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Print ArticleAre you thinking of going after commercial work in a big way? And why not? The dollar value of a typical commercial solid surface project is many times the amount of a typical residential job. But beware, there may be many times the problems, and some of them can be very costly to remedy. In fact, experienced fabricators will tell you there is a lot more than just adding the word "Commercial" to your business card.
The Good
Generally, commercial work delivers greater sales dollars per transaction with fewer colors and configurations of sheet and shape products. It lends itself well to production runs, where the only part that costs a great deal to make is the first one. Economies in production can also lower per-unit costs of corresponding residential work.
Another potential benefit is that it is possible to drive some of the business to your own standardized offerings such as an integral ADA-compliant mid-size oval lavatory bowl in a basic white color. That can mean greater buying power with the distributor of your flagship product.
Commercial work also generally carries a level of expectation somewhat below that of residential work. This does not mean substandard work is acceptable, but if a blemish is so minor it escapes your own internal quality control, it may not be noticed after installation either. Construction contracts usually specify a twelve-month installed warranty -- nine years less than the typical residential job. But remember, the scale of the project is proportional to the scale of potential callback items.
The Bad
Commercial work is a double-edged sword. A significant commercial project can put your company on the map, or wipe it off the face of the earth. Are you ready, able, and willing to commit the human, physical, and financial resources to be a serious contender in your market? Commercial work requires a different set of skills in sales, service, production, administration and management. The sheer quantity of materials required may demand more or different shop space, tools, and equipment.
The payment process complicates meeting these demands. Typical accounts receivable aging is about 60 days, and that's only for 90 percent of the amount due. The final 10 percent retainage may be outstanding for another 90 days. On a major project it could take a year or more for full payment. It requires a well-capitalized business and management's commitment to multiyear support to be a successful contender in commercial construction.
The Ugly
If you are interested in increasing commercial business the first external evaluation should be the competitive environment in your proposed market area. Is there enough work to go around? A positive indicator is solid construction activity in more than one of four key market segments (in descending order of importance): healthcare, education, class A office, and hospitality. If these segments are healthy, you should decide if you want to pursue just the table scraps, or if you want to plunge into a marketplace that's about as inviting as a knife fight in a dark alley. Neither approach is inherently right or wrong.
If key segment activity is strong, is there an 800-pound gorilla already established and serving the area that will try to run you out of his jungle? Will a competitor expend so much effort to keep you from being successful, even at the expense of his own missed opportunities, that both of you suffer and neither succeeds? It's not right and it's not smart, but it can happen.
Bid Versus Negotiated
If you've decided that these parameters suggest a good chance for success, the next step is to select the "bid" or "negotiated" path into the marketplace. Unless a fabricator already has a strong presence in commercial construction, the bid market will bring the quickest results. The downside is that "bid" and "price competition" aren't mutually exclusive terms, so commercial sales margins are generally much lower than residential margins.
