Your total market share is now less, while the number of competitors have risen. This leaves a shrinking pie that is smaller and more competitive. Continuing to do business the same way as before will get you less in the future. Contracts will be tougher to get as bid lists grow. Profits will shrink as construction companies buy work to keep their people and equipment busy.
Over the last decade, the construction industry grew ten years in a row. The last two years have been up, down, rocky, sporadic, and now very slow in most parts of the country. While there still may be positive growth in some markets, the construction business will not reach previous levels for many years to come.
The number of contractors in the U.S. has tripled over the last twenty to thirty years while the effective net construction volume of work has only grown slightly. With positive business growth came too much expansion and increased construction capacity. This resulted in too much competition and shrinking profit margins. Contractors, architects, suppliers and engineers who got used to growing 15 to 25 percent per year, took on more overhead, raised salaries, gave bonuses, became used to working at maximum capacity and increased their spending at a higher level to keep up with the good times.
To make matters worse, everyone got into the act. Contractors became real estate developers, architects became consultants, real estate brokers became construction managers, engineers got into design-build, banks became investors, Home Depot got into the construction business, and real estate sales people without any money called themselves development managers. Result? Too many competitors seeking too few opportunities.
Working harder will only make you tired. Working smarter is only a small part of the solution. So, what should you do or work smarter on – sales, quality, productivity, people, marketing? Whatever you choose, you must do something different to get different better results. Nine different ideas to add to your arsenal include:
1. Add New Markets
Seek at least one new project type to pursue. For example, home remodeling will soon surpass the new home construction market. In some areas, school and healthcare construction are up 200 percent. Public works is still strong in many markets for many years to come. Get on at least five new bid lists in the next two months for new projects not in your normal comfort zone.
2. Add New Customers
If you can’t beat Home Depot, join them. Home improvement stores need lots of contractors to do all their work. Somebody is getting lots of repeat work. Are you? Or how about starting a renovation division or plant maintenance department? Put one of your senior project managers in charge and let him become the division manager charged with building a profitable book of business.
3. Add New Risk
The home building market is dead. But there are opportunities. Find some depressed real estate to buy, upgrade it and then rent it out. This can add to your workload and boost your long-term bottom line. Developers need more equity today than in the past to get their projects financed. Offer to invest some of your working capital, savings, labor, or materials in your customer’s stalled projects to get them going.
4. Add Profit Centers
Open your books to key employees and share the profit with them. Give each team member an area of responsibility and make them accountable for their own bottom line. No profit equals no profit sharing or salary increases. For example, start a service division, small projects department, tenant improvement division, or maintenance company. If you have some major equipment start a rental equipment company. If you have a crane start a crane service. Or, if you are an electrical company start a service division.
5. Add Overhead Targets
Make everyone aware of your fixed cost of doing business. Make a goal to reduce your overhead and monthly expenses by 25 percent. Ask for suggestions to reduce overhead costs and reward those whose ideas are implemented.