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Survey snippet 3: Contractor profit margins decreasing?

When asked about last year’s profit margin, half of respondents in CFI’s 2018 Contractor Survey say it was three per cent or less – with a worrisome 28 per cent claiming to have made no profit. (We defined profit margin as return on revenue as a percentage, or profit before income tax divided by total revenue. E.g. $5,000 of profit on $100,000 of revenue is a five per cent profit margin.)

By contrast, in our 2016 survey 38 per cent made three per cent or less, with just 17 per cent reporting no profit in 2015. See how the numbers compare in the chart below.

There was a significant drop in the number of contractors who earn profit margins of between three and 10 per cent. While there was a slight increase in companies reporting profit margins of 16 per cent or more, it is not enough to tip the scales towards a favourable outlook for the industry.

Regionally, Ontario is a red flag with 67 per cent of respondents reporting no profit last year, and none reporting margins of 11 per cent or higher. Atlantic Canada and the B.C. Interior also appear to be struggling with more than a third of contractors there making zero profit.

Alberta and Quebec seem to be the most profitable regions, with 21 and 22 per cent of contractors respectively posting profit margins 11 per cent or higher.

Compared to two years ago, both the B.C. Interior and Ontario saw notable drops in the number of companies making a 6-10 per cent profit margin. In 2016 both regions were at 33 per cent, and in 2018 that number is just 12 in the B.C. Interior and 17 in Ontario.

These numbers are particularly concerning when compared to profit expectations reported last week, which show 66 per cent of contractors feel 11 per cent or higher is a fair profit margin. The reality is just 13 per cent are making that cut.

It is not surprising then when asked in 2018 how their profits margins compare to two years ago, more than a third of contractors say it is either slightly or significantly lower. Another 44 per cent say it is a similar range. Just 16 per cent report slightly or significantly higher profit margins. A final three per cent elected not to say.

Missed last week’s survey snippet? Find a collection of reports published to date here. Look for more news from the CFI 2018 Contractor Survey in our enews over the coming weeks, with a final digital report in December and a summary in the November/December print issue. Be sure to subscribe to our free enews to get all the latest industry news. 

The survey was conducted in June 2018 by independent research firm Bramm & Associates, generating over 275 replies to a detailed list of questions. Respondents were distributed according to the geographic breakdown of the forest industry, with 40 per cent in Western Canada, 25 per cent in Quebec, and the rest found in Ontario, Atlantic Canada, and central Canada. Within B.C. responses were split between the BC coast and Interior. Many thanks to our sponsors for making the research possible – Hultdins and Tigercat.