Words: Corey Adams
That time of year is here again. You know, that dreaded time where we finally catch up just enough to realize that the work may not last until spring? At least in the northern states, this time of year can be painful. Layoffs have already started, estimates are slowing down, and the holiday season seems to grip everyone.
I think it is a good thing.
Why do I enjoy this time of year for a construction business? Well, the answer is simple: we finally have time to address our business. We all have spent the last ten months hammering out projects one after another, and most of the time, multiple projects at once. That is the seasonal fluctuation in our industry. The slower times should be used for resetting and addressing our businesses. These next few weeks, months, or whatever your slow season includes, is the time to promote process improvement, examine profit margins, and focus on growth.
One thing I have found with many contractors I network with is the misconception of growth. The growth of a construction company is not 100% tied to sales. Growth should be calculated using multiple factors. I will admit that growth in sales is one of the most telling signs, but growth has many variables.
Here are a few metrics we use to monitor, predict, and persuade growth.
- Profit Margin: this goes without saying, but many companies miss this completely. If you can expand your profit margin by 1-2%, without growing sales, workforce, or overhead, that is growth! In fact, expanding the net profit margin is the easiest way and the first step in growing your construction company. Make your numbers work at an existing level, and scaling becomes an automated function.
- Employee Turnover: I feel this is an important factor in the health of a company. High turnover rates typically indicate some management issues. When starting a business, turnover rates are high– that is just the nature of being a smaller company. As you grow, turnover rates should creep down every year in business. If after a year or two, turnover start to increase, it is time to find the cause and eliminate it.
- Customer Satisfaction/Repeat Business Rates: if you’re not taking care of your clients, your competitors will. I think that speaks for itself.
- Expense Ratios: stripped down, this is a ratio of total expenses to total sales. There are a few different variations– Direct Costs vs. Sales, Overhead vs. Sales, etc., but they all come down to the same principal. Are we generating more or less return on the expenses we have? Some also classify this as Return on Investment (ROI).
- Sales vs. Estimates Ratios, or Conversion Rates: I like this one more from a pricing perspective. If you begin to land a high percentage of the estimates you send out, your price is probably too low. If your conversion rates begin to drop, time to sharpen the proverbial pencil.
Those are a few of the main ones, but by no means is this an all-encompassing list. We have tracked equipment utilization rates, advertising to sales rates, and for the residential sector, we even track social media engagement rates!
The ways to grow a construction business are almost limitless. Most companies focus on gross sales because it is easy, but that not the whole picture. Grow your business by focusing on the details, because now is a perfect time of year to dive into them.
Corey Adams is the President of the Concrete Division at Genesis Contracting, and Founder of The Faster Horses Agency, a business development and marketing firm that serves the construction industry. His unique blend of construction experience, and business development strategies make Corey a go-to source for many contractors looking to take the next step. To contact Corey directly, Call 740-350-3072, or email him at cadams@genesis-contracting.com.