Ten Tips to Help Contractors Make More Money
Reposted with permission from constructionexec.com, March 22 2019, all rights reserved. Copyright 2019.
Not many people would turn down an opportunity to earn more money doing what they love. However, it is common for construction contractors do that indirectly every day because of the way they operate their businesses. Whether a contractor is a sole proprietor or part of a team, there are easy ways to generate more money in a construction business without taking on more projects or gaining new skills. Here are a few things to do, starting today, to be more profitable as a construction contractor.
1. BE SELECTIVE WITH PROJECTS
It may seem counterintuitive to turn down projects when they present themselves, but the most successful and profitable construction contractors know when to say no. Not every project is a good fit for its experience in the industry or its capacity as a contractor. Bidding on everything wastes time and energy. Contractors may also need a bid bond that ultimately leads to a performance bond requirement. These costs are normal parts of the business, but if unprepared, they can eat away at profits. Contractors should only bid on projects they know they can complete successfully based on their skill sets and time.
2. HAVE THE RIGHT TEAM IN PLACE
If a contractor wants to earn more, it must have to put the right team in place. This means having trustworthy people in its corner as vendors, suppliers, subcontractors or business consultants. A well-oiled team is more efficient over the long run, and allows contractors to feel confident that there is no sunk cost when things run smoothly day to day.
3. NETWORK TO BUILD RELATIONSHIPS
Many construction contractors see networking as a big investment of time without a significant return. However, research shows that networking with others in and outside of construction is crucial to being successful over time. As contractors build rapport with others, they are likely to receive opportunities for business that would not otherwise be there.
4. CREATE WORD-OF-MOUTH REFERRALS
Similar to networking, creating a word-of-mouth system from past and current clients is one of the most cost-effective, profitable things contractors can do in their businesses. Referrals cost nothing to receive, and instead of having to spend time proving their worth to a cold prospect, contractors have a warm introduction that more often than not leads to a new job.
5. REDUCE BONDING COSTS
In addition to bid and performance bonds for public projects, licensed construction contractors may also be required to hold a construction bond or license bond to operate legally in the city or state where work is performed. Surety bonds for construction contractors come at a cost, but contractors can work to reduce the premium they pay in a few different ways.
Contractors must focus on personal credit first, ensuring they present as a reasonable risk to their surety agency. Have financial documents in order before applying, and keep claims history clean. These small steps can go a long way in reducing contractors’ surety bond cost, putting more money in their pockets.
6. GET A CONTRACTOR’S LICENSE
If a business owner hasn’t yet gone through the steps to obtain their construction contractor license, this is one surefire way to put more profit on the table. Licensed contractors have to go through an application process that often includes an exam, a background check and a requirement for a surety bond. Potential customers trust that a licensed contractor has fulfilled the requirements of the state or city, and are more likely to work with someone who has a license over someone who does not.
7. CUT OUT WASTE
Making more money as a contractor requires taking a close look at how much material is wasted on each project or job. This takes place because contractors eyeball measurements in some cases, or miscalculate the amount of material they need for a specific job. Take the extra time to calculate and verify measurements and look over orders to prevent spending too much on unneeded materials.
8. INVEST IN THE BUSINESS
It is difficult for a contractor to know where to find more profit if it doesn’t spend time investing in its business in the first place. That may mean acquiring updated tools, getting training or education on a certain skill, or employing others to take on some business task. It is true that contractors have to spend money to make it, so they should consider where they could use help and focus energy—and dollars—there.
9. KEEP UP WITH MAINTENANCE
Contractors use a variety of tools in their businesses each day; over time, those tools require maintenance and upkeep. Be sure to care for tools and equipment regularly to prevent needing to replace them as often. This will save a significant amount of cash over the course of a contractor’s career in construction.
10. DON’T CUT CORNERS
Finally, saving money in construction does not mean cutting corners. Trying to save a few dollars by purchasing cheaper equipment, working with sub-par suppliers or vendors on the cheap, or using less expensive materials almost always results in the wrong outcome. Contractors will end up spending far more in lost client relationships, increased surety bond costs for claims and a bad reputation when they choose to cut corners to save money.