How to navigate your building firm through the economic crisis
Difficult times for builders
Building firms have been hard-hit by the economic crisis. The Guardian noted that construction was one of the sectors most affected by insolvencies during the first half of 2022. And the forecast is equally gloomy. The Guardian reported that one in ten businesses is at moderate to severe risk of insolvency, with smaller firms (less than 50 staff) at greatest risk.
With consumers cutting back on spending, this is a worrying time for building firms whose margins can be tight at the best of times. How can building firms create a more secure future? How can they ensure a profitable future rather than just “get by”? How do they future-proof their business?
Being busy isn’t enough
Having a full order book for the next twelve months isn’t necessarily a good thing, especially in times of economic instability and ongoing price increases. Being busy isn’t the end game; being profitable and having a buffer in the bank, is. Builders need to build profit into their businesses otherwise their businesses won’t survive.
If you’re busy but don’t have money in the bank, it’s because you’re not charging what you’re worth. Chasing turnover – the volume of work - and not paying enough attention to profit – the money you’re making on each project – is the root of the problem.
Charge what you’re worth
The reality is that for every project you’ve carried out, the client will have received a cheaper quote but still chosen to pay more for you. Similarly, for every quote you submitted, there were more expensive builders quoting against you. They are still in business and winning jobs every week, at their higher rate.
Forget about the cheap guys - they’re not quoting to do the job to the same standard or with the same quality materials you are. Instead, look up to the most expensive builder you know and ask yourself “what do I need to do to make myself attractive to the wealthy clients they are working for?”
The only way to future-proof your business is to lift yourself up, work for more up-market clients who value quality even more than the price.
The main reason why most builders are busy but not making money is because they’re stuck in a recommendation cycle. When a previous client recommends you, they tell their friend what a great job you did and what they paid you. So, every recommendation that comes to you has baggage. The next client has a pre-conception of what you will charge. This creates a downward pressure on your prices which is unsustainable as prices rise over time.
The solution is simple. Quote what you’re worth. Charge as though you’re already a big player.
The 3 golden rules
Charge more – you can and you should
Understand your business overheads and add them to your estimate
Decide on your profit mark-up and add it to your estimate
Estimating software is key
But how can you feel confident about increasing your rates? Remember, this isn’t about ripping the customer off. It’s about charging what you should have been charging all along.
Start by getting a second opinion on what you’re quoting. Run your next project through estimating software such as EstimatorXpress or Take-off & Estimate Kit and sanity check the value. You can download a no-strings 14-day trial below. Use the software’s overhead and profit tools to add the mark-up to your construction costs and calculate the true worth of the job. You’ll soon see if you’re currently under-quoting for the quality of work you’re producing.
Using estimating software such as EstimatorXpress or Take-off & Estimate Kit to estimate the work will also help you to win the premium jobs. The accurate, detailed quotation produced by the software helps you to demonstrate to the client why the job costs what it does and gives them confidence in your professionalism.
Contrary to what you may think, there’s never been a better time to move your business upwards. Indeed, the future of your building firm may depend on it. Keep in mind that the most successful builders are selective, do less work, have higher profits and make more money overall.