Whether your job is painting 62,000-square-feet of office space or figuring out how to hang drywall upside down on an eight-story overhang, making sure every job is more profitable than the last is never simple or easy. Even when your estimators do a great job and you’re winning lots of work, your construction business can still struggle with profitability.
This is especially true if you rush to bid job after job repeating the same mistakes, project after project. Did you forget and include the unreliable supplier or the contractor who always runs late? No contractor wants to see the last five percent of any job drain 50 percent of your profits. Winning so many jobs that you can’t properly manage them is one way to end up in this situation.
Find Your Bidding Sweet Spot
Experts say contractors who offer specialized services typically win twice as many bids as firms offering general construction services. By serving a particular market segment, you can charge more for expertise and quality.
If you’re not sure how to specialize or already know which project types are your most profitable, here’s an easy three-step formula:
- Review and calculate the percentage of profits from all jobs in the last year, segmenting out the change orders so you can see originally planned profit, final profit, and profit including change orders
- Sort the list of jobs from most profitable at the top to least profitable at the bottom
- Only take leads for work based on the top three most profitable jobs
This will help you to determine the best construction projects for your construction business. By carefully reviewing the ins and outs of each job, you will learn valuable lessons you can apply to your next project.
Stop Chasing the Wrong Work
When you’re not selective, you could put your firm’s reputation at risk. Will customers trust you if you fail to deliver as promised? Some contractors build new homes while others specialize in remodeling. In down economic times, the remodeling specialty might serve you better. By slowing down and being patient, you can highlight your strengths to beat the competition.
No single contractor can be great at everything. You should always think about whether you are bidding the right work in the right market, business segment, or geographic area. For example, some contractors specialize in second-story additions, kitchens, and bathrooms, or develop an in-depth knowledge of how older homes are constructed.
Another way is to focus on types of construction projects. Here are some examples:
- Government jobs
- Hospitals and medical facilities
- Schools and universities
- Commercial or Retail
- Renovation and adaptive reuse
- Sustainable building
If you want to get creative, you could put time and money toward special security clearances, certifications, and training for your team. Remember, you can’t call it a specialty if you list out ten different specialties. By thinking strategically, you can highlight your firm’s strengths to beat the competition and improve your bottom-line.
Fine-Tune Your Process
Remember, it’s always a good idea to review profit-and-loss statements and apply lessons learned from previous projects. But don’t stop by just looking at P&L, dig deeper by including all those involved in the projects from the sales executive, estimator, project manager, field staff, accounting, etc. Put those lessons learned to good use by updating those areas that need updating. By being more deliberate in your estimating strategy, you can reap big rewards in today’s hot construction market. You will likely see quick results as you fine-tune your process to grow your business and profits.
It’s the perfect time for contractors to make course corrections. Want to learn more? We’ve got great tips and tricks to keep estimating on track. Download our white paper, “Overcoming the Pitfalls of Estimating,” to learn more.