Stop defaulting to cost cuts: when overhead reductions backfire

When margins get tight, cutting overhead feels like the quickest fix. Fewer salaries, lower monthly burn, problem solved. Except it often creates a bigger hole in the business. In episode 02 of The Cost Codes Show, Steve Coughran, construction profitability expert and founder of Coltivar, warns that looking at the income statement and slicing overhead without context is “super dangerous.”

Here’s a practical way to reduce overhead risks in construction without hurting backlog, sales, or delivery.

The hidden cost of cutting the wrong people

In the episode, Steve shares a moment from a past landscaping company he founded and led, when he had to lay people off because he “wasn’t really watching the numbers.” It wasn’t a smart, targeted reduction. It was a leadership mistake that cost the team and the business.

That’s the trap. If you trim overhead in the abstract, you risk removing the very people who build backlog, close work, or keep jobs on schedule. Revenue slips, change orders stall, and you chase volume to backfill the dip. You “saved” overhead, then paid it back in lost gross profit and slower cash.

A safer sequence before you cut

1) Get current on earned revenue

Run a WIP report and make sure you know what you’ve actually earned, where you’re over or under-billed, and your cost to complete. Without WIP, you’re guessing. With it, you can see whether today’s cash is truly yours and what the next 60–90 days look like.

2) Confirm your job cost story

If you don’t measure job performance against budgets, you’ll pull the wrong lever. Steve frames the discipline as bid → build → measure → adjust. That job costing loop shows where production rates, labor, or buyout are slipping so you can fix delivery before you raid overhead.

3) Identify what actually drives backlog and wins

Before you cut, list which roles and processes create proposals, negotiate givebacks, move change orders, and keep crews productive. Those are revenue engines. If you cut them, you slow wins and execution. Steve’s point is simple: don’t decide in a spreadsheet first and discover the consequences later.

4) Model reductions against reality, not averages

Tie any proposed overhead change to specific jobs in progress, pipeline timing, and cost-to-complete. If a coordinator you plan to cut is the one pushing subs, schedules, or AIA pay apps over the line, your “savings” may reduce near-term earned revenue.

How Knowify helps you reduce overhead risk

• Budgets and real-time profitability tracking: See job budgets, actuals, and margin at a glance so you can fix delivery issues before chasing overhead cuts.
• Proposal-to-project workflow: Manage the proposal process and convert winning bids into budget-backed jobs. It’s easier to see what’s truly in the pipeline and what resources you’ll need to deliver it.
• Progress billing and AIA-style pay apps: Keep earned revenue aligned with delivery so your WIP and cash picture are clear during decisions.

A quick checklist for owners

• Run WIP for the latest month and note over/under-billed positions and cost to complete.
• Review job cost variances and production rates on active work; list the top three process fixes that would recover margin.
• Map proposed cuts to pipeline and delivery steps. Ask, “What revenue or earned value slows down if we remove this role?”
• Only make reductions that don’t impair proposals, scheduling, job costing, or billing cadence.

Cutting overhead can be smart. Cutting it blind is expensive.

To learn more about how Knowify can help you manage costs and stay profitable, start a free 14-day trial.