One of the biggest problems contractors have is needing to have a bunch of jobs so they can break even, or make a decent profit.
These contractors are extremely busy supervising 5 or 10 jobs at the same time, making deliveries, sending out monthly billings, pricing out change orders, revisions, attending jobsite meetings, paying the suppliers and subcontractors….. the list of tasks is endless.
It almost seems like there is no escape. You can’t afford to stop because you’ll start losing money.
But… what happens if you were to start going after bigger projects?
The average construction project value is somewhere in the $200-300K range. This is based on our data of over 3,000 estimates per year that we do for our clients.
There are actually a ton of benefits for pursuing larger project. A lot of contractors get stuck in a certain range of value in projects because it’s all they are equipped for or all they know.
Or in the case of one of our clients, Caroni Interiors, was a small growing drywall subcontractor.
When we started working with Paolo, they were focusing on small $20-40k drywall jobs. They had a small team of in-house framers, hangers, and drywall finishers.
The problem with focusing on these tiny projects is that assuming a decent profit margin of 20%, you’re only looking at about $4,000 per project. As the owner of the company, this is where most of your profit (or your paycheck) will be coming from.
At Caroni, we were managing over 20+ projects at any given time.
That’s 20 Drawings, 20 jobsite meetings, 20 billings, 20 projects to write change orders for, 20 deliveries, 20 phone calls from GCs to coordinate the job…..
Needless to say, it was almost impossible to keep that going. That’s where our team asked the question…. “What if we go after larger projects?”
What Happened Next?
We decided things were a little out of control.
Pursuing these smaller jobs were making it difficult to grow and scale the business. We were always focusing on these small renovation-type projects or interior buildouts that move a lighting speed.
Owners wanted to start construction and be moved in in 2 months. It was a nightmare. To only make $4000??? No way..
Plus we were competing with smaller contractors. Small projects will always have the most competition because there is an easy barrier entry.
A barrier to entry essentially means “how difficult is for someone new to come into this market?”
Whenever you chase little jobs, so are many other smaller contractors. Especially in trades like drywall, painting, and flooring.
Small projects are very easy to finance. You put up a few thousand dollars up front until you get your checks for the jobs. Very easy….
This make the competition high, which, because of supply-and-demand, will drive down your prices.
When you start getting into larger valued projects, it starts becoming difficult to finance those jobs with your own capital. This eliminates most of your competition.
Solution: Eliminate your competition by pursuing larger projects
Pursue larger jobs.
This will eliminate a lot of headaches (and stress!).
Would you rather have 20% of $200,000, or 5% of $2,000,000?
If you pursue larger jobs, while it is true that you’ll need to sacrifice some percentage points in profit, the overall value of the projects makes up for it. Best of all, you really only need 1 or 2 projects per year to make the same amount of money.
It really makes life so much easier when you can focus on 1 or 2 projects at a time.
To finance those large projects, you’ll most likely need a credit line. If you manage your books properly, it can be very easy to obtain a credit line from your bank and pursue larger jobs. Credit lines in construction allow you to take on more projects, and higher value projects.
The point is to start pursuing larger projects. This will eliminate the smaller contractors that simply can’t afford to compete.
How to Find Larger Projects
We talk a lot about lead generation services. It’s really such a great way to grow your construction business.
If you sign up with The Bluebook and iSqft, you can easily search for projects within a certain value range. You can filter by value, trades involved, bid date, etc.
The main filter we like to recommend is the value.
The average close rate in commercial construction is 10%, which means you have to bid 10 jobs to get one of them. Being a smart contractor, your goal should be to pump out these bids as fast as you can. The faster you get to 10, the faster you’ll get your next job.
But, the trick is to focus on the value you want to be at. If you’re currently shooting for $200K General Contractor projects, try going for $1M project.
Let me let you in on a little secret……
Running a $1M job is easier than running a $200K job. You’ll make more money, less headaches, less jobsite meetings. Even though your lowering your profit percentage, you win.
Now, where is Caroni now?
When we started consulting them in 2017, they were at $1.5M in revenue with 20+ jobs at a time.
Now their smallest projects is $100k, they are much more selective on who they bid for, they have less overhead, higher profit margins, and need less projects at a time.
Their average project value is $700K, with a profit margin in the 30% range. Because there is less competition, they have actually raised their profit percentage.
In 2019, they closed the year at $7M. They went from $1.5M to $7M by pursuing larger projects.
And the best part, Paolo tells me his life is “completely different, and less stressed, and he makes more money”.