# Company Growth.



## BamBamm5144 (Jul 12, 2008)

Today is a rain day for me so I am sitting in the office thinking of things.

One thing I wonder is what would be a fair amount of company growth from your first year to your second then to the fifth.

To make it easy, lets say I did 100k last year. Would doing 150k be a good amount of growth? I am sure it all depends on the type of jobs.

I want to do a million in sales by my third year. Is this even possible when majority of jobs are between 8-13k?


----------



## LocalContractor (Jan 28, 2011)

*Possible!*



BamBamm5144 said:


> Today is a rain day for me so I am sitting in the office thinking of things.
> 
> One thing I wonder is what would be a fair amount of company growth from your first year to your second then to the fifth.
> 
> ...


Well.. let me encourage you... It is possible. However, you would know that for growing sales you need to advertise, too.

A rule of thumb says that if you need to reach $1 million you should be willing to put $50,000-$80,000 worth of "effective" advertising. The word "effective" is most important in last sentence.

You would also need a finance/accounting person so that you can concentrate on your primary job.

In addition, you would need sub-contractors, etc. But, if you follow the logic you wouldn't spend on accountant and sub-contractor if you didn't have a job. So, marketing/advertising is the pre-cursor to everything else.

Also, expand it slowly and check your ROI on each channel.. i.e. Youtube videos, Google Yahoo bing PPC, SEO, Magazine ads, flyers, etc. This thorough analysis may eliminate some options for you and direct you towards "effective" marketing strategies for your business in your area.

Hope this helps! Let me know if you have more questions.


----------



## R. Perez (Nov 2, 2009)

In my opinion it all depends on you. Your goals for your company are going to be different from others. If you sub out the majority of the work it may be easier for you to achieve your goal for the third year.

We are in our seventh year, but it really feels like our third because '08 was the worst. Since '08 our gross sales doubled in '09 then they doubled again in '10 and this year we've almost reached the same amount of gross sales as '10 and we're not even in June yet. though I will tell you it hasn't been easy and the bigger and faster you grow the more difficult it will get. You need the right people around you and don't be afraid to delegate. If you haven't done so already read E Myth the revised edition.


----------



## GettingBy (Aug 19, 2010)

BamBamm5144 said:


> lets say I did 100k last year. Would doing 150k be a good amount of growth?
> I want to do a million in sales by my third year.


$150K/$100K = 1.5x = 50% per year increase. That's probably unrealistic but your sales may vary quite a bit from year to year.

$1,000,000/$100,000 = 10.
So 10x your sales in 3 years?
x^(3 yrs) = 10 then X = 10^(1/3) = 2.2, which means you'd have to more than double your sales each year. Unrealistic?

At the low end, if your company increased at an inflation rate of 4% it would take you about 10 years to do the 1.5x thing and 59 years to do the 10x thing.

We could do a survey of the people on this site who have been in business at least 5 years. 
You scale your first year income to "$1", so it may go like this

yr income
1.....1
2.....1.4
3.....0.8
4......3
5......2.5

and so on.
There will be an enormous amount of info in this survey, providing we get at least 5 participants. More than 30 is probably not necessary.


----------



## BamBamm5144 (Jul 12, 2008)

I will give a few more details. 

After correcting some accounting calculation errors and firing that accountant, I did nearly 250k last year (10 months), I opened up on my own beginning of March. It is now nearly June. I did only about 20k until the middle of March. Things were very slow, weather was terrible. Now that it is nearly June, I have almost reached my gross sales of all of 2010.

That is why I got to thinking about the question. If you want to grow (which I do) what is the average amount of growth a company should see within its first three years?


----------



## Framer53 (Feb 23, 2008)

Growht for growth's sake is not good. Concentrate on the bottom line.

I grew a similar business to yours in the 80's and thought how great it would be to get to a million. Worked out to be one of my worst earnings years because of the constant need for more people and equipment.

Good goal in today's market. but keep sharp eye on the cash flow....:thumbsup:


----------



## GettingBy (Aug 19, 2010)

You also want to cancel out monthly and seasonal variations.
http://home.ubalt.edu/ntsbarsh/stat-data/forecast.htm


----------



## Bill Z (Dec 10, 2006)

*What Framer53 said*

What Framer53 said. There are plenty of influences that want you to increase your gross sales (suppliers, subs, your ego) but the important number is at the bottom of the page.


----------



## FHS (Apr 24, 2010)

I have dreams of growing into a larger company, but the problem that I have around here is finding people to do the quality of work that I require and people to work in general. 
This is my first profitable year since i started in 08 but I really had not been in the business before. 
My problem right now is trust. I have issues letting go and letting someone I hire do the job.


----------



## CarrPainting (Jun 29, 2010)

So far this year, I have made about 60% of what I made the entire year last year. So I am doing good. My goal isnt to become some super rich snob (though would be nice) but to be able to live comfortably, and not have to worry about money so much. I pretty much have everything I want, aside from no debt, so my new goal = eliminate the debt. The bigger you become the more headaches that follow. Sure the money is there, but your stress level increases exponentially.


----------



## Spike2101 (Apr 22, 2011)

I have to totally agree with Framer53. Far too many people focus on revenue growth and not profitability. Who cares if you have sales of 1.5 million if you margins suck and you are reinvesting most of it just for the sake of getting larger. We are in the construction industry not internet startups.


----------



## Heritage (Mar 20, 2007)

Framer53 said:


> Growht for growth's sake is not good. Concentrate on the bottom line.
> 
> I grew a similar business to yours in the 80's and thought how great it would be to get to a million. Worked out to be one of my worst earnings years because of the constant need for more people and equipment.
> 
> Good goal in today's market. but keep sharp eye on the cash flow....:thumbsup:


:thumbsup: Exactly!

And to add to the "bottom line" argument, which could in all honesty go either way...the sheer logistics of running a "large" operation can overwhelm and sink you. Just the "day to day" things that you will have to contend with.

Just imagine having 15 employees working "in the field", an accountant, a site super and maybe a PM or two.

Now you have "X" number of subs on any given job. Clients, designers, engineers, the city and everything else to deal with.

You'll be paying out around $20k+ a week just in payroll. That's before subs, suppliers, getting paid...and when I say suppliers...trust me money will go flying out the door on a daily basis. On an "average" day you're spending around $1000 just on material...and that only accounts for the "immediate" things you need to buy as fill in...not when you order materials for particular phases of a job. That's your 4 bundles of corner bead the guys need in the field, 10 boxes of screws, blades, a few lighting fixtures, maybe a few sheets of plywood, some wire...etc. that you're "short on".

Now add your other overhead: shop, office, trucks, bobcats, trailers, tools, insurance, etc.

The one thing that you will be immediately confronted with is the SHEER AMOUNT OF WASTE that goes along with all of this. Waste in human resource, waste in materials, waste in the fact that the job could have been scheduled better, on and on down the line.

You will realize how sloppy everything is when compared back to the times when you were the lone ranger, or small outfit. At the end of the day, if you know what you're doing...you'll still be making more money...but the casualties along the way will be numerous and that alone can drive you nuts and feeling like you don't have control.

All of your employees, with the exception of maybe 1 or 2 will only see you as a paycheque. "The big boss"...what makes him so special? I can do what he does...he's not even all that organized...this is stupid...yesterday I worked 2 mins extra, I want double time for the weekends...I want triple time on holidays...I will take 1 hr long breaks...screw the "boss", he's got enough money...he can afford it. 

In no other industry will you find that kind of attitude in employees more readily than you will in construction/trades. Earning their respect and thinning out the herd will be a full time job in itself. Staying on top of 15 employees is very, very exhaustive. 15 personalities, 15 egos.

You could sub it all out...but good luck. The subs themselves can run you into the ground.

What I've taken away from all this is this: It's all about dollars and cents. As simple as that sounds, most of the guys on this very forum could not handle/deal with that mentality. Most of us have a personal connection to the work that we do and the people we deal with. It becomes next to impossible to still feel that way about your business once you "get big".

That's why they say the hardest period for any company is in the stage where they TRANSITION. From a small to medium and from a medium to large sized company. The growth transition is very, very challenging and requires an almost entire overhaul of your operation...an overhaul that the "market" will also have to be receptive to.

My best advice...HUMAN RESOURCE. Invest in it, cultivate it, water it, live and breathe it while you are still small and surround yourself/bring on board the individuals that will get you "to the next step". You need at least 3 or 4 KEY guys on your side...your "generals" and commanders. Feast or famine, they gotta stick with you. They are very, very difficult to find and expensive to maintain, but they should be the biggest investment you make. Without them...you are done. Just like a chessboard...from the pawns to your king, you need the right individuals to fill those roles.

I guess that makes you the QUEEN :laughing:


----------



## fast fred (Sep 26, 2008)

WHAT HERITAGE JUST SAID.

I don't know if bigger is always better.

My goals are pretty small compared to wanting to do 1million a year.

A good buddy has been juggling multiple large jobs for the past three months. Things are ok but the bottom line is....... is it worth it? Dealing with idiot employees, subs who balk if things aren't ready. Underbidding tasks, hoping to make it up somewhere else in the project. Missing materials. (hence why I'm sitting here waiting for him to drive an hour and half each way to pick up stuff so the people can move in tomarrow) 

I like small compared to large. But that's just me.


----------



## J L (Nov 16, 2009)

Bam, one thing I'd caution you on is that when you're trying to reach $1mil in sales, you sometimes take on jobs that you normally wouldn't just to get the sale. You will begin to overlook the subtle red flags because all you can see is the amount of the sale and how it will help you get to your goal. Don't ask me how I know this :whistling

My company turned 4 in April and our sales goal this year is $1 million. I'm not sure at this point if we're going to hit that or not but we should be close. We did $225,000 our first year in business, doubled in our second, dropped slightly in '09, and increased by 50% last year.

Honestly at this point in time I'm reconsidering my approach at how to arrive at a million. I've been trying to make it happen, forcing it. Selling jobs we wouldn't normally do. And it has made my life so stressful with bad clients it's not worth it. At this point I'm beginning to focus on finding good clients and let the numbers grow from there until I can find out how to get enough good clients to reach my sales goals.

So to answer your question - can you do $1mil in sales in your third year - yes, you probably can, but is that what you really want?


----------



## BamBamm5144 (Jul 12, 2008)

Some good replies. I must say, my goal is not to get to a million in sales just to get to it, but to get to it when the proper time would be.

I do not take jobs I do not want. Basically, if there is a job I would not do myself, I will not have my guys do it.

Now what I want is to have is a steady flow of work. Remember that with roofs, 2 - 3 can be done a week. This means on average I need to meet with around 10 people a week in order to get that much work.

I don't even want to have more than one crew, I just want to sell 30k worth of roof work a week. I know it is possible because some guys are doing it, just not me, not yet.

I am very blessed to be where I am at though :clap:


----------



## HUI (Jan 21, 2011)

The larger the animal the more you have to feed it. My goal was so a million a year. I'm in my fourth year. But when you start looking at your Financals the margins usually go down. I'm nearing that point to where you either stay the size I am and be content or get larger and really grow. But that alot more overhead and doing alot more motions to make less money.


----------



## JBM (Mar 31, 2011)

Seems like a horse before the cart question. You need to start off at the end result then ask how do I get there. 

The questions I ask myself are: How do I double my current income(for me personally). That translates into do X amount more volume of rock and brick banging.

I personally would want to groom 1 guy who would take the reins if I were to expand to a point where I wasnt on the job all the time.


----------



## alongston (Dec 30, 2010)

If you are interested in growing, definitely start building a relationship now with other subcontractors so that you can get together a team of people that you trust. 

Word of mouth marketing works the best for us. Maybe offer your current customers something for getting your name out there.


----------



## bender_dundat (Feb 20, 2011)

BamBamm5144 said:


> Today is a rain day for me so I am sitting in the office thinking of things.
> 
> One thing I wonder is what would be a fair amount of company growth from your first year to your second then to the fifth.
> 
> ...


I don't think there is a good "rule of thumb" that you can go by, too many variables including the business you're in, the market you're serving, etc..

If you did $100K in your first year, $50K growth in the second year wouldn't be a big problem at $8K to $13K per job. That's approximately 6 more jobs. Doing $1M in your first year and $1.5M in your second would obviously be a more formidable task at $8K to $13K per job even though the growth percentage is the same. As you get bigger, maintaining the same growth percentage obviously gets more difficult.

We did $1.25M our first year, $2.4M our second and are on target to do $5.5M to $6M this year. The real difficulty is finding the right point to add the overhead positions as you grow, finding the right people for these positions and finding the time to train them correctly. From the start, we set up a infrastructure that required a lot more upfront work but would allow for fast growth. That is paying dividends now. It's also meant that I've worked incredibly long hours trying to keep up and maintain the quality of the product/service we provide. The best news is that our profit margins have in fact gone up as the volume has increased. At no point was I willing to decrease profit margins for the sake of growth.


----------



## HUI (Jan 21, 2011)

Bender. Your profit margins per job can be the same but your net profit percentage for the year probably didn't increase due to the fact you are increasing your overhead. This is what I have found. We still make more money due to fact we are doing more work.


----------



## ChrWright (Jul 17, 2007)

Heritage's post is dead on. 

Transitions are dangerous and most guys (raising hand) underestimate what a big adjustment it is when your business grows beyond you running everything.

Most also don't appreciate the basic business law that as volume goes up, so does overhead--and way more than you would anticipate based on your company's growth during the first few years. 

$500k-$1M is a "no mans land" that has claimed countless businesses. 

Growing to that volume and beyond requires hardcore leadership and organizational skills. You are already ahead of the game by giving thought to what path you want to take to growth. 

If you're good with spreadsheets, spend a few hours plotting a budget for your company at three different volume levels:

Your current level, $500k and $1M. Also do a company organizational chart for all three levels. 

How will you handle sales, project management, and administration at each level?

What staff will you have to add to handle each level?

When will you have to add a physical office?

If you're not familiar with Mike Stone's Markup and Profit book, I'd strongly recommend you start there. You'll find budget profiles for several types of construction businesses and volumes in it. 

Once you've gone through that process with as much detail as you can--find a contractor who is actually at the $1M+ level and ask them to look at your numbers.

Most contractors don't put near enough thought into planning and budgeting for growth. The company failure rate is 90%+ on a ten year horizon, and the reason isn't lack of work it's poor management and poor planning. 

Never confuse activity with accomplishment. That's a first class ticket to the bone yard. You can go broke way faster at $1M, than you can at $250K. I've talked with a number of guys who found their "sweet spot" at around $500k, for both profitability and sanity, after growing to $1M and hating life.


----------



## Mike's Plumbing (Jul 19, 2010)

I'm small of course but for me growth is based 100% on profit, sales are meaningless. If I can bill out 50 hours a week and that's absolute max for an owner operator my focus becomes on growing profit margins.

In reality I can have sales for the week of 20,000 but then next week have sales of only 4,000. Sometimes I can make more money when total sales are 4,000 vs 20,0000. 

I knew a guy who grew his plumbing company from 2 guys to 9 in two years then found himself bankrupt. All I heard from him was sales, sales, sales. I don't know for sure what caused his failure in the marketplace but I'll bet no matter what happened he had no clue about the grown of his profit vs sales.

A million dollars in sales is nothing in construction. A million dollars in profit? That would be an amazing company. 

It's the profit curve that I would focus on as you grow. 

Mike


----------



## Mike's Plumbing (Jul 19, 2010)

Ya know, I was just thinking about that guy that grew fast then went bankrupt. I remember him doing a lot of repair and drain cleaning early on. I can also remember him getting into more remodeling and new construction towards the end and I also remember one of the builders he did work for. Looking back, it might have been a cash flow issue as well. 

That particular builder went bankrupt also so in all fairness to the plumbing company the builder could have also severely impacted the plumber.

It's interesting to think about it because in plumbing our largest profit margins are in service, repair, and drain cleaning. Once we hit remodeling and new construction our margins become terrible yet so many companies that grow end up migrating away from service and repair. 

I think the reason why is marketing and relationships. To have a ton of guys all doing service your marketing dollars are huge but in remodeling the marketing is all about relationships.


Interesting how that works out. You could say that he was focused on sales and not on profit margins I suppose.

Mike


----------



## DaVinciRemodel (Oct 7, 2009)

Bam – Here’s a story I’ve told on this site a few times. I’m very embarrassed by it – but I tell it here hoping it will help someone someday.

In our first year (1993) we did a whopping $75K in sales. In 2000 we did $3.1mil. In 2004 we did $6.3 mil. In 2005 we filed for bankruptcy.

Pay attention to what Chris, Framer and some of the other guys are telling you. If I can help, let me know. I’ll do my best to help you avoid my mistakes.

Be careful what you wish for - unbridled growth can lead to disaster.

Paul


----------



## GettingBy (Aug 19, 2010)

DaVinciRemodel said:


> In our first year (1993) we did a whopping $75K in sales.
> In 2004 we did $6.3 mil.
> 2005. . .bankruptcy


2004 - 1993 = 11.

X^11 = $6300K/$75K = 84, so X = 84^(1/11) =1.496 which is 49.6% growth rate per year.



Mike's Plumbing said:


> 2 guys to 9 in two years
> . . .bankrupt.


X^2 = 9/2 = 4.5, X = 2.12, 112% a year.

Anybody here who didn't go bankrupt in 10 years or less and what is your growth rate?


----------



## Mike's Plumbing (Jul 19, 2010)

DaVinciRemodel said:


> Bam – Here’s a story I’ve told on this site a few times. I’m very embarrassed by it – but I tell it here hoping it will help someone someday.
> 
> In our first year (1993) we did a whopping $75K in sales. In 2000 we did $3.1mil. In 2004 we did $6.3 mil. In 2005 we filed for bankruptcy.
> 
> ...


"Unbridled growth", you couldn't of picked better words to describe it.:thumbsup:


----------



## JBM (Mar 31, 2011)

There are labor only sales numbers and there are materials and labor sales numbers. I had a block company in Fl who hit 400k in labor only numbers. Wasnt too bad but everyone was on the same job working together. If I had 4 guys here, 2 there, 2 fixing something over there and 6 building this over here.....hell no.

I found "that guy" though, and he laid the hammer down when I wasnt there. You either have "that guy" or you are that guy. If you are that guy then you cant be Mr sales man as much, mr bookkeeper as much, mr estimator as much. Either way someone is getting paid 30-50k to pick up your slack.


----------



## BRAVI (Jun 3, 2010)

1 million in revenue can be done early on. We hit it our first year, however you want to make sure you have the infrastructure in place to handle it. We had many issues our first few years handling that much business. I reworked how we run everything last year which should allow us to grow with less issues. 

Last week we hit our total revenue from last year. So there is a good chance of doubling our revenue from last year.


----------



## GettingBy (Aug 19, 2010)

You saw it here first!

Years to go bankrupt	......% growth rate per year
11.............................	50
2...............................	110
34.............................	20*

Now we need some MBA to shoot holes through this Bankruptcy Predictor.

*prediction


----------



## Mike's Plumbing (Jul 19, 2010)

Phuc the math, just watch your P's and Q's and run a business the way it's supposed to be run. Businesses go bankrupt because because the owner screws up, gets sued, or divorced.

Pie in the sky statistics don't run a business, plenty of businesses can have stellar growth and do just fine. Growth isn't the killer, people are.

Mike


----------



## BRAVI (Jun 3, 2010)

I think it just depends on how you prepare for the growth. If you think hitting a certain revenue amount will be the answer to problems in your business, you are mistaken. It will do quite the opposite, it will magnify the problems.


----------



## JBM (Mar 31, 2011)

Stay small keep it all!


----------



## bender_dundat (Feb 20, 2011)

HUI said:


> Bender. Your profit margins per job can be the same but your net profit percentage for the year probably didn't increase due to the fact you are increasing your overhead. This is what I have found. We still make more money due to fact we are doing more work.


Not true. Our net profit % has gone up because our overhead as a percentage has gone down. We are not far away however from where that will likely change as I'll have to put some additional overhead in place to grow much beyond where we're at now.


----------



## GettingBy (Aug 19, 2010)

The market environment also contributes to predicting a safe rate of growth.
With data from similar businesses this effect should cancel out.


----------



## fast fred (Sep 26, 2008)

Almost ten years ago I did $110,000.00 in labor only subcontracting. (wasn't 30 yet) I thought it was great and I was well on my way to somewhere. 

After awhile I steped back and realized this wasn't worth it. 

I was a babysitter, a banker, a social worker, and a best friend to people who I only wanted to know from a work standpoint. 

I cut back to me and a helper and took on small projects. The economy took it's toll and I cut back to just me.

I'm now growing slowly again but will never take on a crew or get bigger than I want. I don't think it's worth it.

The funny thing is you are mentioning 1 million plus in sales I can name alot of companies around here who are doing 3 to 5 million in sales with remodels and new construction. Some come and go others are here for the long haul. A majority of it seems based on your subcontractors and employees.


----------



## Acres (Feb 12, 2011)

Just get really, really good with numbers. Constantly run numbers and scenarios. 

Let your numbers kinda control and direct where you go. You may hit a point where your taking/making 150K but to get to take 180K you need to work 75% more than you already do for 25% more money. You may find that there's a sort of leveling off range. I constantly ask myself what do I need to do to reach MY goal, not my company goal. My company is just a means to get me there. A company is just an asset and can easily become a liability. As others have pointed out, you could gross a million and not make a thing..So make sure you ask yourself how much "you", want to make..


----------



## GettingBy (Aug 19, 2010)

The "Carlyle Group" is in the Washington Post today. According to the graph shown they grew 24%/yr from 2000 to 2010. I don't think the article states whether this is abnormally high, but it's implied.

http://www.google.com/search?client...gc.r_pw.&fp=98e85b9d58f5e006&biw=1521&bih=806
???


----------



## Paulie (Feb 11, 2009)

Thank you Chris and Heritage. I find this thread VERY interesting as I am dealing with growth issues also. I really don't want to hijack this thread like I usually do but will watch closely. 

All I can say is this year I was totally unprepared for growth. Not long ago just having work was a challenge, I am in MI. But for some reason this year....... wow, I'm overwhelmed. 

Good people are the key but how do you find your people? CL?


----------



## Acres (Feb 12, 2011)

> Good people are the key but how do you find your people? CL?


Word of mouth for me. ALWAYS be looking and creating contacts/relationships, constantly let people you run into know your looking for someone.


----------



## contractorjay (Dec 22, 2009)

BamBamm5144 said:


> Today is a rain day for me so I am sitting in the office thinking of things.
> 
> One thing I wonder is what would be a fair amount of company growth from your first year to your second then to the fifth.
> 
> ...


In our company's first year we did roughly around $250k. 8 years later, we've grown into a 2000sf office, 3 office workers, 3 canvassers, 5 sales guys, and having our own installing crew. We now do roughly 4.5 million a year.

The key to success is work hard the smart way. Trust others to do things and not do everything yourself. If you are doing the work yourself then you'll have a hard time growing. Nonetheless, growth is still growth even 10% is great. Our boss started off as a sales guy, canvassers, installer, customer service all in one. Now he just sits back and talk deals with vendors and finding strategies to grow even bigger. 

rockafeller once said, "the hardest thing in life was making my first million. the easiest thing in life was making my first billion". what he meant was the hardest thing in life was finding direction and strategy. once that was established, everything else was a breeze.


----------

