Understanding construction business model is the first step in starting your professional consultancy or startup.
The foundation of any business is its business model. A company’s target customers, hiring practices, funding requirements, and marketing efforts are all influenced by its business model. A construction business model comprises the various organisational structures, procedures, and activities used to complete the multiple stages of the construction process. Companies with a business model and a strategy outperform those without models and strategies in growth.
However, as new technology expands the range of options available, it can be challenging for aspiring business owners to choose a suitable business model. It is critical to understand its definition, benefits, and types. They must also be well-versed in these models and understand how to implement them best.
The following are the fundamentals of the construction business model.
A company’s profit-making strategy is referred to as its business model. It describes the company’s products or services, the target market and any expected expenses. Business models are critical for both new and established businesses. They help new and expanding companies to attract investment and talent and motivate management and employees. Managers can benefit the company by learning more about business models.
Construction companies can choose from a variety of business models. Here are a couple of examples:
a. General construction services
b. Niche construction services
c. Production
d. Supplier
e. Brick and mortar
f. Commission based
g. Contractor
Business model types
Traditional
General construction services
General construction is one of the most common types of construction business models. The general construction business model companies provide non-specialised construction services and workers to individuals or corporations. They may concentrate on appealing to specific market segments, such as only residential construction, or in a particular area within the construction sector, such as renovation. To provide services to their customers, general services contractors either hire skilled construction workers, such as a project manager, or other contractors. They can cater to several projects at a time by utilising subcontractors’ services. Renovation and repair are some examples of services provided under this model.
Niche construction services
The business model under Niche construction services provides specific services that only licensed or professional workers can provide. Examples are electrical installation, technical work, and other jobs requiring specialised training. You can choose this business model if you have formal training for this type of work. These companies frequently recruit workers with specialised skills. Niche contractors are highly sought after, but competition can be fierce. It is critical to conduct market research in your area before starting this type of business.
Production
Production business models are generally successful because construction materials and supplies are always in high demand. The company will need to conduct market research to determine which products to offer based on the local market’s needs. They can research trends to make an informed decision. The businesses provide a wide variety of standard and customised products and materials. For example, manufacturing and production companies create or fabricate materials used in construction projects.
Supplier
Another popular business model is supplying the needs of other construction companies. In contrast to manufacturing, supplier businesses distribute materials and supplies to individuals and corporations. This means you’ll need less money to start this type of business. It’s ideal for people with strong connections and networks with other businesses in the same industry. These companies can be physical stores that cater to a local market or e-commerce sites that cater to a larger market. General contractors and trade contractors are among the customers who use their materials.
Brick and mortar
It is a traditional business model that can be applied to the construction industry is frequently combined with other business models. Using this model, you can interact with customers in a physical location, such as a shop, office, or building owned or rented by the business owner. It is a reliable, consistent and lucrative market model for retailers, wholesalers, and manufacturers.
Commission based
This business model is based on the commission you earn by acting as an intermediary between buyers and sellers. You’ll collaborate with a construction company to find potential product and service customers. Every time you get a paying customer, you’ll get a cut of the profits. The more transactions you complete, the more money you will receive. This business model is ideal for people who dislike taking risks because it does not require a significant investment.
Contractor
Another popular business model is contractor services. You will be in charge of project management and frequently be the building designer or foreman. You will also provide all project materials, labour, tools, and equipment. Paperwork, such as obtaining permits and licenses, will also be required. Because of these factors, the job best suits individuals with extensive construction experience and knowledge.
New age
The construction industry is entering a new era as technology creates applications and tools that change how businesses design, strategise and manage projects. These innovations eliminate many problems, such as difficulties in documenting and communicating project details, by providing advanced software, construction-focused hardware, and analytics capabilities. Some new business models are:
Vertical integration
The companies with vertical integration business models are organised as integrated hierarchical corporations, with complete control over design concepts and processes. These companies keep total control over production by developing their off-site factories; for example, design-build-operate companies.
Digital systems integration
These companies use an integrated cloud-based product configurator to enable mass customisation. Digital system integrators can manufacture parts from periphery supply chain partners’ suppliers, including new sectors such as manufacturing or industrial; for example, e-commerce offerings.
Industrialised factories
This business model’s construction projects complete processes through mechanisation and automation. It is the industrialisation of an existing project-based business by establishing independent factories. Buildings that are prefabricated and preassembled, for example prefabricated building brands.
The best business model for your company is a balance of the industry’s requirements and your abilities. Customers, service offerings, and brand perception are all defined by your business model. Established businesses must update their business models regularly, or they will fail to anticipate future trends and challenges. Business models also assist investors in evaluating companies of interest to them and professionals in understanding the future of a company they may want to join.
Each type of business model has opportunities in the construction market – Choosing a business model is one of the first steps when starting a new business.
