5 Early Warning Signs Your Margins Are At Risk (And How To Fix Things Before It’s Too Late)

The average pre-tax margin among the UK’s top construction contractors is just 2.4% according to a 2025 Construction Index report^[1]. This UK construction profit margin is not a reliable financial cushion for businesses in the sector at a time of market uncertainty, rising costs and regulatory change.

That makes understanding if your margin is at risk more important than ever. Knowing how to recognise early indicators of margin fade before it shows up in month-end or final account positions is vital. Understanding how to intervene effectively to protect your margins is even more so.

What Is Margin Fade?

The difference between the projected profit margin and the actual profit margin over the course of a project is your margin fade. It is a way to measure the profitability of your project in real time, and can be one of the biggest threats to construction businesses of all sizes. If the fade is positive, you are making more money than forecast. If it is negative, intervention is required.

The construction profit  margin fade can be affected by a range of commercial surprises, which can make your project less predictable, including:

• Incomplete or incorrect cost estimates at the outset of the project.
• Inadequate supplier or subcontractor performance is causing delays or rework.
• Poor supervision and training.
• Failure to supply the required resources.
• Adverse weather conditions which slow work down unexpectedly.

This rarely happens overnight., t’s usually the result of small warning signs being missed due to disconnected systems, delayed information and inconsistent commercial behaviours. By the time you spot that your margin is at risk, it can already be too late to act.

The Five Early Warning Signs Of Margin Fade For Construction Companies

Five areas to concentrate on if you want to spot margin fade early are:

• CVR volatility month-on-month – If your estimates are not matching the actual costs of construction month-on-month, it may be an early indicator of margin at risk. It suggests an unsuitable estimating process that is not reflective of real life and which cannot be relied upon. In this case, you may not have enough control over your finances, and your margin could be at risk.
• Delayed or inconsistent cost updates – Without regular cost updates, you cannot see the full picture or understand what’s really happening on your project. A delayed update may include the data pointing to margin fade. If you don’t see it, you won’t know.
• Variations not logged or agreed promptly – Every job will see variations during the build. It’s the nature of the business. They can be costly and need to be agreed upon, then logged, as soon as possible. If left unresolved, the cost of a variation can keep going up. If you don’t report them, you cannot budget properly and will end up with unexpected expenses.
• Subcontractor costs drifting without explanation – Keeping control of subcontractor costs is just as important as understanding direct expenses. If they are going up, you need to know about it and understand why to work on margin protection. If you don’t, your profit margin can shrink rapidly as subcontractors keep racking up costs without effective oversight.
• Forecasts that rely on “gut feel” rather than data – If your team is forecasting based on gut instinct rather than hard data, your business may be vulnerable to margin fade. Any forecast not based on numbers starts from false assumptions, which opens the door to bias, mistakes, and costly fantasy economics.

Why Are These Indicators Of Margin Fade So Hard To Spot?

If there are clear indicators of potential margin fade, why do so many construction companies fail to spot them in time? It’s often not a simple task to work on margin protection due to outdated processes and workflows. For example, many firms operate with data spread across multiple systems which make it difficult to really understand what’s going on. Mistakes can be missed or ignored until it is too late to fix them.

The use of manual spreadsheets and rekeying is a major cause of these margin problems. Data is entered into a spreadsheet that not everyone can access. Then, it is re-entered manually into a different spreadsheet at a later date. Human error naturally creeps into this process, as data is lost and budgets fail to line up. In the process, margins can fade without anyone noticing or taking responsibility.

This causes a lag between site activity and commercial reporting. Manual processes are slow and error-prone, and communication and collaboration are nonexistent. The picture you think you have of the project is quickly outdated and often flat-out wrong. Margins fade in the grey areas that this creates.

How Can Construction Companies Fix This Problem And Avoid Margin Fade?

The first step is to standardise your CVR processes so you can closely examine every decision and make sure the project is moving in the right direction.

To do so, we recommend setting up a single, unified system that everyone uses, no matter what department they are in. Gathering all of your data in one place, a single source of truth, brings an end to the days of estimates and costs being separate. A technological project management platform allows you to see at a glance where expectations and reality are misaligned, so you can investigate and fix problems that are costing you money.

Your data is incredibly valuable, so you have to make it work as hard as possible. Once everything is operating on the same system, you can conduct frequent data-driven reviews across all areas of the business. These will help you spot the early warning signs of marginal value at risk, making your business more resilient.

Finally, this all relies on better integration between commercial, finance and operations. You can provide the unified platform and the tools, but there also needs to be a mindset shift. People across all areas of the business need to embrace the technology and be trained to use it effectively. The technology is an enabler, but it is the people who make it work.

Want to learn more about how we can help you spot the early warning signs of margin fade and avoid making costly mistakes? Contact the team today for a free demonstration.

[1] https://www.theconstructionindex.co.uk/news/view/average-margins-hit-24-for-top-contractors