CONSTRUCTION Accounting ARTICLE -
Bundling Services Can Present a Profitability Boost

After 30 years in the business, a stucco contractor knew that many of the factors dragging out his cycle time would always be out of his hands. Yet he was still tired of suffering from the domino effect caused by other subcontractors’ poor time management skills. Over and over again, general contractors would hire low-cost painters and drywall installers but never wanted to hear excuses for delays as one crew after another fell behind schedule.

The stucco contractor raised the problem with his financial advisor, and, after projecting the costs and discussing the risks, they devised a bold plan. The contractor decided to add painting and drywalling to his company’s repertoire. Rather than hire new workers, he chose to buy a business he had worked with in the past that had a reputation for high-quality work. The owner was ready to retire and had no successors in mind.

Bundling trades in this manner is increasingly popular among contractors — and, in some markets, competitively essential. Some general contractors won’t hire any companies other than those that can handle multiple construction stages. The consolidation of materials and service appeals to these builders by reducing the number of vendors to schedule — and the chances for delays.

There are still skeptics who believe subcontractors claiming to be jacks-of-all-trades are masters of none. But with builders pressuring these companies to compress their cycle times, most subcontractors today know they need to offer several services to make themselves more attractive to large builders.

Bundling services allows subcontractors to gain more control over the construction process and the quality of their work. It also saves the buyer (whether it’s a homeowner or builder) time looking for subcontractors. Perhaps best of all, it increases the subcontractor’s revenues by expanding the scope of services and bringing in more jobs.

In this scenario, the stucco contractor was able to schedule work further in advance than he once could, thereby gaining greater control over the consecutive stages of the construction process. More important, he boosted the quality of his projects, and, going forward, was able to compete for and win larger contracts — ultimately tripling his company’s revenues.

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