How to grow a small construction business
How to grow a small or medium-sized construction business is the topic that is on the lips of many SME business owners’ minds right now. The recent report from the FMB (Federation of Master Builders) shines a light on some of the latest industry numbers. The report provides details of trends identified during January to March of 2021 and was released in May 2021 – so it is bang up to date!
After a year or more of true ups and downs, it is good to finally have some proper analysis. This shows the impact and opportunities for small builders, and other related trades business owners.
When it comes to the question of how to help a small business grow, we have many years experience with clients in the trade sector. We have supported several both as business coaches and as through our marketing agencies, and delivered growth outcomes in both settings.
Below are some of the statistics provided within the report, along with our opinion as to what these mean for the sector.
1. Increased demand
The latest figures show that small and medium sized construction businesses are reporting 50% higher workloads than at the end of 2020. At the same time, this is married with a 70% increase in enquiry volume.
We believe a number of elements that have contributed to these dramatic numbers.
Firstly, there have been many months where demand for projects was delayed through lockdown. This has been matched to a market hesitancy to have contractors in their homes and workplaces.
With the easing of restrictions, many customers will now feel more comfortable to progress and make enquiries. Similarly, there were those who had already enquired, but had temporarily placed their buying decisions on hold. Finally, there was a group who had already committed to work but also delayed the start dates. This triad of requirements are now all creating a pinch point where demand is outstripping the capability of many to supply within a reasonable timeframe.
The surge in home moving due to the stamp duty holiday incentives is also an obvious contributing factor as to why the leap in demand is so stark.
One aspect that is becoming more apparent is the requirement for efficient management of enquiries. This includes identifying the immediate opportunities, as well as considering how to secure the longer term client lifetime value. Well managed, this data set can feed SME construction companies for many years to come.
2. Limits on supply chain
At the same time as customers are demanding more, there has been a strain and limitation on the supply of materials. We believe that this is connected partly to the rate of demand, but also due to broader economic and marketplace issues.
Brexit has made importation more complex, and some suppliers have decided against doing so in the same volumes as before. The manufacturing of components was stalled or slowed by Covid restrictions, and there was a challenge with the Suez Canal being blocked for a period also.
These issues, matched with some more regular challenges have led to limits on supply, speed of delivery, and also pricing increases from wholesalers and some building firms too. Material prices are reported to have risen by as much as 29% to 66% in quarter 1 of 2021. From our own direct observations we have become aware of timber costs rising substantially, and electrical components being hard to source.
This presents a significant communication challenge for business owners with those new and existing enquiring customers. Rather than being able to easily tap into the demand and potential customer base, there is a risk of actually disappointing more customers which could negatively affect your long-term pipeline. This is what what could happen if it isn’t managed.
3. Government Green Initiatives Slashed
The recent pulling of the green initiatives has left some firms out in the cold. Where they had invested in becoming accredited, the direct benefit of doing so has now disappeared. The demand that would have been driven by centralised marketing support has also been curtailed.
This is, in our opinion, a big shame as many who were looking at how to grow a small business had identified this as a niche option. It is also a shame from a planetary perspective.
We are all aware of global-warming issues. The need to build more efficient and greener buildings is a massive part of achieving emission reductions committed to by this Government.
It’s also important that businesses are able to step into new and fertile areas of work. Product and service diversity is an important lever for developing new profit streams. This decision from the Government will curtail enthusiasm for the ‘green works’ area.
4. Skill Shortages
As we all know, Covid and the related lockdowns had a hugely negative impact on overall employment. Whilst much of this has not yet been fully felt, as furlough is still running, there were definite losses in a range of industries including within construction.
One area which was hit less visibly was the provision of apprenticeships and training for newer employees in the industry. It would be fair to say that many companies kept the existing skilled staff, and trimmed those who were starting the journey. At the time, this was a perfectly reasonable decision, but is now leading to a shortage of junior staff availability and a stall on development of new talent.
In the broader construction picture, the FMB report highlights 38% of companies suffering shortages in bricklayers (up by 22% since Q4 2020). Many are also struggling to hire carpenters / joiners (34% report this, which is up by 23%).
This is not just a lack of less experienced staff being available in the trade, but also an indication of demand again outstripping the supply of human resource.
These statistics show the importance of having effective recruitment marketing to attract the right personnel, and also the vital nature of management once you have them. Where management is under project delivery pressure, there is often a great demand in the market for skills. These two elements together mean there is a potential for any dissatisfied or over pressured / under supported team members to job-hop on to a new highest bidder.
It’s important to develop management strategies which handle team members positively. There is a need to insist on performance but also to retain key staff. Building loyalty, trust, and a mutual respect will be key and will take conscious effort whilst workloads are particularly high.
5. An opportunity to push up pricing
As a final point which is referenced in a lightweight manner within the report, is the natural connection between high demand and increasing pricing.
There are two things to consider here. The first is the need to raise prices to offset increased materials or staffing costs. The second is the general potential to charge more when supply is known to be short.
Many companies hold back from applying such price rises; often down to a general fear of reaction from the market.
As a pure business strategy however, it can often work well and achieves higher margins. Yes, there MAY be a slightly lower sales conversion rate, but if you are already delivering at capacity it is simply a case of working more profit efficiently. In all likelihood, unless your pricing is massively out, the clients will accept the higher rates as they understand the demand is there too.
In simple terms, the option to work less, but earn more exists, as much as the opportunity to simply grow profit by increasing volume of work. Either works well, but the former can often be less stressful!
It’s worth adding a note about competitors here. Whenever demand is high it increases the number of players who want to get in on the action. Right now there will be many rogue, less skilled, or less experienced businesses winning business due to immediate availability or cut-throat pricing.
This harks back to the earlier point about explaining why you are different and better. It’s important to separate your business from the amateurs or else you’ll end up in a race to the pricing base level.
Some really interesting trends have emerged in the construction and trades sector recently. We hope this insight has proven useful to you.
Should you wish to discuss your own business growth or challenges with us, do book yourself a 90 minute business review via www.calendly.com/timrylatt (available to UK businesses turning over between £150,000 and £50,000,000 annually)