The forecast for construction looks good this year. According to Dodge Data and Analytics’ 2020 Construction Outlook, there is only a small decline projected for new project starts, and a recession is not anticipated this year. Overall commercial construction starts will fall slightly, public works will increase, and residential starts will decline minimally as multifamily starts begin to decline after an 8-year boom.
Ultimately, the shortage of construction workers is the major factor slowing the pace of construction. There are more projects to build than there are contractors and workers available to perform the building. This means fewer competitors and the opportunity to make higher margins in many selective markets.
Making Money Is a Choice
Given the option to change, the first inclination (and often the easy way out) is to continue conducting business as usual. On the other hand, if you make a choice to improve and seek better ways to win higher-margin work and become more efficient, you should be able to make more money without increasing your workload.
Recently, a struggling contractor (let’s call him Dave) asked me to help him fine-tune his focus to improve his company’s bottom line. His company was bidding lots of work but only winning 10% of the jobs they submitted bids on. Most of his bid opportunities came through the local builder’s exchange or from past customers who emailed him requests to bid. He bid those jobs based on the company’s estimating availability and workload, without a formal system in place.
None of his customers demanded special qualifications or selective, short bid lists. The jobs he won were typically bid tightly, and hitting his profit goal was difficult and rare. In fact, almost every job came in over budget with labor overruns, unpaid change orders, call-backs and additional move-ins.
Dave had trouble finding enough trained foremen, crew leaders and workers to complete the work, causing overtime that wasn’t part of their original estimates. He was short-handed on accountable managers, too, so he had to do the project management, scheduling and crew monitoring himself. Worse, his bookkeeper didn’t completely understand construction accounting, which made managing his job costs, profits and finances difficult at best.
Without investing to build a better business, Dave was left to endure high stress and low profit margins. So, Dave decided to make some major changes in the way he operated and managed his company. He hired an experienced project manager and a full-charge construction bookkeeper.
Both of these positions cost him more than he preferred to pay, but the trade-offs were well worth the expense. They allowed him to delegate the project management work and focus on developing and implementing profitable initiatives. Additionally, Dave worked with his new bookkeeper to develop sales, overhead and profit-markup plans to achieve their new financial goals. These initiatives allowed his company to grow and double its net profit margin within a year.
The Decision Is Yours
If you want to make more money, you must first commit to improve 25% of the way your company functions.
Begin by restructuring your practices and processes going forward. Then, shift your focus toward seeking new customers and project types that will deliver higher margins. Or, perhaps your focus might first fall to improving field operations and production. You might also begin by improving finances and job-cost tracking standards, and calculating accurate, detailed estimates.
You may even commit to hiring an experienced project manager, field supervisor or project administrator to help you build a better company while you focus elsewhere. The hardest part of this process is deciding where to start, and then letting go and delegating some of your day-to-day tasks, decisions and responsibilities to others.
Whichever direction you decide to head in, begin by making a list of proactive improvements that can help you make more money. Then, select a few of those items to move forward with. Consider the following improvement options.
1. Improve profits
- Upgrade accounting software
- Conduct monthly financial and
- job-cost reviews
- Use job-cost production tracking scorecards
- Hold pre-job meetings to set goals
- and budgets
- Hold completed project job-cost meetings to improve estimating
2. Improve culture
- Build a strong, accountable management team
- Implement effective recruiting and ongoing training programs
- Promote from within
- Draft clear position descriptions
- Hold people accountable for results
- Hold regular field-production meetings
- Mentor, coach and develop key leaders
3. Improve systems
- Develop and train staff on written operational systems
- Monitor and enforce systems
- Use the latest project management software
- Implement a process for eliminating punch-list items and call-backs
- Institute a proactive equipment-maintenance program
4. Improve sales
- Seek higher-margin work by:
►Getting out of the low-bid, high-volume business
►Tracking and improving your bid-hit-win ratio
►Standardizing your bidding process
- Seek projects with high barrier to entry, with requirements such as: Niche and specialty expertise
►Night and weekend work
►Selective, demanding customers
►High qualifications and financials
►Stringent safety standards
►Special certifications or training
- Spend time developing loyal versus repeat customers by:
►Developing, tracking and attacking new customer leads
►Spending more time with targeted customers
By investing some time into a few business-boosting efforts, you can make more money. But it takes discipline and a renewed focus, both personally and professionally, for you to improve your company and achieve those higher margins. Working hard without achieving the maximum results is not a sustainable way to operate, nor is it rewarding.
If you’re willing to admit you have a problem, the next step is to implement a plan for fixing that problem. So, as the new year begins, what improvements will you focus on to make more money?