Survey snippet 3: Contractor profit margins inch upwards?
By Ellen Cools
As in previous years, CFI’s 2020 Contractor Survey asked respondents about last year’s profit margin. There are some optimistic signs in this year’s results, but this could be partially because more contractors (14 per cent) did not know last year’s profit margin or preferred not to say (compared to just five per cent in 2018).
In 2018, 48 per cent of respondents said last year’s profit margin was three per cent or less, with 28 per cent reporting no profit at all. This year’s numbers showed a small improvement, with 43 per cent reporting a profit margin of three per cent or less, and 25 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).
This is still a much higher number of contractors reporting low profit margins compared to 2016, when 38 per cent made three per cent or less, with just 17 per cent reporting no profit in 2015. The chart below outlines how the numbers compare across all three years.
The number of contractors who earn profit margins of between three and 10 per cent remained nearly the same as in 2018. Meanwhile, the number reporting a profit margin of 16-20 per cent increased slightly from four per cent in 2018 to seven per cent in 2020. Across the country, the average profit margin rose from 4.5 per cent in 2018 to 5.0 per cent in 2020.
These numbers suggest contractors’ profit margins are slowly inching upwards, but it is not enough to tip the scales towards a favourable outlook for the industry.
Regionally, Alberta and Quebec still seem to be the most profitable regions, just like in 2018, with the fewest contractors reporting no profit – 18 per cent and 19 per cent, respectively. The majority of contractors in Alberta (36 per cent) say their profit margin last year was higher than 11 per cent, while 27 per cent claim a profit margin between six and 10 per cent. Contractors in Alberta also reported the highest average profit margin at 8.4 per cent, while Quebec contractors came in second highest at 5.6 per cent. But numbers in Quebec seem to be decreasing slightly, with just 17 per cent reporting profit margin above 11 per cent, and the majority (26 per cent) reporting a profit margin of three to five per cent.
Ontario still has the highest number of respondents reporting no profit last year, at 38 per cent, but this is down dramatically from the 67 per cent who said so in 2018. The more alarming news is that no contractors are reporting a profit margin higher than five per cent and the average profit margin among respondents is just two per cent.
A large number of contractors in the B.C. Coast and B.C. Interior are also struggling to make a profit, with 31 per cent and 29 per cent, respectively, making zero profit. However, 13 per cent and 19 per cent, respectively, report a profit higher than 10 per cent. The average profit margin in the B.C. Coast is 5.5 per cent, while in the B.C. Interior it’s slightly lower, at 4.7 per cent.
These numbers are concerning given that 60 per cent of contractors feel 11 per cent or more is a fair profit margin, when just 15 per cent are making that cut.
Given all of the challenges contractors have faced in the past two years, it’s not surprising that, when asked how their profit margins compare to two years ago, 38 per cent of contractors say it is slightly or significantly lower. Another 41 per cent say it is a similar range. Only 11 per cent report slightly or significantly higher profit margins, while another 10 per cent elected not to say or did not know.
Missed last week’s survey snippet? Find a collection of reports published to date here. Look for more news from the CFI 2020 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.
This survey was conducted in April and May 2020 by independent research firm Bramm & Associates, generating 271 replies to a detailed list of questions. Respondents were distributed according to the geographic breakdown of the forest industry, with 44 per cent of respondents in Western Canada, 26 per cent in Quebec and the rest found in Ontario, Atlantic Canada, and central Canada. Within B.C., responses were split between the B.C. Coast and Interior. Many thanks to our sponsors for making this research possible – Hultdins, Tigercat and John Deere.