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How to Start a Construction Business

How to Start a Construction Business

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How to Start a Construction Business

If you're looking to start a Construction business, you've come to the right place. Since we're going to show you exactly how to do it.

We'll start with key Construction industry fundamentals like how big the market is, what the key segments are, and how revenues and profits are generated.

Then we'll discuss keys to not only starting a Construction business, but succeeding in it!

How big is the Construction industry?

According to First Research and IBISWorld, the construction industry has grown at a rate of approximately 3.4% over the past five years, to reach $1.5 trillion in revenue. Revenue is generated by the approximately 660,000 construction businesses in the US.

What are the key segments of the Construction market?

The Construction industry is responsible for a wide variety of activities, from dam and highway construction to roofing and tile work. The top revenue-generating segments include:

  • The Commercial Building Construction segment generates approximately 11.3% of total industry revenue. This segment includes construction work (including maintenance and repairs) on office, retail, hotel, agricultural and entertainment buildings.
  • Electricians and Housing Developers tie for second-largest segment, each generating 9.0% of industry revenue.
  • Other segments generating at least $100 billion per year include Municipal Building Construction companies, Plumbers, Home Builders, and Road & Highway Construction.

What external factors affect the Construction market?

A number of factors affect the performance of the Construction industry. These drivers include:

Funding - Federal, State, and Local governments fund a variety of construction projects, namely infrastructure projects and municipal projects. As such, the industry benefits when more government funding is available.

Input Prices - When the price of inputs (such as concrete, steel, and lumber) rises, industry operators will generate lower profit margins. Conversely, low input prices can increase demand for construction, and allow for more profit.

Corporate Profit and Per capita disposable income - The industry relies heavily on corporation's and individual's ability to order construction projects. Corporate profit is one of the factors in determining business expansion, which requires new construction. Similarly, homeowner's access to disposable income spurs demand for new housing or home improvement projects.

Technology - Companies that adopt newer technology have significant market advantage. Some examples of new technology used in the industry include geographical information systems (GIS), Building Information Modeling (BIM) and laser scanning, telematics, and drones.

Future of the Construction Industry: Techniques & Technologies

Who are the key competitors in the Construction market?

Major construction companies in the US include Fluor, Bechtel, and The Turner Corporation.

What are the key customer segments in the Construction market?

The key customer segments in the Construction market are as diverse as the services provided by the industry. These customers can be grouped by Residential Building Construction (which primarily serves individuals and investors), Nonresidential Building Construction (serving corporations, commercial establishments, sports clubs, etc.), NonBuilding Construction (typically infrastructure, funded with public monies; industrial projects; excavation projects, etc.), and Other Construction Companies (for services such as electrical work, flooring, window installation, etc.).

What are the key financial metrics and costs in the Construction market?

The key financial metrics in the Construction market are as follows:

Profit - The average Construction business has operating income of approximately 5.0% of revenue.

Wages - Wages are a significant expense for construction businesses, averaging approximately 27% of revenue.

Purchases - Purchases, which include tools, equipment, and input materials, are the largest expense for construction companies. Purchases typically absorb approximately 44.4% of revenue.

Other - Other costs include rent, utilities, software, subcontractors, insurance, and depreciation.

What are the keys to launching a new Construction business?

  1. Define your vision - Decide which construction segment you will specialize in.
  2. Have a business plan - A business plan will help you set goals and outline how to achieve them.
  3. Get licensed, bonded, and insured - Before you can bid on your first job, you need to investigate and meet the requirements for local and state licenses and do what you need to do to secure them, get your worker's compensation and liability insurance, and find out how much you need to be bonded for.
  4. Build your team - Hire and train a team of employees that have the right skills. However, since construction is seasonal and cyclical, you must also be willing to downsize if/when the workload decreases.
  5. Take stock of your tools and equipment, and purchase what you need.
  6. Properly price jobs - Be careful to factor in overhead, and actual production costs (materials, labor, inspections, etc.).

Tips to Get Your Construction Business Bonded

10 Tips to Winning Construction Bids

13 Deadly Mistakes of Construction Bidding

What are the typical startup costs for a new Construction business?

Initial, one-time costs:

  • Tools and equipment
  • Website and promotional materials
  • Office space and equipment

Ongoing costs:

  • Insurance
  • Materials (cement, lumber, steel, etc.)
  • Professional fees (accountant, attorney, etc.)
  • Rent and utilities
  • Equipment maintenance

How much do Construction operators make?

Depending on which segment the company specializes in, construction executive salaries average anywhere from $66,000 to $175,920 per year.

Finding and Utilizing Quality Construction Leads

Helpful Videos

Paying Yourself - Owning a Construction Company

Seven Practices to Construction Business Success

Construction Management and Estimating

How To Build A Construction Business

Additional resources in the Construction market

For additional information on the Construction market, consider these industry resources:



Testimonials



Growthink helped birth my company. They got to know both me and my vision. They helped ‘smack me upside the head’ to help make sure I was realistic, about meeting expectations. As a result, they helped craft, draft and construct the right written presentation. As a result, I got my funding.

Jeffrey Ullman
Founder & CEO
Great Expectations



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