The average contractor attending an Aspire Institute workshop has over two-million dollars in revenue but slightly below a 2% bottom-line profit. According to the most recent Construction Financial Management Association report, GC’s bottom line profit ranges from 1.2 to 2.4%, depending on market and work type.
Does a near break-even profit level work for you? If not, then what is a contractor to do? Can you make a meaningful bottom-line difference by acquiring materials cheaper than your competitors? Can you pay less for labor? Can you find cheaper subs who will do good work and be loyal? Of course not. The good news is that you don’t need to be competitively priced. However, to charge 5 to 10% more than the market average you have to increase the value you deliver. Then you can increase price based on value delivered, not cost alone.
Sometimes a contractor’s business model is off-target and results in a reality distortion field through which the contractor becomes convinced of certain things that simply aren’t true. Like the requirement to be competitively priced. Look at the availability of store types – low end, mid-level, and high end. How about restaurants, a dinner out can cost 10 dollars per person or 100 dollars per person. When you are driving down the road are all the cars and trucks you pass the lowest priced model or is there a range from high to low? How can it be any different for your potential customers? Even with small and rural markets, there is enough “segmentation” to have buyers wanting better service, a better experience, and better quality and they’re willing to pay a bit more for it.
The first challenge for contractors to charge better is to have a clear and effective difference from competitors. The second challenge is to develop a marketing plan that connects them to potential clients looking for the things that are special about that contractor. This is neither hard nor expensive but it does require a knowledge of marketing most contractors don’t have.
Keep in mind at a 5% increase in price with no change to the project cost basis will almost always double a contractor’s net profit.
Learn more about differentiating yourself in our free report, Business Strategy for Contractors: Download Here
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