Table of Contents
Seasonal Balance
Seasonal slowdowns are tough to deal with. Sure, they give the crew time to handle some maintenance and repairs on equipment, but after those repairs wrap, layoffs and seasonal downsizing are common. But, with the right service-based business, companies can keep more employees working and producing recurring revenue.
Client Relationship Management
One of the best ways for construction companies to find recurring revenue customers is to turn to the customers they already have. Serving companies and clients whom they’ve already worked for is a great way to further build those relationships so the contractor is top-of-mind when the customer wants to take on a larger project again.
The same applies for new customers. If they appreciate the work and attention to detail they receive through their subscription services, they’ll remember the contractor when it’s time to start their next endeavor.
Better Resource Utilization
There is an aspect of starting an additional service that just makes sense: the equipment and personnel are already in place. The tools, machines, operators, and tradespeople are available. It makes sense to use them to offer more services that provide cash flow and stability. If the endeavor requires additional equipment purchases or other expenditures, it doesn’t make quite as much sense (though it may still be a smart move).
Increased Valuation
Business models with recurring revenue streams are usually far more exciting for potential investors than those without. These businesses show stability, better cash flow, and owners with higher business acumen. These companies are generally seen as having lower risks and higher rewards—a major benefit when it comes to getting a loan, when looking for investors in a difficult market, or even when it’s time to exit.
Nick Grandy, a financial consulting manager at RSM, says, “If you don’t want to go an ESOP route, can you sell to private equity? Private equity values a couple of different things a little bit greater than others. So they value that recurring service model.”