Can your service area allow you to grow to the company size you want to be or need to be?
This is a tough question I ask contractors who take advantage of my offer to talk in a free 30 minute consultation call that they register for on my website.
Know that for the last 13 years I’ve been traveling the country from east to west and north to south and I’ve worked with all types of contracting trades. I’ve also worked in some big city centers and relatively small isolated communities.
I know you can go broke in a giant-sized population base and make a fortune in a much smaller population base depending on how good an operation you can run.
But, if there aren’t enough of the right type of customers you need to reach in your service area, you will struggle.
This is what I share with contractors about company size:
You can be small and be profitable but if you’re in the service business and have on-call and extended hours of service, then life is tough until you reach 7 service techs. I say that because too few Techs handling all the hours causes burnout in short order.
A lot of the costs it takes to support a shop of 3 to 5 Techs can easily support 7 Techs so the money they create is all gravy. Finally, if you’re a 2 Tech shop and one Tech leaves for one reason or another, 50% of your sales walked out the door. If you’re 3 Tech Shop and one Tech leaves, it’s still 33% of your sales.
But if you’re at 7 Techs and one Tech leaves, it’s 14% of your sales walking out the door…much more palatable.
I also know that your community needs to have enough size to support the goal of 7 Techs or more running each day.
So, I counsel companies to think of their shop as being in the middle of a circle and then draw a 30 minute drive time [not miles…especially so in densely packed cities] and total up how many potential customers there are in that circle. Recognize that raw population doesn’t tell the whole tale. If you’re in a city and people are living in high rise apartments and condos and you don’t serve that type of work they don’t count.
The amount of population really needs to be better quantified by homeowners if that’s the market you serve. And they need to be in the zip codes that are within that 30 minute drive time or at most a 60 minute drive time circle.
Then, the homeowner market you serve needs to be once again quantified by income. That’s if you’re a company that has done budgeting, knows the right selling price, and is charging the right price for the right work. Not everyone in your market necessarily is price sensitive but some segments tend to be more than others.
For me, I like knowing that there are dual income families with a good gross income that put a priority to the ability to serve them on their schedule in a clean and professional way. This outweighs a cheap price as the only concern.
Where would you get started finding out if you are properly located to serve the market size you need to? And how would you find out more about the demographics of those in that market area? The internet is a good place to get started.
The best websites my clients have used to get started researching their areas and demographics of customers for both marketing and target markets have been http://www.city-data.com/ and www.infousa.com
And there are only two ways I know to get the calls needed to get the heft required, The first is to become great at organic marketing that produces the right amount of calls [or, exceeds what you can service], from the right customer at the right time so you can expand the amount of Techs you can have in a smart way.
The other way I know to do the same thing is get great at acquiring the competition out there. I say that because my dad and my uncle had to reposition our company to serve where our customers were living. Had they not done that there would have been no business for my brothers and I to grow. We continued that pattern of smart acquisition to continue to both fuel our growth and expand the products and services we could provide to both our existing customers and to reach new customers in different segments.
It’s great if you can do both but far and away the majority of owner-operators I’ve talked to and worked with have shared that they got out of turning the wrenches by acquisition.
If market size is restrictive, say in the residential customer base and trades you currently provide, you can consider horizontal integration which is offering more aligned trades that your existing customer uses. You’d be looking to grow into more of a one-call does it all.
Finally, a vertical integration (which is a fancy way of saying you can expand your reach by also becoming capable in the commercial and industrial phases of the contracting business and reach new markets), allows you to grow in a more limited population base. The goal is to be working for the end user no matter who they are, since they have a vested interest in the outcome and so you can reach the size you need to be.