Let’s be honest – building a business is hard. REALLY hard. Particularly in construction. Because it’s easy enough to learn your trade… (Study under people who know the industry, then work your ass off to get better. I don’t think any of us have a problem with that. We’re good at our craft and damn proud of it.) But that’s not the problem.
The problem is that your skill at your trade or specialty has NO BEARING WHATSOEVER on how your business performs. In fact, I’ve seen some incredible craftsmen try their hand at starting their own businesses and fold almost immediately. And I hate to see it. But I know it’s going to keep happening. Why? Because you can learn to be a carpenter anywhere in the U.S… but there ain’t nobody teaching folks how to build a kickass carpentry BUSINESS. Ditto for the other trades. Nobody tells you where the pitfalls are. Nobody talks about how to avoid them. And nobody discusses which business-building information online is good and which is utter nonsense.
So here’s what I discovered from my own journey and through getting to know a lot of other successful contractors. It turns out there are hundreds of ways to lose money in the construction industry… but most of them boil down to just a few key issues. These are the 4 things you’ve REALLY got to watch out for:
Problem Number 1:
1. The first and most common cause of business failure is insufficient profit per job – your jobs aren’t generating enough profit to keep your business healthy. This means that you’re not charging enough for your work, and it’s likely you’re messing up somewhere in your pricing. Think about what happens when you prepare a quote for someone. First, you do the cost estimation of what it will cost you to do that work for them. Then you multiply that number by your markup to get your final price. Finally, you give this price to the prospect. From this we can see that there are two main things that can go wrong with pricing. Either: (1) your cost estimation is inaccurate, or (2) your markup is insufficient.
First, if your cost estimation process is inaccurate, your final price will be wrong. If you think it will cost you $500 to do the work and it ends up costing you $700… you’ll lose money. This is most common with less-experienced contractors, and tends to correct itself with time. The best way to fix this as fast as possible is to keep track of all of the jobs you’ve done and see how well each estimate resembles the final price of the work. You should use a spreadsheet to keep track of this information, and fill it in after each job you complete.
The second way to go wrong in your pricing is to get your markup wrong. Unfortunately, this is very easy to do and it has been the downfall of thousands of otherwise proficient contractors. Now what do I mean by a “wrong” markup number? Let me explain. I mean a markup number that is borrowed or guessed at instead of carefully calculated.
Each contracting business is different and requires a different markup to pay its bills. Therefore if you have picked a markup number based on any method other than methodically listing all of your expenses and calculating what you need to charge to pay your bills… you are shooting yourself in the foot. This is where almost every single contractor goes wrong when they start their business – they just take a stab in the dark and try to charge what their friends or their former employer is charging. And I don’t blame them – I did that myself. After all, you don’t fully know what your first year of bills is going to look like, so you do kind of have to guess. That’s fine, I get it.
But after year 1, few contractors stop and recalculate their markup to see how well it worked for year 1 and where they can make improvements. They just stick with their original number. A number that’s driving them broke. They need to rerun the numbers and figure out what their markup should be based on the data that they have now. It is possible to calculate ahead of time exactly what markup you need for the next 12 months to pay your bills and generate your desired profit. Contractors who don’t know how to do this correctly are at a severe disadvantage in the marketplace, and they are at immediate risk of going under. Don’t guess. Calculate.
Problem Number 2:
2. The next most common problem after insufficient profit per job is insufficient lead generation – every time you work you earn a profit, but you just can’t generate enough work to keep yourself busy all year. Now I’m going to be honest, this one is a toughie. I was starved for leads my first three years running my own business, and it felt bad. I ate a lot of beans and rice. Maybe some mac n cheese if I was lucky and it was selling at 50% off. Not fun.
But after a while I figured out a strategy that works… and fortunately there IS light at the end of the tunnel. Fixing lead flow takes time, but if you do it right this strategy will do the trick. Basically, it’s a two-step formula: perfect, then proliferate.
First, perfect: you need to come up with an image that makes people want to contact you. Not something that sounds nice… but something that actually convinces people to pick up their phone and give you a call. You’re looking for one big thing that makes you stand out. What makes you truly unique that people would pay for?
Don’t get me wrong, “great quality, superb professionalism, integrity, etc.” are all important things. But this isn’t the 80’s – that’s not going to cut it anymore. You need to take the time and really dial in on a brand identity for your business that is irresistible to your target market. Start asking your clients during the job why they chose you. Write their answers down on their lead sheets. Keep tabs on the most common responses. Work on identifying the perfect brand image for your business, until something “clicks”. Refine that and hone it to perfection. Then once you’ve found your one thing, you’re going to amplify it.
Time for step 2: proliferate. Take this brand identity you’ve refined and build your entire business around it. Get a good tagline going that explains your “one thing” in a single sentence. Get this new image on your vehicles, uniforms, and business cards. Update your website. Then, get prolific. Smash out blog posts. Make social media content up the wazzoo. Write ads. Go to social events. Drive around in a damn Oscar Meyer wiener-mobile with your name on it for all I care. Just get your business in front of more people.
If you do it right, this two-step method will work. I stumbled upon it by accident after years of having abysmal marketing results in my own construction business. Then a client told me, “I really love how honest you guys are. If something won’t work, you just tell me. If there’s a problem, you let me know immediately. I appreciate that.” And at that moment something in my brain shifted. Click. Whirrrrr. I thought to myself, “Huh? Honesty? …Could it really be that simple?”
That was the year I rebranded my company from having no real cohesive brand image to being The Honest Contractor. I got it trademarked and put it on everything. That was the turning point, and it absolutely blew up my business. Now we’re so busy I have to turn down more than two-thirds of the people who call us asking for a quote.
So remember – two steps: perfect, then proliferate.
(…This post ended up a bit long because I wanted to provide useful info, so I’m cutting it in half. Click here for Pt.2 where I’ll cover the third and fourth most common reasons contractors go out of business.)
