Office building construction has the highest average profit margin, so contractors focus most of their marketing and servicing toward these customers. Usually these clients require the largest projects in land use, and cost. In addition, they tend to be the most sensitive to completion times. Therefore, construction companies plan to accommodate their clients through a speedy permitting program, strict cost accounting, and comprehensive project management capitalizing on the companies experience in the field.
The commercial construction industry is highly fragmented across the nation. The majority of all construction companies in the U.S. consist of small companies employing less than a dozen individuals. Contrasted to this are the large companies that engage in construction such as highways, and shopping malls, often have a nationwide range and employ several thousands of workers. This creates a very competitive market with low profit margins. Companies wanting to create a secure position in this market need a competitive edge, like a brand name, low cost advantages, or size.
Seasonality can cripple a contractor. During the winter months, contracts and production drop off sharply, increasing the company’s short-term risk of cash flow shortfall.
The most critical part of sales for contractors is not the marketing, but the bidding process, in which companies offer their designs, services, material quality, project timeline estimates, and costs. The company that offers the best combination of these variables is the most likely to get the contract. Therefore very detailed project planning, including supply agreements, labor needs, subcontractors, presentation, and other factors, is important in engaging contracts. Contractors need to design a standardized method for doing this with all its contracts, with an emphasis on quality, timeliness, and low cost to outbid its competitors.
It’s not the money you make; but the money you save.