If you want to start a construction company, you need to read this.
About 90% of construction companies fail in the first year or two. Why?
It’s not because they aren’t great at the construction side…
But it’s because they don’t know how to run a business. I know a ton of contractors that are great on the field but don’t understand how to get more leads, win projects, and manage a team.
If that sounds like you, don’t worry. If you absorb the tactics below, you’re almost guaranteed to build your company on solid ground and have unlimited potential to grow.
We specialize in estimating for busy contractors, so once you implement some of the strategies I’m about to share with you below and you need help estimating, we can help. Learn more about our estimating service for Contractors and Subcontractors.
Step 1: Decide on a Specialty
The first step in starting your construction company is going to be deciding on a specialty. This is going to be based on your experience and your overall goals.
Subcontractors typically make 20-30% profit margins but smaller contracts.
General Contractors make 10% profit, but have much larger contracts since they are managing 10-15 separate trades on the jobs.
There are pros and cons to both, but ultimately you’re going to want to look at the following factors when determining what you want to specialize in:
- What do you have experience in?
- What is the most profitable?
- What is high in-demand in your area?
- How quickly can you get your first projects?
Residential vs. Commercial (or both)
Most construction companies can work in both residential and commercial. The biggest difference is in your ability to finance the projects and your cash flow.
For residential you’re usually able to get 10 or 20% as a deposit to start the job. You also start projects quickly after submitting your bid. And there is usually less competition so your close rates will likely be much higher.
The drawbacks are that they are smaller projects, you’re dealing with the “feelings” of the homeowners so they are going to be very picky since it’s their own home.
For commercial, they are typically bigger projects with larger contract values. There’s more competition and usually, no deposits paid upfront. You bill monthly and usually receive your first payment 60-90 days after starting the job. For commercial, having a credit line with your bank and terms with your supplier is important so you’ll need good credit.
Step 2: Start Finding Potential Projects
This is the part where most new contractors get stuck and can’t grow their new business.
It’s never been easier to find projects to submit your bids and get contracts.
One of the bonuses of working with I AM Builders that we can help you find the right projects in your area using our national database of projects.
The key to lead generation is to create a steady system of leads that you can always be bidding on projects and landing new jobs.
The more jobs you bid, the more chances you have of winning jobs.
If you want to spend the time looking for projects yourself, you can use lead generation platforms like Construct Connect, Dodge, Building Connected, or Home Advisor.
In my article about the best lead generation sites for contractors, I wrote about all these platforms and how to use them properly.
3. Start Estimating and Sending Bids
Estimating is the life-blood of your business. If you really want to grow your construction business and make sure you are successful you have to invest in submitting several bids per month consistently.
What I recommend is that if you have the budget, invest in hiring an in-house estimator and set up an office for them so you can focus on running your business and meeting new clients.
The biggest challenge contractors have is a lack of time to estimate and meet new clients. That’s why the goal is to have your own team perform your estimates while you’re out winning more construction bids.
By the way, I AM Builders is primarily an estimating company so we can help you with your estimates.
4. Set Up your Licenses and Insurance
Once you get your business up and running and you see Leeds coming in and you’re estimating jobs, now is the time that you should make sure you have all of your licenses and insurance.
if you notice, this is number 4 which means it’s actually not as important in terms of getting your business up and running as most people might think.
It’s important to have all of your licenses and insurance is set up, but it shouldn’t take you six months to do that before even getting your first potential project. There is a time in between when you submit a bid and when they award it so in those few weeks or months you can be applying for your license and getting all of your insurance is set up.
typically you will need general liability insurance and workers compensation insurance.
You can call a commercial insurance agent and they can set you up with that.
For the license, this will depend on your city or County, or state, but sometimes it’s as simple as applying with your building Department so they can issue you a license or certificate.
If you are going after a specialty or something like a general contractor, you may need to pass a test before submitting an application.
5. Follow Up, Follow Up, Follow Up
Following up is by far the most important part of the entire estimating and bid process.
A lot of contractors spend hours creating a bid, submit it, and never follow up to see where their prices in relation to their competitors, or even invest any time in getting to know the estimator or the project manager on the other end.
In my article on how to grow a construction business, I highlight the importance of following up and building relationships with clients. By following up and getting to know the estimators, you will have a preference when it comes time to award projects.
Many contractors don’t do this because it is very time-consuming, but I think it’s more time-consuming to submit 10 bids and win one versus submitting four bids to win one. And once you build that relationship with the client, they will come back to you over and over and over.
Starting a construction company can be a very challenging task, but these five strategies are going to give you the best chances of having a successful business.
With our consulting services, we can help you every step of the process including getting you leads, estimating your projects, and even doing your follow-up.
If you’re interested, give us a call and we can discuss your company in detail.