Small Business Insights | The Select Funding Blog

6 Effective Small Construction Business Growth Strategies

Written by Justin Irvine | Mar 22, 2023 10:00:00 PM

Every business owner has growth goals and objectives that they want to achieve to make their business a success. The key is choosing the right business growth strategy to help you meet those goals without putting an unnecessary strain on your resources, including both financial resources and personal resources such as your time and energy.

At Select Funding, we specialize in providing small businesses with the working capital and financing they need to meet their most important objectives, including equipment financing. We recognize that a strategy that works for one business may not work for another. To help you choose the best strategy for your small construction business, here are 6 effective small business growth strategies to consider.

How Do You Grow a Construction Business?

Whether you’re starting a construction business or attempting to grow an existing one, it’s important to understand which factors lead to growth in the construction industry. Here are a few things that will help you get your business ready for growth:

  • Create a plan for growth. Business growth requires careful planning. While you may occasionally achieve success without planning, you’ll have the best chance of reaching your objectives if you map out your strategy ahead of time.
  • Hire the right people. The team you build now will help you achieve the success you deserve. That means investing your time and money in attracting and hiring the best possible employees for your construction business. You’ll need the right people both in administrative roles and in the field, including skilled laborers and craftspeople who can deliver the kind of results that will impress your clients and inspire them to leave reviews to help you attract additional clients.
  • Structure your business for growth. When we talk about business structure as it relates to growth, we’re talking not about your legal structure but about your company’s infrastructure and operational efficiency. You’ll need to make sure you understand how each person contributes to your profitability and communicate with employees to make sure they understand their roles, as well.
  • Focus on sales and marketing. Sales and marketing play obvious roles in business growth because they’re the tools you use to inform prospective clients about your company and services.

The takeaway here is that the things you do to organize your company and plan for success are essential to growth.

How Much Profit Should a Construction Business Make?

Increasing profits is essential for growth since your profits represent money that can be put back into your small construction business to implement growth strategies and achieve your objectives.

Overall, the average profit margin in the US construction industry is about 6% but it may be higher for certain types of construction.

You can calculate your profit margin by totaling your overhead expenses, labor, and materials for a project, subtracting it from your income, and dividing the result by your total income from the project. For example, if you had a project where you were paid $50,000, here’s what the calculation might look like:

  • $15,000 labor
  • $25,000 materials
  • $5,000 overhead

Your total expenses are $45,000, so your profit would be $50,000 - $45,000 for a total profit of $5,000. Your margin would be $5,000/$50,000, or 10%.

6 Small Construction Business Growth Strategies to Try

Growing your small construction business requires a growth strategy that you can implement to achieve your goals. Here are 6 growth strategies to try.

#1: Market Expansion

A tried and true growth strategy is to move into a new market. That may involve opening a new location, but it may be as simple as expanding your marketing and advertising to reach a new group of prospective clients.

An important part of a market expansion strategy is research. You’ll need to research potential markets and find one where there’s room for your services. You’ll also need to research prices and competitors to make sure that your expansion strategy is a success.

#2: Service Expansion

Most construction companies specialize in certain sectors. Examples include residential building, housing developments, or commercial construction. One way to grow your small construction business is to expand your services.

For example, you might launch a marketing campaign where you promote your services for smaller construction projects or for specialized construction. Of course, you’ll need to make sure you have the right skilled labor for your expanded services before you advertise them.

#3: Strategic Partnerships

If your construction company is one that specializes in something like drywall or carpentry, then one way to achieve your growth goals is by pursuing partnerships with other contractors in your area. Many subcontractors partner with general contractors who contact them for the jobs that they do.

The key to this strategy is identifying the right partners and researching them to make sure that they are reliable, ethical, and have enough work to keep you busy. Specialty contractors may work on residential or commercial projects and partnering with a general contractor can be a good way to make sure you have a steady stream of profitable work.

#4: Cost Reduction

Keeping costs low can be a challenge in any industry and for any business, large or small. However, it’s undeniable that cutting your costs can help you grow by freeing up more working capital for you to pursue additional projects or hire more employees.

In the construction industry, cost reduction is likely to come down to finding ways to save money on materials or overhead expenses. For example, you might negotiate a price for buying certain materials in bulk or downsize your office to pay less rent.

#5: Market Penetration

Market penetration involves selling more of your construction services to people in your existing market. It requires a different approach than market expansion because people in your market may already know about your company and services. You can increase your market penetration by doing one or more of the following things:

  • Find ways to reduce your prices to beat out your competitors and win bids that might otherwise have gone to them.
  • Appeal to new customers by offering discounts or incentives for them to choose you over your competitors.
  • Market your services using compelling testimonials and success stories to highlight the quality of your work.

Any of these tactics can help you attract more clients in your existing service areas and achieve your business goals.

#6: Market Segmentation

The flip side of market expansion is market segmentation, which involves specializing in a certain type of construction. Some prospective clients are likely to prefer hiring a construction company with specialized experience and skills, particularly if their project requires custom work or materials.

While it might seem counterintuitive to market to a smaller audience to grow your business, it makes a lot of sense to narrow your focus. You’ll be able to differentiate yourself from your competitors without difficulty and may end up with more business as a result.

The Stages of Business Growth

It may be helpful when choosing a growth strategy to consider the stages of business growth because they may steer you in the direction of the right strategy.

Development

Every new business starts with an idea. In the development stage, the goal is to test your idea to make sure that it’s viable and that there’s an audience for the services you provide.

Your market research should include a deep dive into who your competitors are, what they charge, and who is in the market for the specific construction services you will provide.

Startup

In the startup phase, your business has opened its doors and has probably attracted a few clients. However, there’s still a lot of trial and error dedicated to working out the kinks in your business.

You’ll need to adapt to survive because it’s impossible to foresee all potential problems or glitches before you open your doors.

Establishment and Growth

After your business is established, you should have a steady stream of income–but that doesn’t mean there aren’t issues to be addressed. One of the biggest problems faced by small businesses is a lack of sufficient cash flow.

You may be struggling to make ends meet and need to dedicate your time and energy to reducing costs, improving efficiency, and attracting more clients to increase your income

Expansion

The expansion phase is what happens after your business is established and you have a solid reputation and predictable income. It’s at this stage that you may turn your focus to business growth and adoption of one of the growth strategies we’ve outlined here.

The goal during expansion is to achieve your growth objectives without spending more than you can afford or overextending yourself.

Maturity

By the time a construction business reaches the maturity stage, it has seen several years of sustained growth. It may be time to consider a new expansion strategy to take your business to the next level.

As a business owner, maturity may prompt you to move on, handing the reins of leadership to someone new or selling it and using the proceeds for retirement or a new venture. Alternatively, you might want to create a succession plan if you want to leave your business to an heir.

Grow Your Construction Business with Help from Select Funding

Growing a construction business requires careful planning and consideration of which growth strategy is most likely to help you achieve your business objectives. The 6 strategies we’ve included here can help you move into a new market or attract new clients in your current market.

Do you need working capital to pursue your business growth goals? Select Funding is here to help. Click here to read about our construction business financing and begin the approval process.