Bigger isn’t always better and scaling too quickly can shoot your construction business in the foot.
That’s because growth isn’t inherently positive or negative–it’s neutral. In fact, “growth” doesn’t mean much at all if you’re not growing profits. The problem is, too many contractors chase revenue at the expense of their margins (and sometimes end up bankrupt because of it).
So if the answer isn’t focusing on top-line revenue, what is it?
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Key Takeaways
I’m sure you’ve heard this before: “Just sell more.” This mindset is wrong though, and I’ll tell you exactly why.
A bigger top-line revenue number might look good on paper, but revenue ≠ profitability. I’ve seen a lot of construction companies go from $10M in sales with a $1M profit to $15M in sales with the same $1M profit, all because they’re focused on growing revenue above all else.
This issue usually stems from underbidding jobs to win the work. You win more jobs and have a higher revenue number but you had to sacrifice the margin on your jobs to win it.
The bottom line is, you don’t want to make it twice as hard to make the same amount of money. I’d rather you go to $5M in sales and keep that $1M in profit than work twice as hard to gain that $10M top line number. With that in mind, here’s how to maximize your returns while staying in a project capacity your business can handle:
There’s an order to things in construction, and if you move too fast, you’ll inevitably break things. Before you go all-in on scaling your revenue, make sure you’ve got the right systems, processes, and controls in place. This will ensure the work you bring in meets your standards and profitability targets.
Another piece of the puzzle is getting clear on the type of work you do. If you don’t know how to do something profitably every single time, don’t keep doing it. Train your team to source and win the opportunities that match up with your company’s capabilities, and stay in your lane as much as possible. If you’re a concrete company, don’t take on a roofing job. Unless you’ve mastered what you’re already doing, you’re not ready to expand.
You can’t really grow until you nail your profitability. If you try to skip ahead, your business won’t be able to keep up.
A lot of folks I see under the $10M range are willing to do just about anything to get over that hump. But when you try to become a master of everything, you inevitably become a master of none.
For example, imagine you’re a custom home remodeler. The biggest project you’ve ever done is $700k until one day, someone comes to you with a lot of thirty homes and asks you to build them for $10M. Most people don’t see the huge risks that come with a jump in project scope this big–they just see $10M on the table. But if you’ve never managed building thirty houses, you probably don’t have the processes and systems you need to be able to do it successfully.
Instead of chomping at the bit every time a big potential project heads your way, work on perfecting what you’re already good at. Like I mentioned earlier, it’s better to take on smaller jobs at a good profit margin than to stretch your business too thin.
You work hard enough as it is. Why keep chasing projects that are only going to devalue your business? Focus on building a solid foundation first, and when you’re ready to start going after higher-value work, you’ll be able to translate that revenue into bottom-line profit.