Steering your building firm through the economic crisis
Tough times for building firms
Businesses in the construction sector are at the blunt end of the UK’s economic crisis. According to The Guardian, the construction sector was among the worst affected by insolvencies from January to June of 2022. Unfortunately, The Guardian’s forecast isn’t happy reading for small to medium sized building firms. Ten percent of businesses are at moderate to severe risk of insolvency and smaller firms – those with fewer than 50 member of staff - are at greatest risk.
With consumer spending restricted by rising interest rates and high living costs, it's an anxious time for builders. Many struggle to make decent profits at the best of times. How can they navigate their way through difficult economic times and develop a sustainable business? What can they do to ensure their business is profitable and that they’re not just “making a wage”?
Look beyond busy
Whilst many builders view it as a sign of success, having a diary booked up well into next year isn’t always a good thing. Busy-ness does not necessarily equate with profitability. A profitable business has money in the bank to tide it through difficult times. Building profit into a building firm is essential for long term sustainability.
Building firms who are busy but don’t have money in the bank are probably not charging what they’re worth. Focusing on turnover, and the number of projects they’re undertaking, rather than profit, is at the heart of the problem.
Know the value of your work
Think about projects you’ve recently quoted for. When you’ve won a job, in all probability, the client will have received a cheaper quote than yours but still chose you to carry out the work. Equally, the client probably received quotes from more expensive builders. Those more expensive builders are still trading and winning work every week, at their higher rate.
Disregard the budget builders – clearly, they’re not on the same playing field. They’re not quoting to do the work to the same standard as your firm would. Think instead about the more expensive builders. What are they doing to appeal to the wealthy clients they’re working for?
Here’s the crux of it. To make your building firm sustainable in the longer term, you need to raise yourself up and target the premium clients who value quality over price.
Often builders fail to make a decent profit because of the “recommendation cycle”. It goes like this. You complete a job and the client is happy. They recommend you to their friend, tell them you did a brilliant job and what they paid you. This means the potential new client has a pre-conceived idea about the price of the job, which doesn’t take into account how prices increase over time. This inevitably puts an unsustainable downward pressure on your prices.
So, what’s the solution? Charge what you’re worth. Imagine you’re already a big player and set your stall accordingly.
3 rules for quoting
1. Quote what you’re worth
2. Add business overheads to your estimate
3. Add a healthy profit mark-up to your estimate
Don’t underestimate the role of estimating software
We’re not talking about ripping off the client. It’s about getting paid appropriately for the quality of the work you’re delivering. We’ll wager that you should have been charging more from the outset. We understand that increasing your rates may feel daunting. So how can you feel more confident about rising your prices?
Firstly, get a second opinion on your quotes. Use a free trial of estimating software such as EstimatorXpress or Take-off & Estimate Kit and sense check your next project. Using the overhead and profit tools in the software, add the appropriate markup to your building costs. This will show you the true value of the job. The software will demonstrate if you’ve been under-pricing for the high standard of building work you’re producing.
As well as helping you review your costs, estimating software will also give you a leg up with winning the premium projects. EstimatorXpress and Take-off & Estimate Kit automatically produces a high-quality quotation which explains the costs to the client. Moreover, it demonstrates to the client that you’re professional and have an eye for detail.
Perhaps surprisingly, an economic crisis is a good time to move your business upwards. While less scrupulous builders will fall by the wayside, you can use the time to manoeuvre your building firm into a position where you do less work, make better profits and create a sustainable future.