How to Grow a Long-Lasting Contractor Business
Building and growing a contractor business can be one of the most challenging yet rewarding types of businesses to be a part of.
Compared to most businesses, construction related organizations have the highest profitability. And this comes from the fact that the nature of construction are larger contracts.
There are several strategies we are going to cover. We work directly with contractors in helping them grow their businesses, and we’ve compiled the most important strategies you use. From lead generation, to ways to estimate jobs more efficiently and even use estimating services, we discuss the ways you can grow and maintain a contractor business that are most effective for you.
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1. Develop a Lead Generation System
The most important part of any business regardless of the industry is the sales and marketing of the business. There are two types of leads that are critical in construction and those are going to be:
- Client Leads
- Project Leads
When I say client leads, I am referring to building a relationship with a potential client. Clients may not have a project at the moment for you to bid on, but it’s important to get the relationship started with multiple clients so that they can feed you a steady stream of projects when they come in. This will result in great long-term work but you may have to wait until they get projects to invite you to bid.
When we refer to project leads, we are talking about projects that are currently being bid and will be built soon. These are great to chase, but often result in one-time projects. Project leads are great because you can bid on projects that are currently in process to be built very soon.
Our recommendation is to combine both strategies by using lead generation services from companies like:
- The Blue Book
These platforms are designed to connect Developers with General Contractors, and General Contractors with Subcontractors. As a Contractor, you can depend on these platforms to give you the most current projects that are actively being bid on.
The secondary benefit of using any of these platforms is you get to connect with Developers and General Contractors that are aggressively pursuing projects. If they are on these platforms, there is a good chance that they are aggressive with their sales or at least aggressive with building many projects.
2. Develop an Estimating Team
Once you have your lead generation system set up, the next hurdle you were going to run into is getting all these projects estimated. Estimating is by far the most consuming task any contractor can face. Projects take hours to bid with ultra-concentration.
The best strategy is going to be to hire an in-house estimator employee, however, most contractors are smaller operations and don’t have the capital to pay for employees.
If you want to grow, the alternative is to hire a company that provide takeoff services that can estimate the projects for you. This bridges the gap between being a one-man show, and becoming a larger company.
It’s not advisable to do the estimating yourself only because you will become a major bottleneck to your company, but if you must do it for a season while you get things going, invest in digital takeoff software like plan swift or blue beam.
These are going to speed up your estimating so you could bid more jobs.
3. Use the Latest Construction Software
As technology and software advances, we are seeing very high tech software packages that are geared more towards contractors to help them run their businesses.
There are three categories of software that every contractor should invest in. These include bid management software, estimating software, and project management software.
Bid Management software is going to help you manage your outgoing bids. They are also designed for Developers and General Contractors to submit their invitations to their Subcontractors.
Estimating software comes in two categories: take offs and estimate.
Essentially a takeoff are the measurements and quantities for the projects such as square feet of drywall, linear feet of wall, cubic yards of concrete. Most contractors do this part by hand and is very tedious and time-consuming. The second type of estimating software are the estimating part. These are programs like Quick Bid or National Construction Estimator where you can prepare your estimate based on the quantities you takeoff previously.
The last category of construction software there is Project Management software. These are programs like ProCore and Corecon that will help you manage your project administratively. You can keep track of all of your contract and subcontract information, Requests for Information, Change Orders, and your billings and invoicing.
4. Use Skilled Labor
The next strategy to grow a long lasting contractor business is going to be using skilled labor. Many contractors try to hire the cheapest labor possible, but the reality is this often results in more expensive labor costs.
Sometimes by hiring someone at a lower rate, their lack of experience and speed will take them two or even three times as long to perform a task. Sometimes hiring someone that is a bit expensive but works faster is actually more cost effective.
You don’t always have to hire employees directly. There is a method of sub-subcontracting called piece-working where you can hire a company to perform portions of the job and only provide the labor without any materials. You can typically call drywall companies and concrete companies to perform this type of work.
Lastly, a bit of advice, do not ever use any labor agencies. These agencies hire anyone that is willing to work regardless of experience.
5. Make sure your Licenses and Insurance are up-to-date
It’s important to make sure your licenses and insurance are up-to-date.
You must have your Worker’s Compensation insurance and General Liability insurance, along with your contractor license if your county or city requires. This protects your company in the event of an injury on the job or damages caused by one of your employees. Also having your license is typically required by most cities. It’s also a great marketing tactic to let your client know you are licensed and insured.
Having your insurances in order are so important, your company depends on it. I have heard of cases of Worker’s Compensation claims they have been paying out for over 10 years which normally would have been paid for by the company if they didn’t have workers comp insurance.
General liability insurance is going to cover you in the event of damages on the job site. For example, if you damage a sprinkler pipe and it wet all of the drywall on the project that was already installed, typically a general liability policy would cover this.
6. Make Jobsite Safety a Priority
Jobsite safety is extremely important if you are going to have a long lasting contractor business.
The greatest cause for construction company is going out of business are lawsuits and OSHA penalties.
Medical expenses are extremely expensive and avoiding Worker’s Compensation claims or injuries period are important to maintain a healthy company.
Every contractor should take the OSHA 30 certification and follow the guidelines set forth there to ensure a safe working environment for everyone.
7. Invest in your Contracts and other Legal Parts of your Business
The last strategy we are going to cover is investing in the legal aspects of your company.
We covered the importance of having insurances and licenses above, and it’s also important to have ironclad contracts and an attorney on retainer they can review contracts, issue nonpayment letters, and just keep your company safe legally.
In many states using a Notice to Owner company will help you secure a lien rates for projects that have issues with payments.
It is important to cover yourself legally in regards to payments because General Contractors and Developers are notorious for holding money when they shouldn’t be. Having your legal set up correctly will avoid this to a certain extent.
Growing and maintaining a construction business can be challenging but it’s also very rewarding because of the high profit margins it brings.
We covered things like lead generation, estimating, legal, and licenses and insurance. It’s important to spend a little bit of time working on each one of these strategies and principles to make sure your company is safe and operating healthily.
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