A healthy industry suggests that its members are fit. Industrial health can be gauged by trends in key factors of the supply and demand for the industry’s products and services.
First, if the economy is growing then, construction should be growing. Construction worker employment should be increasing and unemployment should be declining. Housing starts and building permits should be rising at the front end with utility hookups and certificates of occupancy increasing at the backend.
These kinds of statistics, especially the construction payrolls, starts, permits, hookups and certificates of occupancy are monitored closely by and reported frequently in most state and local news media.
Counting potential competitors is literary as easy as downloading business licenses, reading the yellow pages or talking with the local contractor’s association(s)
Certainly some ratio analysis is appropriate here. The number of competitors by themselves does not tell you what the opportunity is. It is half the equation. The other half is the amount of work. Number of construction contractors (of the type you will compete) against divided by the yearly dollar volume of work gives to you a better handle on the potential opportunity.
A rising tide lifts all boats. In the construction industry, an expanding economy gives you a greater chance of selling a job at a profit. Your strategy might be to “skim off the top” or fill the unmet need of expanding construction projects.
If you enter a stable or declining market as an unknown competing against known contractors, your price (and thus your profit) will have to be cut to sell a project. It may be justified however, in our 3% net profit business it is risky.
For more information on this critical subject, purchase a copy of my McGraw-Hill book, Managing a Construction Firm on Just 24 Hours a Day. We offer a bundle with Excel templates that are featured in the book to help assist in making financial, estimating and project management decisions.
Matt Stevens is President of Stevens Construction Institute, Inc. a management consulting firm which works only with construction contractors. Learn more at www.stevensci.com