How to Identify Your Most Profitable Services (And Stop Wasting Time on the Rest)

Introduction - Identify Your Most Profitable Services

In construction and engineering, not all projects or services deliver the same return. Some contracts look great on paper but drain cash once labour overruns, material costs, or retention delays kick in. Others quietly drive strong profits but rarely get the attention they deserve. The challenge for many SMEs is simple: they don’t know which products or services are truly making money.

At Jones Financial Accounts (JFA), we help construction and engineering businesses dig beneath the surface. By analysing margins, allocating overheads properly, and comparing project-by-project results, we reveal the real story. Understanding profitability isn’t just about financial curiosity, it’s about knowing where to focus resources, which services to grow, and which ones to cut back.

In this blog, we’ll explore the methods CFOs use to identify the most (and least) profitable parts of a business, why it matters, and how SMEs can apply the same thinking to secure stronger margins.

Breaking Down Profitability Analysis

Gross Profit by Project or Service

Gross profit measures income minus direct costs like labour, materials, and subcontractors. It’s the first step to spotting profitable and unprofitable services. By tracking this on a project-by-project basis, you see which contracts deliver solid margins and which barely break even.

SMEs in construction and engineering with multiple projects or service lines. Even firms with just two core services (e.g., installation and maintenance) should track them separately.

A £1m-turnover contractor found that while new installations made up 70% of revenue, maintenance contracts delivered a higher gross margin (35% vs 18%). By focusing sales on maintenance, the business added an extra £50k profit without increasing turnover.

Many owners assume the biggest revenue stream equals the biggest profit driver. In reality, smaller contracts often yield higher margins. Without tracking gross profit by project or service, directors risk chasing turnover instead of profit.

Allocating Overheads Properly

Overheads, rent, admin staff, vehicles, software, don’t belong to a single project but still impact profitability. CFO-level thinking allocates these costs fairly across projects. Without this step, you might think a service is profitable when in fact it barely covers its share of overheads.

SMEs with turnover above £500k, especially those employing office staff or investing heavily in equipment.

An East Midlands engineering firm assumed its fabrication service was highly profitable. Once overheads (factory rent, equipment depreciation, admin salaries) were allocated correctly, margins dropped from 30% to 12%. Leadership re-priced services, lifting annual profit by £40k.

Some directors believe overheads are “fixed” and shouldn’t affect project analysis. The reality is, unless overheads are allocated, you’ll misjudge profitability and underprice services.

Tracking Labour Utilisation

Labour is often the biggest cost in construction. Tracking utilisation, how much paid time is actually billed to projects, shows if staff are being used effectively. Low utilisation means high hidden costs and reduced profitability.

SMEs with direct labour teams or engineers. Companies using subcontractors also benefit from comparing internal vs external labour profitability.

A £2.5m-turnover contractor discovered engineers were only 65% utilised (time billed vs time paid). By adjusting scheduling and reducing downtime, utilisation improved to 80%. This change alone improved gross profit margins by 5%, worth £75k annually.

Misconception: Many think staff wages are “fixed costs.” In truth, unbilled hours erode profits silently. Without utilisation tracking, directors underestimate how much labour inefficiency costs them.

Identifying Retentions and Delayed Payments

Retentions (5–10% held back until project completion) and delayed stage payments can make otherwise profitable projects risky. CFO-level reviews highlight how much profit is “locked up” in retentions and whether cash delays wipe out margins.

Construction firms working on contracts with retentions or milestone-based payments.

Directors often believe profit on paper equals money in the bank. In reality, delayed payments can turn profitable projects into cash-hungry liabilities.

Comparing Profitability Over Time

A single profitable job doesn’t prove a service is strong long term. Comparing results across multiple projects or years shows whether margins are consistent or volatile. CFO-level analysis reveals trends and helps leadership decide where to scale.

SMEs with recurring services or repeat projects. Ideal for firms that deliver similar contracts year after year.

A lift engineering company compared three years of service contracts. Maintenance consistently delivered 30%+ margins, while new installations varied wildly between 5% and 20%. The board chose to expand maintenance while being more selective on installations.

Many owners think “a good job proves the service is profitable.” In reality, consistency across time matters more than one strong project.

Key Takeaways

• Profitability isn’t about revenue, it’s about margins after costs and overheads.

• Allocating overheads correctly ensures services are priced for profit.

• Labour utilisation and retentions can quietly erode margins if not tracked.

• Comparing results over time shows which services are reliable profit drivers.

• Knowing your winners and losers helps focus resources where returns are strongest.

If you’re unsure which parts of your business drive profit and which drain resources, it’s time to uncover the truth. At JFA, we help construction and engineering SMEs analyse their financial story so directors can focus on the services that deliver real returns.

Wrapping up today's insights, tomorrow we simplify another accounting challenge.