Before the economic slowdown, there was plenty of construction work to go around for every general contractor, subcontractor, and supplier in town. All you had to do was bid enough jobs and you could likely get awarded one out of five projects at a reasonable markup. This allowed your company to stay busy, keep growing, and make money. When repeat customers called or bid solicitation services listed projects to bid, you picked up plans, did your take-offs, and submitted your proposals. Then you waited for the results.
This simple system kept your pipeline full and crews busy. And because there were lots of work opportunities and not too many competitors, you didn’t need to implement a sales and marketing program, offer more than your competition, or be very selective in what you bid. In other words, your strategy was to be the low bidder on enough jobs and your business would do just fine. This low bid treadmill had been in effect for over twenty plus years, so why would you have to ever do business different than the simple way you’d always done it?
Keep busy and broke?
Then the great depression of the late 2000’s hit and contractors faced a new business climate. Permits and total construction dropped thirty, fifty, or as much as eighty percent overnight. There were too many competitors facing too few projects to bid. Margins fell off the cliff and it was impossible to make enough money to sustain your previous business levels. In order to stay alive, most contractors kept doing what they’ve always done to find and procure work, but at an increased level. They figured if they bid more work, they would win more work. But this tactic didn’t keep their bank accounts full. This unsustainable strategy only kept contractors busy and broke as competition increased and margins fell.
Bidding more work is never the answer to growing a successful construction business and making money. By trying to win contracts by bidding minimum per plans and specifications against ten or more competitors who sell low price won’t make your rich. Bidding on projects where almost any company can get on the bid list wipes out your odds of making any profit. The only answer is to bid the right projects, with the right profit margins, against the right competitors.
Lower costs or increase profitable sales?
In order to compete on competitive projects, the first tendency is to try to lower your costs and margins to win more work. This only works to a point as all of your competitors are trying the same strategy. The long term answer is to seek better customers, find better work, and focus on work opportunities with less competition. This strategy is not as easy as waiting for your repeat customers to call and ask you to bid projects. Or using builders plan rooms or project bid lead services to supply your company with projects to bid. These old methods get you on plenty of bid lists, against too many competitors, to customers who only buy low price. This marketing and sales strategy doesn’t work today. You’ll have to do business different in the next ten years if you want to make money.
The low bid treadmill doesn’t work!
In order to increase profitable sales, you’ll have to implement a business development plan to get off the low bid treadmill. Doing more than bidding to get work is not easy and takes dedication to find customers and markets where customers value service, quality, expertise, and professionalism. Anyone can build, but not everyone can qualify to perform per the standards of discerning customers who want to only deal with top performers.
Would you rather build your business doing repeat construction for hospitals and universities, or bidding on low price shopping centers or public projects against every low bid contractor in town? Or build high-end custom homes versus low price remodels? Or work for oil and gas companies who value quality and safety versus real estate developers who shop for the lowest price? The choice is yours every day when you decide how to go about filling your pipeline with low price or high profit work.
Seek projects with a high barrier to entry!
Many customers demand more from their contractors than low price and quality work. These typically rely on a few excellent qualified contractors to do all their work. Generally, the harder to get on the bid list equals less competitors and higher profit margins. Many customers only hire the recognized expert who specializes in a project type. Others demand specialized skills, design-assist capacities, engineering services, intense training standards, certifications from manufacturers, or specified product providers.
For example, many customers such as power companies or hospitals demand safety standards beyond the industry norm, certified trained installers, drug testing, high employee clearance requirements, or technical expertise. Other high barrier to entry customers such as food processing plants or medical remodels require night work, super clean installations, or the utmost quality standards. And other customers such as government departments or certain military installations require specific qualifications such as veteran, minority, disabled, or disadvantaged business entities or long qualification processes and detailed and intense selection procedures.
Seek loyal customers!
The other option to increase your margins against less competition is to develop loyal customers who award you at least 33 percent or more of their work on a regular basis. Repeat customers award you contracts when you’re the low bidder. Loyal customers try to give you their work whenever possible because they have a trusted relationship with you. Almost every contractor does good work and tries hard to finish projects on time. Being a good contractor is expected and is not enough to build loyalty against too many competitors trying to win the work against your company. It takes a specific action plan to build customer loyalty. To help you develop a customer plan, email GH@HardhatPresentations.com to get a copy of ‘Winning Ways To Win More Work!”
Building loyal customers is like dating. Make a list of your top customer targets and draft a plan to spend time with them quarterly in relationship building settings. These can include lunches, ball games, golfing, fishing, association meetings, trade-shows, or any other get together where you can get to know your customer better.
Seek high margin customers against lower competition!
Building customer loyalty takes a new way to schedule your week and do business. Targeting and cracking high barrier to entry customers takes a lot of concentrated effort. Continuing to go the easy route bidding any project against any competition at any price to any customer won’t improve your bottom-line. Finding better work and new customers is the only answer and well worth the effort.
As a professional construction BIZCOACH and popular industry speaker, George Hedley helps contractors increase profits, grow and get their companies to work! He is the best-selling author of “Get Your Construction Business To Always Make A Profit!” available at his online bookstore at www.HardhatPresentations.com. E-mail GH@HardhatPresentations.com to sign-up for his free e-newsletter, join a peer mastermind BIZGROUP, attend a BIZ-BUILDER Boot Camp, implement the BIZ-BUILDER BLUEPRINT, or get a discount for online courses at www.HardhatBizSchool.com.
George Hedley CSP CPBC
Phone: (800) 851-8553