How to recession-proof your building firm
The Federation of Master Builders’ State of Trade Survey Q3 2022 reported a reduction in enquiries for SME building firms in the third quarter of 2022, painting a “bleak picture of the current market”.
The Guardian also reported a drop in enquiries and reservations of new homes, referring to figures provided by the housebuilder, Bellway. The slowdown, they say, is due to rising interest rates and economic uncertainty.
What does this mean for small to medium sized builders?
Demand for building work has started to decline in the third quarter of 2023
Of course, it’s impossible to say for certain but it seems likely that the market for extensions and renovations will contract in 2023. The FMB’s survey indicates that this is already beginning to happen. Whilst homeowners may decide not to move home, they may also be more reluctant to extend or renovate their homes due to the increased cost of borrowing.
Alongside this, as larger housebuilders reduce their output, tradesmen who once worked on their sites may decide – or be forced - to “go out on their own”, resulting in an increase of building firms offering extension and renovation services.
With a larger number of building firms competing for a smaller number of contracts, the market would become more competitive. In this climate, business model is all-important. Quality, reliable builders with a sound business model will prosper while building firms with less robust business models will struggle.
How to develop a sustainable business model
First and foremost, don’t be tempted to lower your prices. For the right client, quality is everything. Good clients are desperate to find reliable, trustworthy builders and will pay a premium for them. They realise that you get what you pay for. For the wrong client, price is all-important. Good builders will never be able to make a profit whilst being cheap enough for these clients - so you don’t want to work for them.
Instead, you need to go after the good clients and charge what you’re worth. That probably means charging more than you are already. Think about the more established builders in your area. Bigger businesses have higher overheads as they have additional office costs, personnel etc. When they add their 20 or 30% mark-up, they are far more expensive than you. However, they are still in business and winning work. So, they’re proof that you can charge more and win the work.
Quote as though you’re already a larger player. Charge what you’re worth for the quality of work you produce. You may feel anxious about doing this. Maybe you’ve lost out on jobs and the client has cited the price as the reason. Unfortunately, prospective clients aren’t always 100% honest. Saying you’re too expensive is an easy and non-confrontational way of parting ways. It’s an age-old excuse clients use to turn down a builder they’ve decided against for various reasons – perhaps they were slow returning the quote, they didn’t look or sound professional enough, they missed things or – perhaps surprisingly – were too cheap.
The only way to build a business which is robust enough to weather economic storms is to work for clients who recognise the value of quality over cost. This will enable you to charge the true price of the project, and earn a decent profit margin. Turning a profit means you’ll have money in the bank which gives you a buffer during trickier times.
How to win over the profitable contracts
We delved into the subject of winning the premium projects in our recent article, 10 ways to win the better building projects. The key point is that the prospective client has to be able to trust you with their home and their life savings. You need to differentiate yourself from your competition and demonstrate a level of professionalism which will impress clients with an eye for detail. Developing a strong website and social media presence, showcasing the quality of your work and high customer satisfaction levels, is the first step in setting you apart from other building firms in your area.
Presenting accurate and comprehensive quotations is also central to winning the premium jobs. Using estimating software, such as EstimatorXpress, Take-off & Estimate Kit and BuildingWorks, you can quickly and easily produce detailed and professional-looking quotes which will help win over prospective clients.
None of this is rocket science. But if you come across as professional, knowledgeable and thorough, you will win more work. And the more work you win, the more you will be able to charge.
Make this your mantra: good customers are looking for a good builder and will pay extra to get one.