In my role at the Sheet Metal and Air Conditioning Contractors’ National Association, I work with contractors in several different market sectors. I most often work with companies engaged in commercial construction. Commercial construction tends to be robust and often lucrative, but is also notoriously cyclical. I am sure many have felt the pain of a dip or a slowdown in project funding.

One way to avoid this could be to diversify into residential construction and service offerings. I believe this could provide a strategic buffer, potentially offering greater stability and a consistent revenue stream.

It should be apparent that portfolio expansion can offer contractors significant strategic advantages. The residential and service sectors are typically in different economic cycles than commercial construction, resulting in a built-in hedge against downturns. Expanding your company’s scope can lead to steady income streams, a more resilient business and stronger client relationships.

One key factor is that residential projects require less upfront capital compared to large commercial endeavors. These lower startup costs may enable contractors to enter the market quickly as well as scale flexibly. If the company is already a commercial contractor, the startup lift is likely even lighter. 

Another important point is that residential projects typically feature quicker project schedules and result in shorter payment cycles. These aspects significantly enhance cash flow (this should entice contractors who are typically used to financing multimillion-dollar projects), ease financial pressure and provide liquid funds to use within the business. 

Expanding into residential construction may also increase a contractor’s visibility within the community. I think we would all agree that word of mouth is the most effective advertising. When done well, adding residential service can bring organic growth.

Establishing routine residential maintenance contracts creates predictable, ongoing revenue, much like commercial service. Securing these contracts can significantly reduce financial volatility and help sustain the business during periods of slower growth. A further benefit of providing regular service and maintenance is deepening relationships with all clients: offering comprehensive solutions will position your company as an invaluable long-term partner. 

Being a one-stop shop will position you as the contractor your clients come back to again and again. I think one factor that may not receive enough attention is that service offerings can optimize staffing efficiency, affording you an opportunity to move workers from commercial to residential projects and vice versa. 

Bidding projects with different wage rates can be more complex; however, it is advantageous to keep workers engaged and productive between large commercial projects. Residential work also provides ideal opportunities for training apprentices and new team members, enhancing workforce skills and readiness.

Expansion challenges

The potential advantages are clear. However, expanding into new markets can also come with challenges. Managing multiple business lines introduces additional logistical complexities and expanded administrative duties. It is crucial to establish and document sound processes and efficient systems to manage these diverse operations smoothly. 

Residential and service markets do require a different set of skills; managing these clients can be starkly different than large commercial projects. This often necessitates investment in new hires or additional training for existing staff. Different offerings may cause confusion regarding what your company does; a new brand entering the market will need some effective communication, making clear branding strategies and targeted marketing campaigns essential. 

It goes without saying that residential customers typically have different expectations. Budget sensitivity, communication and responsiveness are also very important to these customers, so contractors need to anticipate and be prepared to respond appropriately.

To successfully implement expansion, you should have clearly defined, manageable services and goals. Gradually scale your operations to allow smooth adaptation without overextending your resources. Proactively identify and address skill gaps and use targeted training or strategic hiring to significantly enhance your expansion strategy. Clear and cohesive brand communication will help ensure that existing and prospective clients understand the full range of services without diluting your core brand.

I hope I’ve explained that adding residential construction and service offerings could present clear strategic advantages, including long-term business stability and growth. Obviously, challenges exist, but with careful planning, targeted investment and clear branding, you should be able to mitigate these concerns. I firmly believe that commercial contractors should thoughtfully consider this opportunity for diversification as a strategic path toward enduring success and resilience.

Travis Voss is SMACNA’s director of innovative technology and fabrication.