How to grow a construction business
A common question we are asked is what is the best way to grow a construction business. With the changing global landscape, affected by the pandemic, and supply chain issues causing chaos around the globe, it’s an uncertain time.
The recent 2021 Q4 report from the FMB (Federation of Master Builders) shines a light on some of the latest industry numbers. The report is bang up to date with statistics from across the construction industries and shares some fascinating details.
The biggest thing to note is that 95% of FMB members reported increased building material costs this previous quarter, and 91% of respondents are forecasting a further increase in Q1 of 2022.
After a year or more of ups and downs, it is good to have some solid analysis finally. This shows the impact and opportunities for small and medium sized builders, and other related trades business owners.
When it comes to how to help a small business grow, we have many years of experience with clients in the trade sector. We have supported several, both as business coaches and through our marketing agencies, and delivered growth outcomes in both settings.
With this in mind, we’ve put together 9 ‘profit levers’ to assist you in growing your construction company and unlocking your profits.
In this blog, I will briefly touch on each to give you a better understanding of how they can help grow a construction business.
Grow your client base
Whilst this might seem like the most obvious point, there are a few potholes that some business owners fall down when completing this activity.
Firstly, is the problem actually in your cash flow, rather than your profit? If this is the case, growing your client base and workload can actually compound this issue.
You need to fix the cash flow problem first.
Next, have you properly defined your target audience and the essential services/product messages for each? If not, I recommend having a clear picture of what these look like before you burn potential prospects with poor marketing messages.
Focus on your current conversion rate, customer satisfaction, and margins first to fully capitalise on your existing opportunities.
The key point for this tip to work is maximising your findability online by running an SEO audit on your existing website. This allows new customers to easily find your business in the first place.
Build your client lifetime value
Winning a new customer might be the ‘sexy’ part of marketing, but intelligent owners realise this is also typically the most expensive part of marketing.
Whilst it might seem profitable to search for new clients constantly; the real ‘cash-cow’ is actually the existing customers you already have.
So rather than expending time and money trying to convince relative strangers to part with their hard-earned cash, you could be effectively drawing on clients who already know and trust you.
If every customer you ever served was regularly buying from you, just think how much you’d be earning.
For this point, I strongly recommend you increase the range of purchases from existing residential and commercial clients by educating them on the services you provide. Perhaps write a monthly marketing email to previous customers to remind them of your services.
Maybe a homeowner whose roof you fixed last month is now looking for someone to do some plumbing work or a home office extension, and you can assist them with that job as well. They’re much more likely to choose someone they know and trust, especially if you offer a wide range of services.
Broaden your range
When you set your business plan and strategy, it’s crucial to know the risk rating of different marketing approaches.
The Ansoff Matrix, shown below, illustrates different marketing strategy directions and the associated risk.
Simply put, it’s safest to market a known product or service to a known customer. This links to the previous point about making the most of existing customers.
However, discovering your customer’s needs will allow you to decide whether or not to introduce a new service.
For this point, I suggest doing some market and client research, so you know what to offer and to whom. Then, try using an email survey or phone questionnaire to identify new prospects. A simple set of questions to ask in meetings can go a long way for existing clients.
Broaden your market
Whilst the previous point mentions marketing new services, this point is about selling existing services to new audiences.
Before committing time and money into marketing towards unknown markets, it’s highly advisable to conduct market research. Once you’ve done this and know where and to whom you’re targeting these existing services, it’s time to put your plan into action.
When looking for how to make a small construction business grow, I suggest you create a list of all the features and benefits for each service or product. Next, identify how these benefit the current audience and the needs they serve.
Next, run a blue sky session with your team to discuss who else experiences similar or overlapping situations or issues. Then, discuss how the product or service can either be directly utilised or adapted to suit the new audience you’ve identified.
Develop your clients' value acceptance
Improving the value acceptance of your customers towards your business is a vital part of ensuring your business continues to grow into the future. If your customers are satisfied with the work you produce, they’re very likely to keep doing business with you!
A great way to build confidence in your brand is by gathering client testimonials and reviews. Not only does this showcase previous work you’ve done, but it helps to build trust between you and your clients, as well as new prospects.
I suggest capturing a video testimonial for each service you provide and having it visible on your website. Also, make a point of asking for reviews and testimonials from future customers, so you’ve always got up-to-date references available. Companies that use video testimonials, do comment on how they’ve grown their construction business.
Reference your sales mix
Many businesses fail to target their sales mix based on their margins, instead opting to focus on services with the highest turnover.
If you want to maximise profits but lack the space or skilled personnel, it might be best to focus your efforts on marketing those services with the most significant margins.
This example shows how profits have been increased simply by focusing efforts on the product with a more significant margin. While the turnover values are identical, shifting the sales mix has created a vast uplift (more than 100%!) in overall gross profit.
For this point, I suggest conducting a margin assessment and then creating a targeted marketing campaign to promote those services with the highest margins.
Trim the strugglers
There are often services or products in the business that are simply less effective.
This is often indicated by poor profit, a low margin, poor volume, or simply by it being a time drain in one way or another.
By trimming these strugglers, you enable your team to focus on the products and services that are most profitable, saving you time and increasing your income.
Whilst this point is primarily aimed at products and services, there is the unfortunate truth that this also extends to clients and team management.
Whilst every effort should be made to train and support your staff; there does come a time when the best option for both parties is to part way. Too often, these changes happen too late, which can affect cash flow, profit and the team culture as a whole.
For this point, I suggest analysing your clients and shortlisting those who need either developing or severing. For those who are late paying / constant time thieves, this means setting transparent debt management systems or service criteria to establish the correct boundaries.
Refine your variable costs
Whenever you deliver a construction service, there are costs involved. These are sometimes purely the cost of purchasing supplies and materials, but often affect the time of staff and others too.
As mentioned at the start of this blog, material costs have risen a great deal in the last few months and are expected to continue growing!
One of the most common causes of declining profitability is a failure to monitor and react to shifts in business costs…and the variable costs are much more difficult to spot than the fixed. This is mainly true in service businesses, where time inefficiencies can eat up a LOT of profit if not identified early.
For this point, I suggest reviewing your current services and creating a time assessment for each element to ensure that things are getting done on time whilst being careful to provide the same levels of quality.
This may not seem like a tactic for how to grow a construction business, but it’s an important one to stop things going in reverse, and gives you insight on how to plan for the future.
Reduce your overheads
Finally, whenever a business looks to improve their profits, they seek to reduce their costs.
Whilst this is undoubtedly a great way to do so, it’s important to note the possible pitfalls you can run into.
With reductions in supplier costs, you often see a decrease in quality. Be careful when considering how this could affect your company in the long run.
When it comes to cost reduction, it’s easy just to look at line items on a sheet and decide to cull anything with a number that appears high. However, if the thing you are choosing to cut out is, in fact, a driver for the business (e.g. an effective marketing system), you may well simply ‘cut off your nose to spite your face’.
For this final point, I recommend making sure a regular supplier performance and spend review is completed, making sure the costs are within the expected budget, that the standards are being met, and that the best value is being maintained moving forwards.
What next for growing my construction business?
Hopefully, after reading through these points, you might have begun to identify areas in your own business that can be worked on.
Here at UK Growth Coach, we’ve worked with many construction businesses over the years. In fact, here’s a testimonial from a current client of ours where we specifically worked together on how to grow a construction business.
If you find yourself wondering what the true potential for your business is and how it would perform if you got that advice, guidance and structure in place… there is no time like the present to explore the potential of having a business coach to help you grow your construction company, and yourself.
If you would like to take some of the ideas from this blog and look at them in the specific context of your business with one of our coaches, we offer a complimentary 90-minute business review. You can get one of these organised easily by booking it directly into my diary here.
