We often hear our friends or friends who say: “Wow, this is a contractor … !!” Rich like now … “Well, is that really true …? Is the contractor’s salary really that big …? Now, let us discuss …
The facts that will be given are operational profitability ratio and ROE ( Return On Equity ) data . Actually there are still several other profitability ratios, but the 2 ratios are considered quite representative. ROE is taken because ROE is the main indicator of profitability ratio. It means that if ROE is good then the other ratio is also good. ROE is the rate of return from business for all available capital . ROE formula = Net profit / Total equity (capital). ROE is one indicator used by shareholders to measure the success of the business being undertaken.
If we divide the sample into 3 main categories of project actors, namely: Contractors, Developers (Owners), and Suppliers / Manufacturers. We do not show consultant planners or Construction Management (MK) because they have a small turnover and almost no listings on the stock exchange. Understandably, these data are taken from the financial statements of one of the brokers on the Indonesia Stock Exchange (IDX).
There are no statistical methods used other than the average. It’s simple, just look at the data talking. There are not many samples taken, only a few that hopefully represent. Later we will compare the elements of profitability ratios with the level of risk data they face in running their business. We’ll see the correlation.
Based on the data, the following facts can be concluded:
- The average operational margin, the highest is the Developer and the lowest is the Contractor.
- Average ROE, highest contractor and lowest developer.
- The highest operational margins are cement suppliers, followed by depelovers and the lowest are private contractors, cable suppliers, and BUMN contractors.
- The highest ROE is the cement producer and supplier of the TOTO brand. While the lowest ROE is INDAL brand Aluminum Manufacturers, ceramics suppliers and Developers.
- The most stable and high-profit company is a cement producer and supplier of TOTO brands.
- Companies that continued to provide sufficient profits during the 2008 global financial crisis were SOE Contractors, Cement suppliers, Lionmesh assembled iron suppliers, TOTO brand sanitary suppliers, and Asahimas brand glass suppliers.
- The worst-hit companies during the global financial crisis were cable suppliers, aluminum suppliers, ceramic suppliers, and private contractors.
Operationally the contractor’s profits are small. This might be caused by the many risks that occur to the contractor. Another possible cause is the level of competition that is so tight. ROE may be higher because the contractor does not require a large enough capital to run the business. The existence of a down payment in the project causes no need for large capital. The higher ROE ratio could also be due to the other income of the contractor. Although it is higher than the operational margin, the contractor’s ROE is still below the average producer.
BUMN contractors have generally reserved a risk cost (risk contingency) of around 2-5% depending on the risk analysis beyond profit. So if there is no risk that occurs unexpectedly or the risk is well controlled, then the profit plan is relatively maintained at around 5-10%. If there is a high risk that occurs, then the profit plan will decrease and even lose. For private contractors, let alone the lower middle class may not be reserved. So when there is an uncontrolled high risk, the contractor generally loses and the profitability ratio falls.
The developer gets high operational profit (seen from operational margin), it turns out to have a low ROE. This might be due to several reasons:
- Bank interest expenses are quite high.
- Large initial capital.
- Other miscellaneous costs.
Most suppliers / producers profit is relatively stable and quite high. This could be because they were barely touched by the risks of project implementation. The order is standard or there is a clear picture. The possibility of a production error. Except maybe for ceramics producers where the failure rate of production is rather high and their goods are somewhat prone to breakage or defects. Besides that they sometimes produce ceramic types that are not necessarily sellable in the market. Maybe that’s what makes their profitability is not good / unstable. It is different from cement which cannot be used unused unless the handling process is not good so that the cement hardens.
There is one question that has not been answered. Why do cement producers and TOTO producers produce quite high profits? I just answered just that the cement producer has a Cartel element. Remember that cement is always scarce at the end and beginning of the year, as a result the price jumps high. Then TOTO is because the product is good, and there is no strong competitor for TOTO. Almost all building planning specifications use TOTO. Well, it’s a bit of a monopoly on prices (though up to 55% discount) but it’s not 100% monopoly because they really control the market.
We will present a research result that maps the level of risk borne by the project actors associated with the level of creativity.
Consultants generally have a low risk except architect consultants. This is if abroad … Then the M / E contractor / subcontractor is at the medium risk level. Developers, contractors, and architects have a high risk. I think the results of the research and the reality in the field are appropriate. It turns out that the contractor was not profitable because of high risk and minimal ideas of creativity.
So, do you still think the contractor is fortunately a lot? Do you still want to maintain your opinion or are you interested in becoming a cement supplier / producer who is profitable and anti-financial crisis? hehehe …
- 1 How to Efficiently Calculate Contractor Company Profits
- 2 Interested in Building a Business Contractor? Here are the tips
- 3 What is a Business Contractor?
- 4 Type of work handled by the contractor
- 5 Tips on Building a Business Contractor
How to Efficiently Calculate Contractor Company Profits
A contractor is a prestigious job, many people dream of a contracting profession. An identical contractor with abundant profits who are struggling with bona fide projects . However, the large profits do not necessarily flow away, there are a number of calculations that must be carried out by a contractor.
For those of you who are running, or are still planning to build a business as a contractor, the following article will help you greatly. This article reviews various ways to calculate the benefits that a contractor can make, and of course gives recommendations, how to calculate the most efficient profit for you.
Standard 10% Profit
The Government of Indonesia recommends that the general standard for contractor profits from wholesale projects be 10% of the project implementation price. To simplify the calculation of profits for each project, let us depart from this generally accepted standard.
10% profit is not a standard. There are contractors who for marketing and business continuity reasons , set a profit of 5%. There are also contractors who set a profit of up to 20%. Such a contractor certainly has an attractive bargaining power for his clients, in addition to his interest in making the maximum profit.
For large-scale infrastructure development contractors working for the government, they usually charge a 10% profit, which includes risk contingency reserves . Risk costs are generally in the range of 2-5%, depending on the results of risk analysis beyond the benefits. With this calculation, SOE contractor’s profits are estimated to be relatively constant, in the range of 5-10% of the project implementation price.
These risk costs may not be counted for private contractors and middle to lower project contractors. For this reason, the percentage of profit must be carefully calculated, looking for the middle point between the maximum profit, and the reasons for marketing and business continuity. The midpoint is in the range of 10%, not pushed too far down or up, so that a rational profit percentage can be obtained, say around 5-15%.
The next question is how does the contractor calculate the profit percentage? There are several ways that can be indicators. Here are three of them:
- Profit Margin
This is the easiest way to calculate. Commonly used in small to medium scale development. A percentage is obtained from comparing the turnover received, with the overall cost of development. The formula to get the percentage of profit is as follows:
Profit = Turnover – Raw Materials (Including Work Costs) – Administrative and General Costs
For example, for example, turnover to build a luxury home of Rp. 5.5 billion. With raw materials (work costs included) Rp. 4.8 billion, and general and administrative costs Rp. 200 million, bringing the total to Rp. 5 billion. Then the profit obtained is Rp. 500 million. In this case, the percentage of profit is 10%.
This indicator can be a contractor’s reference in determining the figures in the work cost budget plan – the implementation budget plan (RAB-RAPK). Furthermore, the RAB-RAPK, which will be the basis for the contractor to calculate the profits, according to the indicators outlined above.
- Return of Investment (ROI)
Another indicator that can be used by contractors in calculating profits is based on investment figures. This method is also still relatively efficient. What needs to be calculated by the contractor is the amount of investment spent on the business, then compared to the return obtained from the investment.
What is the return on investment? How much capital is spent on this business? What percentage of profits do the contractors get, if calculated from the difference between the two?
ROI calculation is commonly used in various types of companies, including new start-up based companies. This method is generally used by companies as bargaining power to take the floor on the stock exchange, but can also be applied to the contracting business.
- Payback Period
Another common method used by contractors to calculate profits is the Payback Period indicator . The first thing that is calculated is the overall cost of the business, then it is estimated when the business will return on investment. For example, a contractor estimates that from all the costs he incurs, by calculating profit per project, he finds that in 2 years, the business returns on investment. Then the Payback Period is 2 years. After that, every profit that appears after 2 years, will be counted as profit.
After obtaining a percentage of the profits on paper, the contractor is required to make various efforts, to ensure the benefits he gets are not less than the figures listed. Reduced profits are very likely to occur because there are things that are not desirable. For example, fire disasters, community disturbances, sudden increases in prices of raw materials, and so on.
The contractor can look for other gaps to make a profit. For example, by increasing work efficiency through the use of the latest technology, minimizing the remaining material wasted ( recycle raw materials from the previous project), and more professional work management, so the project completion time is on or even ahead of schedule, thereby reducing work costs.
Interested in Building a Business Contractor? Here are the tips
Infrastructure development is increasingly massive in various lines of life. Thus, the need for contractor services is increasingly high. Well, this opportunity certainly cannot be ignored. You can make this business as an alternative for profit. Building a contracting business is a worthy choice for success.
However, many do not understand what the contracting business really is. How to run it? Of course, this business cannot be done haphazardly. There are several tips that need to be considered in order to be successful in the contracting field. If you are interested in building a contracting business, consider the information below to be clear.
What is a Business Contractor?
Before entering the tips, it’s good for you to know what exactly the contracting business is? Well, contractors are often also referred to as contractor. The contractor comes from the word contract which means an agreement or agreement. Can also be interpreted as rent.
Thus, a contractor can be interpreted as a person or legal entity hired or contracted to carry out work or order based on the contents of the contract won by the project owner. Where the project owner can come from legal entities, government agencies, business entities, or individuals who have made official appointments.
The official appointment is also accompanied by project targets, appointment rules, and also the work or order referred to in the contract and has been agreed by the owner or the project owner with the implementing contractor.
Type of work handled by the contractor
The contracting business is also known as building contractor services. The types of business that they do are quite diverse. According to the LPJK or the Institute for Construction Services Development, there are six areas of construction implementing services that include:
- Architecture: single housing, multi-residential housing, commercial buildings, sports training facilities outside buildings, plantations, installation of building accessories, glass walls and windows, interior, wood, metal, buildings, and various maintenance.
- Mechanical: heating installation, piping, gas pipes, insulation in buildings, elevator and escalator installation, thermal installation, conveyance construction, pipeline construction, production facilities, oil and gas storage, and construction work equipment service providers.
- Electrical: power plants, new energy power plants, electric transmission networks, electricity distribution networks, control and instrumentation installations, building and factory electricity, and others including maintenance.
- Civil: roads, railways, airports, flyovers, urban drainage, weirs, irrigation and drainage, dams. demolition work, land preparation and stripping, dismantling, foundation construction, concreting, steel construction, other special implementers, asphalting and maintenance.
- Integrated Work
- Environmental Management: oil pipelines and their maintenance, gas pipelines, clean water pipelines, limbaj treatment plants. groundwater drilling, reforestation and maintenance work.
Tips on Building a Business Contractor
Being a contractor can be done by anyone. As long as he has a strong desire to learn, although it is still minimal with experience. If you want to enter the contracting business, you should do a simple job first. For example, by building houses and shophouses.
This business will be successfully tackled if you know a variety of contractor business tips in the reviews below. Despite not having high technology and complex analysis, the contractor’s business will still be profitable. Following complete information:
1. Seek Experience by Working at a Contracting Company
You can start a contracting business by working for a contracting company first. A work history of one to five years is enough as a provision to find a simple description of the property business. By starting to work for a company, there will be ideas and strategies for running a business.
2. Building Relationships with Other Parties
When working at the company, you must use the time to build good relationships with various parties. Starting from suppliers, clients, and also architects. To build strong relationships, it is best to complete the work on time and with good quality. So, the outsiders have the desire to return to work together again.
3. Develop a Business Plan
It is very important to draw up a business plan first before actually realizing the contractor’s business. So, you can focus more on running a business and business goals can be achieved.
4. Obtain a Business License
To become a successful contractor, of course you must have a business license. So, before actually establishing it, then register the company to get a business license. With this business license, the client will trust your company more. That way, the contracting business will become more developed, smooth and successful.
You can choose to establish a CV or PT. CV is a company that does not have a legal entity. While PT is a company that has a legal entity. The rules regarding the establishment of PTs are in PT Law number 40 of 2007 concerning limited liability companies.
For CV itself there are no specific rules about it. PT can be used for various types of business activities. Whereas CV can only do limited business activities such as construction, workshop, industry. trade, printing and services, agriculture, and so on.
5. Reviewing Industrial Business Loans
In the contracting business world, the costs required are quite large. Including to buy raw materials, pay for subcontractors, pay for labor, and much more. Business loans will guarantee the velocity of money in the business so that it will run better.
Capital for the contractor’s business depends on the type of business. However, in general, this business requires an initial cost of around 10 to 50 million for the type of company CV or PT.
However, based on the provisions of the Law, the authorized capital of a limited liability company is Rp 50,000,000, – unless otherwise stipulated by law regarding the implementation of business activities in the territory of Indonesia.
From this capital, a minimum of 25% must have been placed and paid for by the founder of PT or the company’s shareholders. Additional capital includes renting a company office, recruiting employees, as well as reserve capital for project implementation needs. If you want to make a capital loan to the bank, you can try to post the tips here .
In fact, when making a capital loan to a bank or investor, you must prepare financial reports that can convince them of the business you are building. Financial statements are the main considerations that can determine whether a business is healthy or not and its future development opportunities.
Without good financial reports and bookkeeping, every business cannot transparently monitor the entire financial flow and you cannot measure whether your business has profit or loss.
To make it easier for you to be able to make financial reports that are practical and minimal in error, you can try using Accurate Online as an accounting software for your contracting business.
Accurate Online is an accounting software that is suitable for every type of business in Indonesia. It has been proven that it has been used by more than 300 thousand users and won the Top Brand Award since 2016 until now.
6. Expanding Contractor Business
The next tip for becoming a successful contractor entrepreneur is to expand your business. Some things that can be done are by registering in project tenders and being more proactive in the available employment opportunities.
7. Don’t Stop Promoting
To be a great contractor, you must always do promotions. Thus, the contractor business services that you build are more easily known to the public and are widely utilized.
Some of the media that you can use to promote contractor business include magazines, brochures, electronic media, newspapers, company websites, and online. To do a promotion, you should make ads that are as attractive as possible. So, people will be more interested in the quality of your company.
Contractor business is not impossible for everyone. As long as you want to learn and improve your competence all the time. However, you also have to realize that there are obstacles and it is not impossible that there is a failure. With the increasing desire of people and institutions in building property, this business opportunity is very feasible to enter.
Building any business certainly requires commitment and a high level of discipline, the contractor business is no exception. Choose a contractor business specialization that you will be involved in, so that you can focus on better planning. Also do not forget to do business development tips above, chances are you will build a successful business will be greater. So, good luck.