Below is the transcription for the Digital Marketing for Contractors Podcast: What Level Is Your Contractor Business. Click this link to listen to the podcast.
Today we’re going to be talking about the levels of a contractor business. It’s the heart of what it means to be an entrepreneur and what it means to be on that journey from first having the seed of an idea to being successful to then growing out of one stage to the next.
Before we jump into the topic, we have a resource available for you to download. If you are trying to figure out how to improve your overall online presence and you’re wondering, “What can I do to make it better?” We’ve got a resource that’s called “Five Reasons That Homeowners Don’t Choose You Online And What You Can Do About It.” Go to fatcatstrategies.com/homeowners to download that resource, and it will give you some great tips on how to improve the things that you’re doing online and make a difference right off the bat.
The Levels and Phases of a Contractor Business
Let’s dive into the levels of a contractor business. What are we talking about when we talk about the levels of a contractor business? What kind of levels are we referring to?
We generally categorize businesses into three levels. Level one is when you’ve got this entrepreneurial urge to work for yourself and you’ve started to do it.
Level two is when you’ve progressed onto the next stage of your business.
Level three is that rarefied air. It’s the highest level in this context. In both this article and upcoming ones, we’re going to peel back those layers and talk about what that means and what each level is.
The levels, then, are the phases that a business goes through, from beginning to end. Whatever the end might look like, whatever the end game plan is for the business, we’re trying to provide a roadmap of how we see contractors progress through the different stages of their business.
Saying, “Hey, it is hard work to get from one level to the next.” We’ve worked with a bunch of people who have made that journey and are at different stages, trying to get to the next stage of the journey. We want to give some insight into what we’ve seen that’s been helpful, that’s worked for other people, and how to help you think about what your next steps might be.
Breaking Down the Levels of a Contractor Business
The first thing we should do is define these levels and what we mean by them. Circling back to whether you’re just getting started or whether you’re towards the end. I like thinking about starting with the end in mind. And in fact, there are a lot of books that have been written about it.
There’s a book called The Right Exit Strategy that’s all about growing your business with an end result in mind. I’m going to come back to this idea of starting with the end in mind because I think it can give business owners a lot of clarity all along the way, especially when things get tough and they do get tough and they get challenging.
Let’s start with level one. What does level one look like? You’ve probably worked for another contracting company and you reach a point where you start to think, “I could do this myself. Why am I working so hard for somebody else? I could do this for myself.” That’s level one, you’ve got that urge to break out and be your own boss and be an entrepreneur.
Level one starts from day one when you decide to do it on your own up until you start to feel the tension between that level one and level two. It’s that whole journey from the first day after you quit your last job up through you bumping up against the pressures of you can’t be the one to do it all anymore.
When we’re working with some of our clients, we notice some common characteristics of a level one contractor. The most defining characteristic is that a level one contractor is wearing all the hats. They are both the answering service and the full-on contractor. They probably have a team of subcontractors that they’re working with, but they’re still doing everything.
They’re both loving what they do and also burning the candle at both ends. It’s like that sense of, “I know that this is what I want to be doing and I also know that I can’t keep doing it the way that I’m doing it forever.”
It’s an exciting stage because you’re kind of getting off the ground and you’re building something. The guys that I see that are in this phase are enjoying it, they’re making a decent living at this point, they’re paying their own bills and maybe even a little beyond that, but they know it’s not sustainable forever.
It’s certainly not scalable. They can’t get it to something much bigger by doing what they’re doing because they’re wearing all the hats and can’t wear them anymore. It won’t work that way.
You’re answering the phone, going to the job sites, climbing up on a ladder, taking all the measurements, then you’re running around in your truck and supervising other crews of subs somewhere else. Then at night when you finally get home, you’ve got to sit down and do the paperwork. That’s a level one contractor.
Level One Contractor Marketing
Because we’re a marketing agency and we pay a lot of attention to the marketing side of things there are some defining markers of what that level one contractor looks like. In that first level, we see a couple of things at play.
Word Of Mouth
One is we see a lot of word of mouth, just referral kind of marketing. You’re getting your leads from friends and friends of the family or people who live in the neighborhood where you just did a job or that kind of stuff.
We also see a lot of what we would call lead aggregators. Things like Angi, Home Advisor, Modernize, and Quinn Street, all of those kinds of things where you’re competing with a whole bunch of other contractors in your area for these leads that are being sold by these lead aggregators.
There’s a third category too, though to a lesser extent. Level one contractors are generally getting business from word of mouth or probably buying leads from a lead source and then depending on the product that they’re installing, we’ve also seen those level one contractors get a fair portion of their leads from their manufacturer.
We’ve worked in a couple of different segments where some manufacturers will sell the leads to the contractors while other manufacturers will send homeowners along to the contractors based on them going to the manufacturer’s website, typing in their zip code, and saying, “find an installer of this product near me.”
When I encounter a contractor that’s wanting to scale, and I get to learn about what their goals are, a classic thing for a level one contractor to say is, “I want to break this addiction to Angi or Home Advisor.” It’s gotten them to where they are now, but they’re not going to be able to scale, and they’re always going to be competing with at least three other businesses because those leads are typically looking for the lowest cost estimate.
Moving From Level One to Level Two
As we think about moving towards level two, one of the things that we talk about, that I think is helpful for contractors to begin. To recognize and to start to feel the weight of whatever stage they’re in. That growth through these three different levels of the contractor business is not linear.
Meaning, you don’t just go up and to the right by doing the same things over and over again or more of them, or getting more efficient at them as you move from one level to the next, your business starts to change. And the things that you focus on, the things you spend your time and your money on, all of that does change from one level to the next. So what we have found helpful is to help people think about what the telltale marks of a transition season are.
Recognizing the Transition Period
So when you’re at the edge of level one and need to move into level two, some typical tensions begin to start to surface. For a contractor to be able to say, “Okay, I think I’m beginning to see that the things I’ve been doing to be successful in level one, I just can’t do those. I can’t do more of those to be able to get to level two.”
We talked about one already, which is just you’ve been wearing all the hats and you don’t have any more headspace to put on any more hats. That’s one of the biggest tensions. So one of your first concrete steps to make that transition from a level one contractor to a level two is likely going to be staffing. And some of that falls outside of our expertise as marketing partners. But we’ve been along for this ride with so many contractors that we see how it works. So a staffing choice you might make is somebody to answer your phones.
It sounds kind of silly, but we’ve seen contractors grow to that one, two $3 million phase where they don’t have a dedicated person answering their phone. They’ve either outsourced it to a call center, not a call center that’s exclusively working, but a call center that is an answering service. So they’re answering the phones for all kinds of different clients.
We’ve seen contractors outsource it to an answering service. We’ve seen them try to answer their own phones, which can be comical. Some of those tensions, you’re looking around, you’re tired, you’ve got opportunities that you’re not able to take advantage of because you are just stretched so thin. So you’re starting to look around, can I get somebody to answer my phones? I think it might be time for me to hire a sales rep and train a sales rep to start doing some of the estimating.
That might be the point where if your unique skill set that you’re the best at is managing crews, you might start to look around and go, how can I duplicate myself and get another project manager in here so I can run more than however many crews you’re running now? Whether that’s one, two, or three. So you can double that if you get somebody else in there.
These are great, really good indicators and tactics for thinking about how to make some of that transition. I think on the marketing side, some of what we already talked about there with it kind of beginning to hit this ceiling with your pay-per-lead aggregators, pay-per-lead, and word of mouth.
You are starting to feel like, “I don’t know, that there are more leads to get.” You’re buying everyone you can get. You’re Johnny on the spot with answering the phone, like you’ve got the speed to lead things down as best you can, but that well only goes so deep and you are starting to feel like you might have hit the bottom of it. And if that’s the case, you just can’t take that strategy any further.
So you’re starting to realize, “Okay, I need some other strategies. I need something else going on to be able to get more leads.” And that, I think, is probably both the best segue into talking about level two and probably the best indicator of saying it’s time for me to transition into this level two-stage.
Being A Level Two Contractor
Okay, so let’s talk then about a level two contractor. What does a level two contractor business really kind of look like?
Don, I think you came up with this metaphor. It’s a metaphor for going from being a quarterback or a player on the field to becoming the coach.
So you’re starting to build a team and you’re bringing your expertise across the whole organization, and you’re leading other people. You are giving your call center manager direction and input. You’re giving your salespeople direction and input. You are starting to nail down some standard operating procedures. And from a lead perspective, you have started to generate some of your own exclusive leads that are not coming from a lead aggregator and they’re not word of mouth.
So what other ways are there to get leads?
Lead Generation As A Level Two Contractor
What a great question. There’s SEO, there’s PPC, there’s offline television, radio. There are referral and incentive programs. That’s where what you’re doing, all your marketing campaigns are focused on generating a lead that wants a quote from your business, not just from any business.
So when we say the word exclusive leads, that’s what we mean in our world, our world of digital marketing. Whereas, say, Angie’s lead, that person filled out a form on the Angie website to find a painter or a roofer in their town. And they don’t give a flip about who responds.
They just want paint on their walls. “I want paint or I need a new roof and I’m going to get four quotes come hell or high water.” That’s not an exclusive lead.
An exclusive lead is somebody who’s done some research. They have found you online. They know that you’re a local business. They’ve looked at your website, they’ve maybe checked out your social media profiles and now they want a quote specifically from your business.
And those leads often may not have gone out and found two other contractors to get competing bids from. That’s the real sweet spot. I think that’s a hallmark indicator of a level two contractor. That the bandwidth of a level two contractor or really what all gets encompassed in this level two is pretty broad.
The Spectrum of a Level Two Contractor
At the very beginning of this level two phase, you’ve got somebody who is just starting to add some of these additional lead sources into the mix. They are starting to add some additional staff. But on the tail end of level two, it’s a different picture than that. It’s still level two, but you’ve got multiple staff.
You’ve got all kinds of different lead sources going on. The revenue picture from the beginning of level two to the end of level two is dramatic. Could be multiple millions of dollars. There’s a significant difference there. But all still in the same kind of level two-phase because you as the owner are still kind of focused on growing the business and doing the work to make the business grow. That’s level two.
What is the spectrum of this level two contractor? And in terms of revenue, I mean, it’s kind of hard because we’re talking to a wide audience here. We don’t know if you are a bathroom contractor, a roofing contractor, or a siding contractor, but real big picture paint on the wall. I’m going to say a level two, the spectrum would be, let’s say 3 million to maybe 20 million.
A $3 million roofing business is a very different business from a $20 million roofing business But they’re still in our minds a level two contractor. And again, we made up these three levels that we’ve seen and we’re sticking to it. But that level two contractor. They are maturing. They’ve got multiple channels of leads.
They may still be buying leads from lead aggregators, but they’ve developed their own exclusive channels. They’ve got really strong word of mouth still and referral programs, and review programs. They’ve got staff that they’ve built out. They’ve got department heads at the top end of the spectrum. It’s a beautiful thing to watch a contractor go from that $3 million mark to say that $15 million mark. And I have been in the front-row seat more than once. And it’s a fun ride. It can be an exhilarating and stressful ride, but it’s a fun ride.
Moving From Level Two to Level Three
You mentioned a revenue mark, but what are some of the others as we think about those tensions again, that start to come up when a contractor, a business owner might start to recognize? “Maybe I’m pushing the top end of this level two, and I can’t keep doing things the way that I have been doing them to be able to get into level three.” What are some of those tensions that we start to see there at the end of level two?
Pushing Your Business Forward
I’m going to go back to a metaphor and a framework of thinking about it that don, you’ve brought up and we go back to these sports analogies. The owner of a level two contractor is that coach. When you reach the limits of what you can do as a coach you need to look at moving into a general manager mindset. I’ll give you a short story about a contractor that I was talking to last week.
Their revenue goal this year, I believe was $11 million, they are going to end at $18 million this year, 2022. They have blown all their goals out of the water. I was talking to the general manager. Ironically, that is his actual title, general manager. This has nothing to do with marketing, but he was talking to me about how he believes that their business has outgrown QuickBooks. QuickBooks, which is like the gold standard for small business accounting, doesn’t have the granular detail that he needs to push his business forward.
So in some ways, you’re asking the question, what are the tensions? How do you know when you’ve pushed up against the end of a phase of your business? I think it’s when you look around and you say, the things that I’ve been doing, the way that I’ve been doing it, and the tools that I’ve been using to get me here aren’t going to get me any further.
Develop Leaders To Run Your Business
I think, to keep with the sports analogy there, moving from a coach to a general manager is just sort of this sense of like you’re feeling the pressure not to just keep operating your business well, but really, to be leading a team well.
You are sensing the need to be focusing your energy on developing the people around you, helping them be excellent at their jobs. Not just you being excellent at running your business.
Because you’ve got excellent people around you at this point and they’re excellent at running your business, but you need to be excellent at developing them, at empowering them to be able to make things happen. And that’s a pretty big shift in terms of mentality, especially from maybe where you started in this business.
I’ve never really thought about it this way until you said this, but as a level one contractor, you’re just trying to survive. You’re just trying to pay the bills and make it through another day, and then you get some success. And then when you’re in that whole level two phase, you are challenging yourself almost daily to be a better leader. You can’t do everything yourself, so you’re trying to be a better leader. When you get into level three, it’s another shift. You are now trying to develop other leaders.
You spend all of level two trying to look in the mirror and go, how can I be a better leader? And now you’re going, how can I grow other leaders on my team? I’m getting a little older, so I’m starting to think of things in different ways. But it’s almost like moving into that grandparent role. Where your influence is coming through other people instead of directly from yourself, and that’s a big shift.
The conversations that you have with your leaders that you’re developing, are you’re trying to coach them on how to coach people, which is a very different conversation than the conversation you have with yourself on, “Hey, me, how can I be a better coach?”
That’s right. So we’ll spend some more time digging into what that owner’s role looks like in the next episode. But I think another thing that can be true in this transition tension between level two and level three is that you’re starting to recognize that, you do a lot of work in your community.
Your business does a lot of actual work. You do a lot of renovation, giving back. Yeah. But you may not yet really be at the place where you are dominating the market in your area. And that might be because your business isn’t known as an entity. Like, you do a lot of work and you do good work, but in terms of being the brand name that people are aware of, the household name in your community, you know, you’re not kind of to that place yet.
Community Involvement as a Level Three Contractor
I think that’s one of those transitional tensions that you can start to feel. Like, if we’re going to get to that place where we are that our marketing has to look different, our strategies have to look different, and the way that people talk about us has to now become important.
Before it was just, we wanted a good reputation for the work that we’ve done, but now we have to start to think about it, people need to know us before we’ve done any work for them. And that’s a whole different ball game of how you think about your business and its relationship to the community. So those kinds of things are what start to characterize being able to dominate the market in this level three kind of contractor level. But getting there takes a real shift and adjustment that happens in that transition.
Developing Brand Awareness
You can call it brand awareness. You can call it community engagement. You can call it local involvement. There are all kinds of different things. We call it brand awareness around here of just making sure that your name, your business name is known. That when people think about bathroom remodels in your area or when they think about landscaping services in your area, your business name is the one that is top of mind. That pops into their head because they’ve seen your commercial X number of times. They’ve seen your name on a billboard.
So we, you may or may not know this. We are in Raleigh, North Carolina. And we have an NHL team called the Carolina Hurricanes. And it is hockey season right now. And I went to a hockey game on Saturday night. So most likely, if you’re listening to this podcast, you know who Window World is.
In between the plays, there was a team of folks on ice skates who had shovels and they would skate around on the ice and scoop up all of the ice debris and all of those shovels had Window World on them. And the announcer said, “We’re going to do a clean sweep of the ice brought to you by Window World.” That is what you’re talking about.
That’s brand awareness.
Brand awareness at that community level where Window World here in our area has sponsored some portion of the in-person experience. For me, the fan, they’ve sponsored that at the arena. Now, that’s kind of big time, but there are lower levels of that. But I think that’s what you’re talking about where that’s exactly right. Window World is not going to be able to trace an individual lead to those folks skating around on ice skate. And if you are just getting into that brand awareness and you decide to sponsor maybe your local high school football team, you might not be able to trace an individual lead to that, but that’s the beginning of that level three, owning and dominating your service area as to become a household name.
Being the Go-To Contractor in Your Area
That’s exactly right. And I think that’s what begins to characterize a level three contractor business as owning and dominating the market because you are the go-to contractor, you’re the go-to business.
If somebody wants your service done, you’re the name that comes to mind first to anybody’s mind in your service area. And to be able to get to that place takes a whole different set of tools and marketing skills and money than what you’ve been doing in level two. That’s really what the difference is.
And why we talk about that transition, is that if you want to get to that place, it does require doing different things. So we’re going to spend more time, diving into that and really kind of examining that in the third episode of this three-part miniseries.
So we’ll just kind of tease it for now and say we’ll spend a lot more time kind of unpacking that and diving into it,
This has been great. I think this has been a super helpful overview of what these three levels are and it sets the stage for where we’re headed the rest of this series.
Anything you want to cap off with? I just love talking about this topic. I mean, I’ve built my own business.
I’m from a family of entrepreneurs, and we work with our clients. The owners of our client companies are all these fantastic hard working entrepreneurs. And I think this topic goes to the heart of what they think about day in and day out, every day.
Well, stay tuned. We’ve got more coming for you in this three-part miniseries, and we will continue to talk about how to grow from one level to the next. We’re going to talk about marketing at each level and just continue to give you insights on how to be able to excel and succeed at all levels of your contractor business.
Don’t forget that we’ve got a resource for you to download that will help you improve your overall online presence. If you want to check out our resource, “Five Reasons That Homeowners Don’t Choose You Online And What You Can Do About It.” Go to fatcatstrategies.com/homeowners and download it right there. It will give you some great tips on how to improve your overall online presence.
Digital marketing for contractors is created by Fat Cat Strategies. For more information, visit fatcatstrategies.com.