Build Profitable Relationships in Construction by Firing Unprofitable Ones
As a former business owner and subcontractor, I was able to grow our sales revenue 65% on average while increasing profitability 96% every year over a 5-year period before selling my company. This all came down to weeding out bad customers, and growing deeper relationships with a small group of targeted key players who were winning most of the desirable work in our market.
In the subcontracting world, much like the rest of the business world, decision makers do business with contractors they like 9 times out of 10 over someone they do not have a relationship with. There’s an old saying that goes, “It’s not the grades you make, but the hands you shake”—and boy is this true in construction.
“It’s not the grades you make, but the hands you shake”
And while surface-level relationships with a lot of decision makers can provide a higher level of exposure to bidding opportunities, your win percentage will remain low if they give their fishing buddy—your competitor—a second look to make adjustments, while your overhead goes through the roof (estimating time, lunches, dinners). So how do you stand out from the crowd with the winners?
1. Niche Down Your Market
I’m sure you’ve heard of the Pareto Principle a.k.a. The 80/20 rule. This rule especially rings true with business development in a world of contractors where building and maintaining relationships is key.
In short, the Pareto Principle teaches that 80 percent of the projects will be awarded to 20 percent of general contractors dominating a space. The bottom 80 percent of lower-producing GCs will be left fighting over the literal scraps.
These numbers are not exact. In some cases it’ll be 90/10, or 70/30, but the idea remains that a disproportionate amount of work will be awarded to a few GCs and subcontractors. It’s in your best interest to focus your energy, money and resources on the winners, which allows you to over deliver on commitments and promises.
2. Find your ideal project, customer and vertical
This does not mean only going after the largest general contractors in your area. Large projects might not be your sweet spot, and can be the worst projects to win in the profit department. Rather, figure out your ideal project by type, size, and value, and focus all your efforts there.
So, for example, if you have a solid track record winning and executing on medical facilities, then go find the 4-5 general contractors winning those contracts, and stay away from the bottom 80 percent that are doing a ton of bidding, but not winning many projects (busy work). This might seem like common sense but, out of fear of lack of work or motivation to increase revenue, subcontractors do this everyday.
You’ll also want to avoid going into other spaces, at least in the beginning, until you dominate in your current space, to avoid under-delivering on time frames, budget, etc.
3. Eliminate the bad customers and projects
In order to over deliver and provide exceptional service to your ideal customers, you must remove the resource draining, “want the world on everything, but refuse to pay for it” bottom 80 percent.
I would start by cutting out the cheapskates, high maintenance clients, and slow payers. You can do this by telling them you’re focusing on a new vertical and will no longer bid the type of work they do. Or, if you’re uncomfortable doing the firing, you can always raise your price significantly. This will surely send them in search of a new sucker.
Eliminating bad customers and projects does three things in your favor:
- It helps you to focus your energy on a specific type of project where you’ll naturally become specialized, which means higher, more consistent profits, with lower risk and headaches.
- You’ll have less ground to cover from a business development perspective, meaning your dollars and efforts will go farther, and you can build deeper, stronger relationships with decision makers.
- Decision makers that leave one company for another will, more than likely, stay in the same niche and will bring you along for the ride. So, the work you put in now will last a lot longer and reap benefits for years to come.
Because you’re focused on a specific type of project, you’ll become specialized and generally will perform better than your would-be competitors, who are stretched thin trying to do any type of project they can get their hands on—medical one day, school district work the next. These guys lack identity and inevitably will under-deliver on project time frames, budget, etc. trying to be good at many verticals that require slightly different skills.
The success due to specialization will only increase the value you bring to the table for the GCs. They prefer to work with someone who is experienced and knowledgeable, and your ability to overdeliver will increase their confidence in you, in turn increasing the value they put on having you on the job, even if you’re more expensive than another contractor.
In addition, as you work with the same general contractors on a consistent basis, a natural relationship will form at every level within your organization. For instance, your foreman and project managers will get to know their superintendents, safety managers, project managers, etc. Your team will learn to handle situations the way the GC likes them handled, forming bonds and relationships that superficial quarterly lunches, and occasional steak dinners cannot disrupt.
And believe me, your competition will throw their money at these guys (might as well set it on fire) bird-dogging one-off projects they hear about in the local business journal. Meanwhile, your new fishing buddies will bring the project to you with a pretty red bow on it.
4. Use the Pumpkin Plan Strategy: Read Book Here
- Plant the right seeds: Don’t waste time doing a bunch of different things just to please your bad customers. Instead, identify what you do better than anyone else (project type) that you enjoy, and focus all your attention, money and time on figuring out how to grow that portion of your business.
- Weed out the losers: In a pumpkin patch, small rotten pumpkins stunt the growth of the robust, healthy ones. The same is true of customers and General Contractors. Figure out which ones add the most value and provide the best opportunities for sustained growth. Then ditch the worst of the worst.
- Nurture the winners: Once you figure out who the best General Contractors are, blow their mind with care. Discover their unfulfilled needs, innovate to make their lives easier, and over deliver on every single contract and/or promise you make.
The above strategy is a tried and true method of increasing revenue and profit, all while decreasing the headaches you encounter working with customers and contractors that you really do not like to begin with.
You’ll build some lifelong friendships in the process, and give your company an identity in the marketplace you serve, both as a leader and go-to contractor, for the type of work you specialize in. This in turn allows you to be selective and only pick the projects you choose.
Give it a try and let us know your feedback.
As a former Director of Sales & Estimating, Chris Lee has over 10 years of experience building high performance sales and estimating teams focused on increasing revenue and profit by winning large commercial projects