your team will push back. Your office will feel chaotic. Your people will complain. Some will leave. Some need to leave. You will question everything. You will question yourself. You will want to quit.
Accountability must start at the top
If you want estimators to estimate correctly, you must require it. If you want production tracked, you must demand it. If you want job costing accurate, you must support it. If you want culture change, you must lead it.
You must face the numbers
You may find out your bids are wrong. Your margins are wrong. Your production rates are wrong. Your team is underperforming. Your overhead is out of control. Your revenue is masking losses.
Numbers do not lie. They do not care how hard you work or how loyal your team is. The numbers tell the truth. It is your job to look at them.
The Emotional Side of Fixing Your Business
Nobody talks about this, but they should. Fixing a contracting business is emotionally brutal. It forces you to admit mistakes, confront people, deal with turnover, restructure teams, tighten spending, and face the fear of the unknown.
For me, the hardest part was cutting off the parts of my company that were not profitable. Earthwork was an ego piece for me. Big dozers. Big trucks. Big jobs. Big presence. But not big profit.
When I looked at the numbers through a clean WIP report, direct and indirect cost structure, and accurate job costing, the truth was clear. Pipe work made money. Earthwork did not. I had to make the call. It was painful. It hurt people I cared about. It hurt my pride. But it saved my business.
Sometimes growth is not about adding. It is about deleting.
What Contractors Can Do Today
If you are in that stage where the pressure is heavy, the revenue is high but the profit is low, and every month feels like a battle, here is where you start.
- Commit to knowing your cost
- Build accurate estimates
- Track production every day
- Implement a Work in Progress report
- Hold your team accountable
- Hold yourself accountable
- Stop growing without structure
- Fix what is broken before you scale
- Remove the parts of your business that do not profit
- Build systems that can be repeated by anyone
If you do these things, you will not just run more profitable projects. You will build a more profitable company. A company that can weather slow markets. A company that can scale intentionally. A company that can give your family the stability you set out to create when you first put your name on a bid.
Profit is not a dirty word. It is the outcome of discipline, structure, accountability, and truth.
If you want to build a company that lasts, it starts with knowing your cost.
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