Growing Your Construction Business: Stay Local or Branch Out?

Many contractors dream about geographic expansion. It’s the smart path to growth, right? But with labor shortages hitting record highs and 47% of construction companies failing within five years, the smart money might be on staying put. Here’s how to know if expansion beyond your current locale makes sense—or if you’re better off dominating the market you already know.

Tom Reber, the owner of The Contractor Fight, which teaches contractors business fundamentals, urges caution. “Most contractors try to expand when they haven’t even made a dent in their own market,” he explains. His math is compelling: “There’s probably another three, four, five million dollars in their current area” waiting to be captured. 

“They actually need to just maximize what they have,” Reber says.

Fresh markets promise untapped customers, less competition, and growth potential. Sometimes that promise pays off. But most construction companies fail in the long-term, and Reber believes premature expansion is a major culprit. He warns that contractors who chase new territories before maximizing their current market could become another statistic.

Does your current market still have room? 

“I believe most contractors don’t need to expand to other areas,” Reber says. “I think they need to maximize what they have.” 

Before you start eyeing the city next door, ask yourself: Are you truly maxed out… or just bored? Make sure you’re not leaving dollars on the table at home before undertaking the effort and stress of expansion. Assess your current territory for opportunity.

• Are you the first company people think of for your specialty? 
• Do you have the best reviews in town?
• Have you maximized your average ticket size? 
• Are you turning away profitable work?

Sometimes the grass looks greener on the other side because you forgot to fertilize your own yard. 

Is your construction business ready to grow? 

Okay—you’re the best contractor on the block. But that doesn’t automatically equal expansion-ready. “The worst thing you could do is go after a new area and then you’re pushing back installs by weeks,” says Rick Wilson, the Director of Contractor Success at Acorn Finance. 

Ask yourself these questions before kickstarting an expansion:

• Are you booked 6–8 weeks out? Consistently, or just during the busy season?

• Have you met your current market goals with room to spare? How are your sales targets, profit margins, and market share?

• How’s your financial cushion? The average gross profit margin for construction companies is around 26%, according to the Construction Financial Management Association. Do you feel comfortable with your finances?

• Can your team handle it? Do you have strong project managers and crews who don’t need constant supervision—or are you prepared to hire new?

The dangers of expanding too soon

Reber doesn’t mince words when it comes to premature expansion. “We call it scaling a turd,” he says. “You have one pile of crap, and you’re going to open up another one? It’s just a bunch of stress coming your way.” 

Here are the financial realities of expansion.

• Travel time eats margins. That 50-mile drive is an hour each way. Plus gas. Plus vehicle wear and tear. A three-day job could add six hours of windshield time.

• Labor costs vary dramatically. For example, Wilson—who’s based in Sacramento—notes that going 50 miles in almost any direction means “you’re going to have to pay your guys more.” If the surrounding areas are more expensive, bake that into your plans.

• Split focus leads to multiple problems. Managing crews in two locations means something always slips, whether it be quality control, customer communication, or scheduling.

How to analyze potential construction markets

Do your homework before expanding. Start by crunching the numbers that matter:

• Check building permits: States like North Carolina and Florida have about five permits per 1,000 people. California, however, only had 1.67 permits for that same number of people, according to New Geography. This isn’t a perfect metric, but can provide some interesting insights: Low permitting, for example, might indicate heavy regulations. High permitting signals active construction, population growth, and homeowners ready to renovate. 

• Assess the online competition: Search “[city] [your trade] contractor” online. The average local business has about 39 Google reviews, according to Brightlocal, so use that as your benchmark. Do the top companies have a hundred-plus reviews? That’s an established market with strong players. Only a handful of competitors with just 10–20 reviews each? There’s room for a new player. 

• Evaluate cost structures: In California, the cost of building a home starts at about $600 in San Francisco. In Sacramento, that cost can range from $140–$400. Same state, drastically different economies. Price your work accordingly.

Laying the groundwork for expansion

Reber recommends that you start building your reputation in a new market months before taking your new job. “I’d start marketing three to six months before we open at that location officially,” he says. “I’d make sure the website was up and we’re starting to get some domain love from Google.” 

What’s domain love? That means Google recognizes your website as a trusted source for local searches. Brightlocal’s Business Listing Trust Report found that 89% of consumers go to Google for local business information. Building that trust takes time—so don’t skip digital marketing.  

Still, think beyond the internet, too. Reber recommends joining local business groups and connecting with local Realtors so you’re a familiar face before you need the work.

Some contractors take a more aggressive approach. Wilson recommends “mass hitting an area with paper mailers, because the hardest thing is name recognition.” Those brochures could promote an irresistible introductory special, like a home maintenance inspection for 20% off. That door-to-door marketing can get you in doors and start building your reputation. 

Offer homeowner financing to tempt new customers

Another smart sell: Offering financing, which can dramatically improve your success rate. “Financing raised our average ticket 70%,” says Wilson. For example, a customer planning a $15,000 bathroom remodel might upgrade to a $25,500 renovation if that splurge actually costs only $400 per month. Payments can feel better than a single big check. 

One of the benefits of offering homeowners construction financing is that it doesn’t cost you a cent. Your customers will pay the fee, letting you save cash for expansion costs. 

Just make sure to tailor financing to your local market. Affluent customers have great credit and cash on-hand. They might choose financing for convenience or to keep money invested. Consider offering 12- or 18-month same-as-cash options. In working-class neighborhoods, focus on affordable monthly payments that fit tight budgets. 

You want to make your services accessible to every customer, regardless of their bank balance.

Should you bring your crew or hire local?

Once you decide to expand, it’s time to consider your crew. Should you have your current workers travel or hire a new team? 

Traveling crews make sense when…

• Labor costs in your new market are significantly higher
• Your team is willing to travel
• Projects are big enough to absorb travel costs
• The new market is a test, not a permanent expansion.

But local hiring wins when…

• You’re committing to the new market long-term
• Local labor costs are reasonable
• You need quick response times for service work
• Travel would put crews more than 50 miles from home. 

Focus on production capacity

If you don’t work proactively to build out your team, Wilson warns of a common, expansion-sinking scenario: “A sales crew that exceeds what your installation teams can handle. You could end up being six months out because you can’t get to the installs.” 

If each crew completes one project per week, and you sell three projects per week, you’ll be backed up eight weeks within a month. Customers get angry. Your reputation suffers. And that promising new market becomes a nightmare. 

Consider expanding production capacity before growing sales capacity. Yes, crews might have the occasional light week. But that’s better than annoyed clients, rushed work, and a damaged reputation. 

Track these metrics religiously:

• Average project completion time
• Current backlog in weeks
• Sales pace vs. production pace
• Customer satisfaction scores.

If your backlog is consistently exceeding 6–8 weeks, pump the brakes on sales or add crews.

Common expansion pitfalls (and how to avoid them)

Your reputation took years to build. Don’t let 50 miles destroy it—make sure to learn from others’ mistakes. 

Prioritize quality

Long-distance supervision is harder. Are your crews staying on task? Is the work up to standards? Document your standard operating procedures and quality checklists, and make sure your team understands your expectations. Documentation ensures the job is done properly, even when you’re 50 miles away.

Create systems for:

• Daily photo updates from your job sites
• Video walk-throughs at project milestones
• Customer check-ins at set intervals
• Punch list protocols.

Prevent cash flow problems

What does it matter if sales improve if you lack the cash to fund your expansion? You’re growing… but unprofitably. Protect your cash flow by:

• Front-loading payment schedules—for instance, 30% at deposit, 30% at framing, 30% at drywall, and the final 10% at completion
• Invoicing immediately for each milestone
• Providing your customers with financing opportunities
• Never letting receivables age past 30 days
• Factoring in additional travel costs in estimates, when necessary.

Smart expansion beats fast expansion

Struggling construction companies aren’t always suffering from a lack of work. Often, they’ve taken on more than they can reasonably handle—essentially growing themselves right out of business. 

“Discipline is the number-one success factor for a contractor,” says Reber. When permits take longer than planned, when the first few jobs in a new location lose money—that’s when discipline matters. Stick to your plan, measure results, and adjust based on data, not emotions. 

And sometimes, the best expansion strategy is no expansion at all. The next market over will still be around once you’ve maximized your current territory. There’s no prize for having the most ZIP codes; focus on creating the most profitable business possible instead.

Ready to fuel your growth with customer financing? Whether you’re expanding geographically or capturing more market share at home, financing options can increase your close rate and average ticket size. Learn how Acorn Finance helps contractors win more jobs with easy payment solutions your customers will love.