As we head into 2022 – almost two years since stay-at-home orders impacted the U.S. construction industry – one of the top concerns we head from custom builders and remodelers is “When is the other shoe going to drop?” and “What can I do to future-proof my business now against the next down cycle?”
At Aspire, you’re not going to hear recycled advice like “Be sure to save money during the good times.” Instead, let’s go far deeper to a more granular level. First off, it’s important to know that Boom and Bust Cycles are inevitable in the residential construction industry. You’ve been around long enough to know that regardless of the cause. Construction trails the national and regional economic cycles by six to 18 months. There are also construction cycles based on technology changes, regional economics, interest rates, and, yes, global pandemics.
The good news is that if you anticipate the next Bust – you can minimize the negative impact on your business while maintaining a healthy balance in income and workload.
A business cycle is a period of expansion followed by shorter periods of recession. When an industry is expanding (Boom), the first indicator is an increase in the competition for workers, available projects, and personal incomes. When an industry is shrinking (Bust), we see the opposite – more available workers, fewer projects, and potentially flat or decreased income.
Future-proof your business today
So, what steps can you take to mitigate the next Bust Cycle in the not-so-distant future?
- When the industry shrinks, most contractors interpret that as a lack of available work. However, a construction Bust Cycle is better characterized as having too many available contractors compared to available jobs, creating excess supply. Understanding this difference allows you to implement better strategies to manage through.
- Understand that revenue is a’ plenty, even in the worst times for a well-run, nimble, clever contractor. You can prosper in any economic cycle. But if you view the down cycle as just a lack of available work (demand), it can cause apathy or frustration on the contractor’s part. Instead, think about the Bust as too much competition (supply) for the $500 billion of residential construction revenue available even in the worst of years.
- Avoid the costliest mistake: misunderstanding where remodeling profits really come from. Profitability is not revenue, sales, or job volume. It’s how much money is left over after you subtract the cost of materials, labor, pay and benefits, subcontractors, special equipment, change orders, and other operating expenses.
True profitability is so critical to your long-term success that The Aspire Institute offers local Workshops covering where GC profit comes from across U.S. cities and contractor coaching.
Throttle down on your job volume now before the Bust
Now for the most important thing that you can do right now! It’s counterintuitive – because we’ve all been conditioned to hustle while the going is good.
Clever business owners know how to reduce their workload and stress right now during Booms. Aspire shows you how to nail profit margins – tracking them vigilantly – so you can create stability by only target marketing and accepting the highest-margin jobs and fewer jobs overall.
Focusing on revenue or job volume is a very costly path. If it were about revenue size, you would expect The Truland Group, John S. Clark, Collavino Construction, and Lamar Construction to be in business today! But these contractors are now a tiny fraction of the $100 million-plus construction firms that went bust.
You’re still here. So, revenue generation isn’t the win. No, the real win is keeping the right percentage of the money you earn (profit margin) to help flatten the Boom-and-Bust curves.
So, start to future-proof and gain your competitive advantage now!
Download our FREE REPORT called Beating the Boom-and-Bust Cycle in the Construction Industry to dig in!