Slow and Steady Wins the Race!
by Marcy Marro | 1 March 2023 12:00 am
Being a contractor is a hard way to make an easy living. Or not! Most observers think contractors make a minimum of ten percent net profit and have all the freedom in the world. But the reality of our business is that as you may build a better and better company, you are really at the mercy of the market and customers to create opportunities to generate your revenue potential. In other words, you don’t create your own future. You are at the mercy of others to decide to build and then give you an opportunity to present a proposal.
Build a Better Donut?
Let’s look at the donut business as a comparison to construction. If you make the same donuts as every other corner donut shop, you are at the mercy of potential customers to stop by and buy your donuts when they decide they want one or are in the neighborhood. If you don’t improve your donuts, you can only improve your revenue by offering better customer service, increase your marketing, or lowering your price. This is similar to the construction business. But if you build a better donut, both your revenue stream and bottom-line will improve as customers flock to enjoy your unique and special donuts. When this happens, you can raise your prices and afford to offer better service and customized unique donuts which will attract even more customers.
The question for contractors who rely on their customers to create revenue opportunities and then get work by being the low bidder is—what are the alternatives? A down market forces construction company owners to look at many options they didn’t need to consider during busy times. Some have tried to move from residential construction to public works only to find bid lists growing to as many as 20 or 30 bidders. Others have tried to move from bidding on retail and commercial projects to public works as well. As most have found out, this strategy is not working. So now what?
Contracting is Not Just About Construction!
How can construction companies increase their steady stream of ongoing reliable sales income regardless of the economy? What type of ongoing revenue can your company, employees, infrastructure, technical skills, reputation, equipment, knowledge, customer base, experience or potential generate?
Successful contractors don’t rely solely on bidding single jobs, one at a time, to generate most of their revenue. When you mainly rely on bidding or negotiating work to win contracts, your business becomes fast and furious. Your business is either hot or cold, fast paced or dead, busy or slow, and you can’t control your workload and your revenue isn’t steady or reliable.
Slow and steady business keeps your crews busy as the workload keeps on coming regularly over and over every month. You can count on a steady flow of work as annual service contracts provide ongoing revenue. With steady regular service accounts, you can plan your schedule, workload and cash flow.
Multiple types of income, contracts and revenue sources complement each other. This business model allows these types of companies who do both bid and service work, to become very efficient, generate steady workflow for their employees, and create wealth for the owners. But they require two different types of management, sales efforts, cost accounting, customer service, employee training, professional standards and marketing efforts.
Slow and Steady Wins!
Generating slow and steady business is an answer to improving your company’s future. Slow and steady business is not dependent on new construction to generate work for your crews and keep your doors open. In Steve’s case, his customers can’t afford to shut down during a power outage and will pay for the service his company provides. What type of slow and steady service business can you start or acquire to generate ongoing steady work and revenue for your company?
Start Slow and Build Steady!
As you contemplate the future of your company, what are your choices? Would you rather own a fast and furious company 100% dependent on acquiring new contracts, one at a time, if and when your customers decide to build something, and when you are the low bidder? Or would you like your company to have a slow and steady division with an ongoing revenue stream, and regular service customers to help you weather the ups and down of the new construction business?
When you have a slow and steady company you also have an asset you can sell. Service companies with annual contracts are more valuable than construction companies. The average construction company sells for three to five times net earnings before interest and taxes (EBIT). The average service company sells for double that amount.
Start a service division now. Determine your goals and implementation plan. Hire a manager to run the division for you. Setup your office to succeed with a dedicated service manager, accounting manager and salesperson responsible for the success of the division. Your job is to provide direction, vision and hold your managers accountable for achieving the results you want.
George Hedley, CSP, CPBC, helps contractors grow and profit as a professional business coach, popular speaker and peer group leader. He is the author of “Get Your Construction Business to Always Make a Profit!” and “Hardhat BIZSCHOOL Online University,” available on his website. Visit www.hardhatbizschool.com[1] for more information.
- www.hardhatbizschool.com: http://www.hardhatbizschool.com/
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