Check out my new article on Sub contracting is a waste of time, in my humble opinion, and you’ll never be wealthy doing it. As I write this article I am currently engaged in a large domestic electrical project for a Principal contractor. Margins are tight and pressure to deliver the job to specification, pay my guys…

Check out my new article on

5 Reasons Why Sub Contracting Is A Waste Of Time (And What To Do If You Do)

Sub contracting is a waste of time, in my humble opinion, and you’ll never be wealthy doing it.

As I write this article I am currently engaged in a large domestic electrical project for a Principal contractor. Margins are tight and pressure to deliver the job to specification, pay my guys and still make money is totally there.

So this well and truly applies to me. Allow me to clarify…

There are several levels at which you can choose to operate in the construction industry and the economies of scale favour those businesses that are set up to take advantage of the greater end of the scale.

I refer specifically to Tradesmen who run a small operation of a few guys and a couple of vans. These are the tradesmen who run a small business which they have a direct involvement in “on the ground” so to speak. These guys don’t have managers and layers of administration to help with the normal day to day, it’s just not a runner given the level at which they operate.

1. You Earn The Least

Have you ever thought to yourself..

The harder I work, the less I seem to earn

If you are one of these tradesmen I refer to above, and you expect to become wealthy, or even moderately wealthy, then your efforts are pretty much in vain. You’ll spend most of your best years fighting to make a living, with your staff probably making more than you based on the number of hours worked.

It must come down to hours worked into gross pay. If you are not analysing your income by this simple method then you are ignoring the elephant in the room. You’re salary does not reflect the effort you put in.

2. Retention Of Payments

Retention on payments hurts cashflow and is standard practice in the Construction Industry. Sometimes this retention depends on the Principle Contractor and whether they choose to withhold it, but most will. For a lot of guys this retention is their profit. You can do better in an area of the industry that does not hold retention.

3. Construction Tax Deductions

Many states around the world stop some kind of Tax specific to the Construction Industry. Most in Ireland will be familiar with RCT. For many small plumbers, electricians, plasterers, bricklayers etc, Principle Contractors are required by Revenue to stop RCT at source which hurts cash flow.

4. Poor Site Management Costs You Dearly

If you are hired by a Main Contractor to carry out an installation, there will be other trades that you will need to co-ordinate with. If there is no one “driving the bus” and carrying out this co-ordination of the various trades, things will go wrong.

You and others will not carry out your work in the correct order and it will need to be redone, or, you’ll have to take a cut in your price to compensate, all because there was no Main Contractors rep who knew how to run the job correctly.

5. Zero Protection For You

This is the big one for me. You have no protection should the Main Contractor go out of business before the job is complete. You have no knowledge as to the financial security of the firm you are working for.

Also, if they loose money on the job then it’s likely the quantity surveyors for the company will be told to recoup the losses from their suppliers..that means YOU! I have experience of both scenarios only too well.

6. Very Tight Margins

The margins that are available to you in the Construction Industry are very small. There are so many small contractors out there in competition for the same work that it invariably forces prices down, way below what it takes to make money.

A wiser man than me once told me, “if you are not making 20% gross margin then you are not breaking even”. As tradesmen, we must work to make 20% at least to make our efforts allow us breath. If you can not walk away from a job having made 20% clear profit for your business then you are wasting your time. How can you reinvest with margins as small as 5% or 10%!

40% is what you should be aiming for in order to realise a reasonable profit for your business with the ability to reinvest your profits. Of course the next question is “How do I achieve that”? Well that may be for another post another day.

7. You (and others like you) Fund The Job

You bear all the risk here. The Principal Contractor hires you and other sub contractors to carry out the work and they manage it. They have no, or very small outlay. Preliminaries that’s it. They are on the right side of the fence and you are on the wrong side.

They have their head screwed on and you do not. You fund their job, you buy all the materials and with little or no credit from your suppliers and you pay salaries of your staff and they make a margin on you. You have all the work and financial burden and that is where you have placed yourself. It’s not a strong place to be if things go pear shaped.

So What Do You Do About It?

Although it may seem like it, I’m not trying to be overly negative here. The bottom line is at worst that the Construction Industry is a dangerous place for any small contractor to operate. At best you’ll simply get by with a wage or slightly better. The risks far outway the rewards for a small contractor. If you are in this sector and can’t seem to make a go of it, then you should consider one of the following;

  1. Get higher up the food chain. Scale up your business and take advantage of better margins and less risk higher up the ladder.
  2. Specialise. Pick a specific area within your trade where there are a small number of guys and focus on it. Chances are you’ll be in a better position to command a higher rate and get a deposit.
  3. Get out. Quit the game and do something totally different.

Things will never change for us tradesmen until we change. We must stand back from what we are doing and appreciate that we won’t be around forever and now is the time to make it happen or not. We deserve better than we are currently getting, and until such time as we can see our own worth the pounds, shillings and pence will not come.

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