FMI Survey: 'Differentiators' Make Bigger Profits

Special to CONTRACTOR RALEIGH, N.C. Only 55% of contractors have formal business development plans, according to FMI Management Consultants 2004-2005 Business Development and Marketing Survey. Yet those contractors that really work to differentiate their companies profit from their efforts. According to FMI, contractors that are the best business developers are those that: Survey the market to understand

Special to CONTRACTOR

RALEIGH, N.C. — Only 55% of contractors have formal business development plans, according to FMI Management Consultants’ 2004-2005 Business Development and Marketing Survey. Yet those contractors that really work to differentiate their companies profit from their efforts.

According to FMI, contractors that are the best business developers are those that:

  • Survey the market to understand the needs of their customers;
  • Use market research as the basis for their business development plan;
  • Differentiate their services from the competition;
  • Create an organization where everyone knows their role in building customer relationships;
  • Select the markets that they want to work in and target the most profitable customers;
  • Hire and train business development and salespeople; and
  • Fully implement their marketing and business development plans.

FMI focused on profitability as a significant measurement for business development success. One group of respondents said they do a great job of giving customers a reason to buy other than low price, causing FMI to single out that group as the “differentiators.”

The 36% of respondents who said they do a “great job differentiating their company” are among the most profitable and most effective business developers and marketers, the survey shows. They also are leaders in other areas.

For instance, 43% of the differentiators responded that their sales force is “very effective” at picking the right customers to call on, nearly three times as effective as all other companies responding to the survey; 26% of differentiators feel they have a large advantage over the competition, while only 10% of all others think the same. The areas where differentiators have the most advantage are relationships, customer service and the quality of their workforce.

A contractor can differentiate itself in more than a dozen ways, FMI noted. The key is for a contractor to discover where it can add value in a way that customers are willing to pay for it. The consulting firm identified capabilities that include delivery systems, service diversity, image, project leadership, estimating services, communication, technological tools, safety, community involvement and quality.

Over time, a contractor’s advantage will be matched by the competition, FMI noted, necessitating that companies continue to create new ways to differentiate themselves. The best business developers continue to challenge themselves to deliver something fresh to the marketplace, shooting for “next practices” not just best practices.

In the last three years, 52% of respondents have conducted customer surveys, and about the same have undertaken completed jobs analysis, FMI said. The differentiators in the survey conduct more research than their peers. They focus on buying practices, employees, engineers/architects, subcontractors and vendors.

In the last three years, 48% of all respondents have offered no business development training programs, while 68% of the larger companies offered some training. For those that train their sales force, 26% rely on external training and 21% conduct internal training. Overall, 29% of the companies surveyed do no formal sales training, and 23% rely on the training and experience that their sales force had when they started the job.

FMI said it believes that the low percentage of contractors offering sales training reveals why so many of them are not achieving optimum performance. Since most companies depend solely on their salespeople’s previous experience, contractors must hire the right people and keep top performers onboard.

Most respondents said it was moderately difficult to hire successful business development people. Once on board, business development personnel are moderately difficult to keep.

On average, companies employ five full-time business development people. Companies with less than $50 million in revenue employ one to three business development people. For larger companies, the average number of business development people is about 10. Many respondents indicated that everyone in their company is part of the business development staff.

Tying bonuses to profit margin can help focus business developers to target the most profitable potential customers; 45% of respondents indicated that their business development compensation package includes base salary plus a discretional bonus, and 35% offer base plus a margin-based bonus.

Of those who answered the question about their variable rate compared to base compensation, nearly 24% said that bonuses are typically 10% to 19% of base. The group of differentiators shows the largest variable rates for bonuses with 15% responding that bonuses could go as high as 40% to 69% of base.

In the construction industry, tying bonuses to profit margins can be risky. Profit margins were in the 3% to 5% range for 51% of respondents, and 27% make less than 2% profit.

Larger companies do not always achieve the highest profit margins; for instance, nearly 47% said that their profits are less than 2%, and 33% reported profits in the 6% to 10% range. Differentiators do better than the average with 25.5% falling in the 6% to 10% profit level range, and 3% achieving profit margins of more than 10%.

When top executives drive the business development planning process, the plans are completed and stand the best chance of full implementation, FMI noted. When the top brass doesn’t get involved, plans frequently do not get constructed on the right foundation, are seldom implemented fully and rarely achieve the desired results.

The results of the FMI survey show that only 18% of CEOs and 35% of the owner/presidents of the responding companies lead the market planning process.