Creating Ideal Project and Customer Profiles in Construction

There are a set of very important decisions that face general contractors that are often not given a lot of thought - the question being "should we bid on this job or not?". It's the age old go/no-go decision that sets in motion a cascading set of actions that can lead to months or years of work ahead.

In many organizations, it's less of a go/no-go, and more of a "go go go" decision - submitting on every opportunity that comes in the door. The challenge with this approach is that it can often lead to undesirable outcomes like low profit margins, bad clients, or missing out on great opportunities down the line because capacity is full.

In a healthy local economy, a well functioning sales program should be able to uncover more leads that you could reasonably construct and consideration should be given to the quality of opportunities you take on, and this is where the concepts of ideal projects and ideal customers can help separate the wheat from the chaff.

(Note: If you aren't able to uncover many leads, submitting on anything you can find seems like a good strategy... but this can be dangerous - if the reason there are no leads is because of a slow economy, you need to be very careful about the clients you take on and their ability to pay for the services they are contracting.)

Ideal Projects

Every general contractor has one or more niches where they excel. These projects get done faster, create happy clients, and generate good profit margins. Identifying the aspects of projects that make them fit your niche helps you create a model of what an ideal project looks like for your business.

Many contractors can tell you the niches where they are strongest, their websites have a page called "What we do", "Industries", or something similar, and they use this as their filter for project compatibility. The challenge with using something as broad as an industry is that it glosses over too many factors that could change the calculus on whether or not a given project is a good fit. For example, a "healthcare" builder could be a company that does small renovations to clean up after a water leak inside a hospital, or it could be the company that builds the hospital itself from the ground up.

Building a more detailed project profile of what an ideal project(s) looks like for your business allows you to more accurately predict if an opportunity in your sales funnel will have a successful outcome for your and your client.

Factors to consider when defining an ideal project:

• Industry

• Building type and use

• Contract Value Range

• Delivery Model (Design-Bid-Build, Construction Management, Design-Build, IPD, P3, etc.)

• Location

• Project logistics

• Project timeline

• Sustainability goals (ex - LEED)

• Technology requirements (BIM, Procore, etc.)

The closer a potential project is to being a match to your ideal project template - the higher your odds of successfully landing the project, and the higher your odds of successfully delivering the project.

Ideal Customers

The second half of the go/no-go decision centers on the customer. An ideal project with a bad customer is still likely to end poorly. Similarly, a bad project with an ideal customer is could result in a bad outcome that damages a relationship.

An ideal customer is one that fits well with your corporate culture, with your financial requirements, and with your preferred level of sophistication. Some clients are fast and loose, where a handshake is as good as a written contract. Other clients might carefully scrutinize every penny on a pay application, but pay in full on time every time. Others yet might be willing to pay extra for companies with a track record of sustainable jobsite practices.

Two final important considerations when we think about what an ideal customer profile looks like for your business is the potential for repeat work, and most importantly their ability to pay... If a client has potential to create additional opportunities beyond the one you are currently looking at, either directly through a new contract with the same owner, or indirectly through referrals. Everything else being equal, a client who is capable of providing future opportunities is far more valuable to your business that a client that is one and done.

Last, but certainly not least is the financial capacity of the client with respect to the project in question. Avoid jobs where the financing is doubtful - let your competitors have those. Construction is a risky business with tight margins, and one missed payment is generally enough to swing an otherwise profitable job firmly into the red.

Factors to consider when defining an ideal customer profile:

• Financial Stability

• Communication Style

• Past Experience and Institutional Sophistication

• Risk Tolerance

• Expectations of Quality

• Payment Terms and Payment History

• Business Relationship Potential

Once you have narrowed in on who your ideal customers are and what your ideal projects look like, you can leverage these profiles to help guide the decision whether or not to pursue an opportunity that's on the table. Opportunity cost is real - every pursuit you choose to take on comes at the expense of something else.... knowing if you are a good fit for a project BEFORE you start estimating or preparing a proposal will improve both your win rate and your profit margin!