644: Five Hidden Ways Contractors Lose Profits (And How To Stop It)

This Podcast Is Episode 644, And It's About Five Hidden Ways Contractors Lose Profits (And How To Stop It)

Where did the money go?

If you've ever looked at your bank account at the end of a busy month and thought, "I did all that work—so where did the money go?", you're not alone.

This is one of the most common frustrations we hear from small business owners in the construction industry. You're booking jobs, staying busy, and delivering great work—but the profit doesn't seem to match the effort.

As construction bookkeeping specialists, we've seen behind the numbers of dozens of small contractors. And time and again, we find the same hidden leaks draining their profits. The good news? Once you know what to look for, you can fix them—and finally start keeping more of what you earn.

Here are five common ways contractors lose profits (without even realizing it)—and what you can do to stop the leaks.

1. Untracked Labor Hours: Working More Than You Billed

Labor is often your most considerable cost. But for many small contractors, labor tracking is one of the weakest parts of their system.

If you (or your crew) aren't logging actual hours worked on each job, you're likely underestimating how much time the project really took. That means you're effectively working for free on those "extra" hours.

Real example: A contractor estimated a bathroom remodel at 40 hours of labor. The job actually took 55 hours. At $50/hour, that's $750 of lost profit—just from labor under-tracking. Multiply that across several jobs, and you can see how the profits evaporate.

How to fix it:

• Use a simple time-tracking tool (like QuickBooks Time, or even a shared spreadsheet).
• Log hours daily—not at the end of the week when details are fuzzy.
• Compare estimated vs. actual hours after each job. This helps you improve future bids and spot inefficiencies.

Bookkeeper's tip: If you track hours properly, I can show you job profitability in real time—and you'll see exactly which jobs (or crew members) are eating into your margin.

2. Unapproved Change Orders: Giving Away Work for Free

Scope creep is the silent profit killer. A client asks, "Can you just add this?" and you say yes because it seems like a minor request. But those "little extras" add up quickly—and suddenly your margins are gone.

Real example: A deck project initially included a standard railing. Midway through, the client asked for an upgraded design. The contractor agreed but never adjusted the invoice. The upgrade cost him $500 in materials and 10 extra labor hours—completely unpaid.

How to fix it:

• Create a straightforward change order process.
• Stop work when clients request something new until the change is approved in writing.
• Even if it feels awkward, remember: change orders protect both you and the client by keeping expectations clear.

Bookkeeper's tip: Keep a change order log for each job. We can help track approved vs. pending changes—so nothing slips through the cracks.

3. Material Waste and Overruns: Small Leaks, Big Losses