Small Commercial, Big Commitment

A lot of big, commercial maintenance contractors first got their start in the residential market. They "started small" with homeowners, and ultimately responded to demand from local businesses. That was 10 or 20 years ago, though. Expanding from residential into commercial requires some serious planning today.

"The commercial market, especially in the Northeast, is so competitive it's not even funny," says contractor/consultant Gary Goldman. "So when a residential maintenance contractor tells me he wants to expand into the commercial market, I tell him that he must first stop and think about the process."

Margin pinch

Contractors also have to think about their margins. While the dollar volume can be considerably higher in commercial, the profit margin is typically much lower—and nowhere near where it used to be.

Goldman says numerous contractors have recently come to him for advice. Commercial clients the contractors have been servicing for years are asking the contractors to re-bid. "Some of the industry's largest maintenance companies are coming in for one-third less in many instances," Goldman says. "There is a little bit of a price war going on in the commercial market. The big guys are trying to buy market share."

Find clients with ATD

A contractor should identify those potential commercial clients that will respond favorably to the things that make him different. "A prospective customer that isn't the big Intel or Pfizer type of client is more likely to have what I call ATD, attention to detail," Goldman explains. "They want their property to look as nice as possible."

This is important for contractors who've spent the majority of their careers serving residential customers. "Residential contractors are used to spending a lot of time doing finesse work," Goldman says. "When you get into the commercial market, finesse work is neither here nor there. It's usually about getting in, getting it done and getting out. If you're used to doing finesse work, and want to continue doing it because it's what sets you apart, you have to find those commercial clients that will want to pay for it."

Those clients do still exist, Goldman is quick to point out. It might be a smaller, locally owned facility such as a bank or retail store. "Residential contractors can still find their way into this market," Goldman says. "It's not easy—but it's possible."

Re-tooling for small commercial

Training. You'll probably have to spend time retraining your crews because some employees might not intuitively understand how to make the transition from residential to small commercial.

In small commercial, you bid a job at X number of hours a week. "Your guys have to be in and out in that time," Goldman says. "They can't spend extra time on that finesse work if it isn't in the budget. Margins are just too tight in commercial maintenance to keep adding unbillable time to a property."

Insurance requirements. Goldman says COI (certificate of insurance) requirements for a residential contractor have historically been $1 million for liability and $1 million for umbrella. Today he's often seeing COI requirements ranging from $3 to $5 million for commercial contractors. This is quite a jump, so you have to understand what you're dealing with in terms of cost so you can factor this overhead into your pricing.

It's about exposure. "When you're mowing Mrs. Jones' yard, you can break her kitchen window," Goldman relates. "When you're working at a commercial property, can you break six car windows in three minutes of string trimming."

It's not just about protecting your own company either. The commercial client you are working for wants to see that additional insurance. They likely want to be named as "additional insured" on your policy. That all costs a lot of money—and the result is higher premiums which you will have to pay.

Proactive service. Commercial clients also tend to want more consultation. There is a lot more site reviewing that has to take place as compared to residential accounts.