Building a Successful Construction Business

I take many calls from contractors who are trying to decide if they can turn their business into a money-making enterprise. Their business is more like a high-stress, low-paying job than a successful construction business. Some ask, “Is it even possible in today’s economic climate? Can my business make money?”

Most of them can identify with at least one of these scenarios:

  • More bills to pay than there is money in the checking account
  • No money in savings to cover emergencies
  • Working on jobs but not getting paid
  • Scrambling every week to make payroll
  • Not able to draw a salary from their company
  • Increasing credit card debt
  • Subs aren’t getting paid on time
  • Suppliers are putting them on a cash-only basis
  • Their spouse is working in the business for free
  • Getting behind on tax payments

If any of these scenarios look familiar and you’re hoping things will get better, hear me loud and clear. Things won’t get better unless you make changes. You don’t need more sales or more leads; for too many contractors, every job puts them deeper in the hole. Finish reading this before you sell another job.

If you can’t pay your bills, yourself, your spouse, your suppliers, or your subs, you aren’t charging enough for the work or service you provide. It’s basic math. So today, raise your markup at least 20 points. If you’ve been using a markup of 1.20, raise it to at least 1.40 or even 1.50.

When you raise your markup, you won’t lose sales. In fact, most contractors find that their sales-to-leads ratio improves. That is the first big “Thank You” we hear from coaching clients who make that change.

This is only a stopgap measure until you calculate the correct markup for your business. You can’t use someone else’s markup because you don’t have someone else’s overhead. You need to calculate the correct markup for your business based on your overhead expenses and your profit needs, and begin using that markup as soon as possible. But I can assure you that if the problems listed above are your problems, your markup is at least 20 points too low. Raise it now.

Next, set aside a percentage of each check in the door to pay your taxes and don’t spend that money on anything. I know how painful that is, but the money needed to pay taxes isn’t yours anyway, so don’t spend it.

Then start setting aside another 1-2% of every check that comes in the door. I like to call this an OCRA, an operating capital reserve account. 1-2% won’t hinder your ability to pay your bills but it will, in the very near future, give you the ability to walk away from potential bad jobs or customers.

If you have credit card debt, any at all, get out your scissors and cut those credit cards in little tiny pieces. From now on pay cash or write a check. Credit cards are a handy tool if you can pay them in full each month, but until you’re able to pay them in full, stop adding to the debt. Don’t use one again until all the credit card debt is paid off, and then only take on debt you can pay off in the next 30 days.

If you’re behind to your subs, go visit them. Not a phone call, a one-to-one visit. Don’t make promises you can’t keep, but tell them how you will get them caught up. Then do it. If you aren’t able to make a payment you promised to make, don’t call them, go see them. That’s the only way you’ll get their trust back and start rebuilding your business.

Those are the basic business changes. But there might be some behavioral changes needed as well.

Make sure your phone is answered properly whenever it rings, every time. Return all phone calls the same day or by 9 am the next day. Not some of them, ALL of them.

Arrive at every appointment on time. No stories or excuses. Being late is nothing more than a bad habit. If you want to make the sale at the right price, prove yourself responsible enough to build the job on time by getting your behind out the door and to your appointments on time.

When you go on that appointment, dress like a pro. Get yourself gussied up. Baseball caps, tee shirts, jeans, sneakers are for those still in high school. If you’ve been on a job, give yourself time to go home and clean up before you go on that sales call. How can you expect a potential client to want to work with you if you show up smelling like a goat? Clean up and dress up so you look like a successful business owner. Don’t be like the other guys who are going broke.

And last but not least, start reading books on sales. Sell yourself first, then your company, and then the job. Remove price as an objection by making a good presentation every time. Selling 1 in every 3 calls you go on is just about right in construction. Some good books on sales are:

How to Master the Art of Selling by Tom Hopkins
Profitable Sales; A Contractors Guide by Michael Stone
Unlimited Sales Success by Brian Tracy

Invest in yourself. Remember, you got where you are today based on decisions that you and you alone have made. You now have a choice. Put and keep your ego in your pocket (Cardinal Rule #4). Get the help you need. Start taking care of your family.

These are the first steps you need to take to transition from a low-paying job where you may or may not be able to pay yourself and provide for your family, to being the owner of a successful construction business that provides well for you, your family and your employees. This isn’t a quick fix. Quick fixes rarely work in business. This stuff takes time to work, so be prepared to do the work and then wait for the work to bear good results. It will.

Finally, let me put in a plug for our book, Markup and Profit; A Contractor’s Guide Revisited (now available on audio, including Audible). There you’ll discover how to address each of these issues, and we explain how to calculate the correct markup for your business. When you read and apply what’s in that book, you’ll be well on the road to turning your business around and working your way out of your problems.


Download the audio or listen here:


Subscribe to our newsletter and receive Chapter 1 of Markup & Profit Revisited

Our weekly newsletter is sent most Wednesdays with a link to new articles and a reminder of upcoming events. Unsubscribe at any time.

Follow This Thread
Notify of
guest
5 Comments
newest
oldest most voted
Inline Feedbacks
View all comments
Mike
Mike
October 14, 2020 8:40 am

Nice presentation.

Mike Busche
Mike Busche
August 20, 2020 4:50 am

Excellent advice that we decided to take 5 years ago. We started watching our numbers, tracking our profits and losses. Adjusting our bidding process so that we are hitting the 1-2% error rate.We used to accidentally make money on some projects and accidentally lose money on other projects. I was always worried about my price when delivering a proposal. Once I took the time to calculate our actual overhead and then calculate what our markup should be the bid anxiety went away. It didn’t matter if the price was to high or to low, the price was what I needed… Read more »

Creter
Creter
April 2, 2014 9:44 am

Good read and perfect timing. Been have a tough time holding to the proper price and markup the last couple weeks. Maybe for the best to not get the work for some reason but it is very hard to let it go.

Paul
Paul
April 3, 2014 3:38 pm
Reply to  Creter

Creter- Better to stay with your price then to cut it. I know how you feel. I have been there. Every time I cut my price a great job comes the next day and I cant take it because I am working for free and can’t hire any help.
Sorry for the typos, sent from my phone.

Creter
Creter
April 4, 2014 6:50 am
Reply to  Paul

Paul I agree with you and thanks for the reinforcement of that thinking. In reflection, I see far beyond the $$ that were related to the projects that slipped away. In retrospect I can see where there could have been a few issues – mostly with whom I would have been working for. So yes, it all happens for a reason so they say.

5
0
Would love your thoughts, please comment.x
()
x
Scroll to Top