Many people wanting to go into business on their own wonder “How much do contractors make?”. The avenues can be as small as home renovations to as large as commercial high-rise buildings. While there is no “right” way to make money, there are methods to help you to make more money as a contractor. The question “how much money does a contractor make” can be far and wide. While there are many opinions out there, most search queries will you tell anywhere from about $45,000/year to $100,000/year. From field experience, we can attest that many project managers and superintendents will start to make $100,000 to $150,000 fairly early in their careers. And that value shifts heavily based on your location. Being in the construction industry is a great occupation with a lot of opportunity.
But what if you do not want to limit the money you can make as a contractor? The answer to this question is a general contractor’s license. Having a contractor’s license gives you the opportunity to work for yourself to not put a limit on the money you can make. It also allows you to serve as a qualifier to a general contractor. A qualifier is the test taking individual who passes all of the necessary exams. The license holder is the entity that holds the license. So, if you are the qualifier for a company, you are HIGHLY valued to that company and your opportunity to make more money grows significantly.
Contractor License
Having a general contractor’s license allows you to bid and perform work for higher dollar values than unlicensed contractors. Most states have a limit of work that can be performed before a license is required. For example, if you are planning to work in Georgia you are required to have a contractor’s license if you are planning to perform work over the value of $2,500. Also, most states required a license if you are planning to pull building permits. There are steep penalties involved with people performing such work without a license.
Bidding
Contractors must be able to create accurate bids is one of the most important keys to making money as a contractor. Accurately analyzing labor, overhead, legal fees, materials etc. will give you an opportunity to have successful projects.
If you bid too high, you will not get any work. If you bid too low, you will lose money on the project. We recommend getting feedback from all of your potential clients if you do not win the bid. Finding out where you may have bid too high can help you in future bids.
While it is bad practice to share final bid numbers with other contractors, you can still get good feedback. Maybe the potential client shares that your material costs were fairly similar to the competition, but your labor cost was much higher. That lets you know that on future bids, focus on ways to get the labor cost down, while still producing a value you can work with.
Knowing Your Market
The importance of knowing your market and where you want to focus is key to the success of your company. We recommend being an expert in whatever particular market you do. Whether that be residential homes, commercial buildings, commercial upfit work, or residential renovations being an expert at one or more of the categories is necessary. If you are constantly connecting and negotiating with residential developers but are trying to break into the commercial market, you are spending a lot of time and effort in the wrong spot.
Marketing
Marketing your service will skyrocket your ability to make money as a contractor. You can use different strategies to help you land more projects than your competition and establish yourself in your area.
Being knowledgeable about your field and effectively communicating with clients is a key marketing tool. Answering questions they have with confidence and knowledge helps them to understand that you know exactly what you are doing.
Be sure to mention that you have your contractors license (after receiving your license, of course). This is helpful for your clients to know that you are allowed to perform the work and are qualified to do so.
Use social media platforms to market your business. Having access to free marketing on social media is critical in getting your name out there and showing off your work. Photos and descriptions of your work on these platforms help potential clients know what work you do.
Create a website for clients to see your work, contact you, and learn more about your company. You can create the website yourself on WordPress, or have a professional create one for you. There are many freelancers on platforms such as Fiverr that can create a website for you quickly and professionally.
The most important marketing strategy is quality work that is completed on time. Word of mouth is a powerful marketing tool that can help to grow your business or hurt your business rapidly. Make sure you are performing work in a quality manor and focus to complete your projects on time.
Connecting With Others
Once you get your general contractor’s license you will begin searching for subcontractors, employees, and projects. Our recommendation for finding projects in your area is to be involved. Go to contractor board meetings, realtor association meetings, realtor investor meetings etc. Bring up your contractor’s license in conversations when appropriate. You may be surprise at how often you hear “Wow! you have your contractor’s license?”.
There are also apps such as Angi’s List and Houzz where you can create a profile and pay for leads. Keep in mind, you will be paying for leads which can sometimes be frustrating when the leads go nowhere.
Alignable is a great source to connect with subcontractors, other contractors, realtors, insurance providers, accountants, and other valuable resources for your business. From our review, Alignable is similar to a Facebook for small businesses. It is a great platform to meet other small businesses and grow together.
50/30/20 Rule
It is important to have your finances in line before beginning any work. Simple personal finance tricks, such as the 50/30/20 rule can go a long way in the professional field as well. This rule is used for personal finance with 50% going towards needs, 30% going towards wants, and 20% going towards savings. Treat the wants as your business wants. Maybe you want a bigger office, or some land to start your own development, or maybe to increase you and your team’s salary. This tool can be helpful when thinking about your company budget.
Labor
Labor is often a make or break for a project. Most of the time, the contractor attempts to have a “labor enhancement”. A labor enhancement is when the labor cost quoted at the beginning of the lump sum job is higher than the actual labor cost on the job. Let’s say you are performing a $1,000,000 project and have a 7% fee. With this fee you are expecting a $70,000 profit for your company. But you are able to budget your labor appropriately and finish the job ahead of schedule, cutting your labor costs down. If you budgeted your labor at $400,000 and it only cost your company $380,000, you just increased your profit by $20,000! This would bring your total profit to $90,000 instead of the expected $70,000.
We also recommend paying close attention to YOUR labor cost. How much time will you be spending on the project? Be sure to accurately calculate this into your bid so that you are not working for free. A mistake can be made if there is such a high focus on labor cost, that you forget to include your time on the project as well.
Labor can also be a big loss on projects. If you do not accurately estimate your labor it can be a detrimental to your company’s annual earnings, or even worse your company as a whole.
How Much Money Do Contractors Make
Working for a general contractor can allow you to earn a wide gap of income. From a carpenter to a project executive, you could be earning anywhere from $45,000 to $250,000 per year. However, having a contractor’s license allows you to have an unlimited salary and work for yourself. This increases your limit of success for understanding “how much do contractors make?”.
Let’s say you perform a total amount of work per year of $3,000,000. You have physical presence on each job, so you pay yourself a total salary of $100,000 for the year. Your fee is around 7% for the year, so that is an additional $210,000 (3,000,000 x 0.07). While it is good to use some of the fee money for future business expenses and employee bonuses, it is important to note this $310,000 year. And this can be scaled to even higher values.
We hope this article was helpful in showing you how much a contractor can make. Having a contractor’s license can give you the opportunity to make however much money that you put your mind to.