Two weeks ago we addressed the topic of subcontractors vs. in-house employees from a client’s point of view – why your clients can be better served if you use subcontractors instead of in-house employees to build their project.

We’re going to address this topic again but from a different point of view. Do you need employees in order to grow your business?

I took a phone call from a contractor who recently met with a group of fellow construction business owners. This contractor will build between one and two million in sales this year, and he was told by his fellow contractors that he needs to revert to an all employee model if he wants to make this happen profitably. Apparently, the other contractors have bought into the idea that employees are better than subs.

I’m a firm believer in networking with our peers. We can learn a lot from each other. But it’s also possible to get bad advice from these peer groups, and I think that’s the case here.

Our experience, the experience of contractors that we’ve talked with, and the experience of our coaching clients tells us that the most profitable company in construction is a three person team. In many cases that’s a married couple with one employee. Sometimes it’s a business owner with two employees. One manages the office. One handles sales, and the third is in charge of production. From that base, they build jobs using subcontractors. The small miscellaneous items that can’t be subbed out will be completed by the production person or possibly a handyman type person hired as needed to clean up punch lists.

This company structure might not sell as large a dollar volume as companies with more employees, but it is almost always more profitable as a percent of sales. And that percent, sometimes, makes up for the lower volume.

Now, when your company starts selling more jobs than your one production person (job superintendent, production manager) can build, you’ll need to add more employees. But if you’re smart, you’ll hire an additional job superintendent, first as an assistant to your production person for training. Or you’ll implement the Lead Carpenter system.

In either case, you’re still better off using subs on your jobs as much as possible. I outlined some of those advantages two weeks ago (Subcontractors or In-House Employees?). Another advantage of subs over employees is that all too often, we feel a responsibility to keep our employees working. Every construction worker should know that slowdowns happen, and when they happen . . . you go home. But too many contractors don’t want to send their employees home, so they’ll create make-work jobs, either around their own home or in the shop. It’s a laudable goal, but the money to pay their wage while on those make-work projects comes out of your pocket.

You aren’t in business to provide jobs. You’re in business to provide a service to your clients and make a profit doing it. If you don’t provide a service and you don’t make a profit, you won’t be in business for long. And if you go out of business, everyone loses their job.

Many contractors like to handle the production side of the business. And they have a tough time growing because they don’t trust anyone else to build jobs the way they’d build them. Properly trained, a good job superintendent or lead carpenter will be able to handle production responsibilities, allowing your business to grow, if you’re willing to let them.


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May 21, 2014 6:35 am

I use the lead carpenter system. I had my guys do some non billable work this winter simply for staff retention. A lot of time goes into training my employees and it’s wasted if the move on when things get a little slow.

I agree I am in business to make money not jobs but good employees are hard to come by.

May 21, 2014 6:33 am

This article seems to address GC’s. What if your a specialty contractor looking to sub out your specialty work…in order to grow the business?

Kelly Coons
Kelly Coons
May 21, 2014 5:30 am

I am starting to see the wisdom in Michaels belief that you can build jobs just as well with subs. As far as scheduling goes if the subs wont hold the line on the schedule its easy to find new subs. I use Co-Construct an online management system and it has been very useful in keeping the schedule right on time.

May 21, 2014 5:08 am

the only problem i have with this is control of scheduling, particularly on seasonal construction. i feel i need to hire employees just to be in control of the schedule.

Would love your thoughts, please comment.x
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