Why Good Residential Flooring Companies Struggle With Commercial Work

I've met plenty of flooring business owners who are very good at what they do. They've been around for years. They have good installers, a solid reputation, happy customers and a residential business that works.

Then they decide to go after commercial work and sometimes it goes badly. It's easy to assume they just weren't good at commercial flooring but I don't think that's normally the problem.

Being good at residential flooring doesn't automatically prepare you for running a commercial flooring division.

I learned that myself! When we started building the commercial side of Sanford Carpet & Flooring, I quickly realized that commercial wasn't simply residential flooring with bigger projects. The flooring may be familiar but the business behind it is very different.

➡️ The first mistake is treating commercial margins like residential margins

This is one of the first things residential flooring dealers need to get their heads around.

Commercial margins are generally lower.

If you go into commercial expecting to price everything the way you would a residential job, you're probably going to struggle to compete for the right work. That doesn't mean commercial can't be profitable. It simply means you have to understand what makes the model work.

A lower percentage margin on a commercial project doesn't necessarily tell you whether it's good or bad business. You also have to think about the size of the project, how regularly that customer can send you work, your costs, your capacity and the relationship you're building.

This is also where owners can get themselves into trouble by focusing too much on revenue. A big contract looks great when you see the number at the top. The size of the contract isn't the same thing as the quality of the opportunity.

➡️ Bigger commercial projects can actually be dangerous

This is something I wish more flooring owners understood before chasing large commercial contracts. We've had projects where the plans weren't correct and additional material was needed. You'd assume that's simply a change order but it isn't always that simple. Sometimes the General Contractor won't accept the change order. Sometimes something isn't included in the budget and, if it's an important client who gives you a lot of work, you have a business decision to make about whether you absorb the cost.

We've also completed work and then had payment held up because the GC believed something about our insurance wasn't compliant. Meanwhile, you've already done the work, you've already paid people and you've already bought material.

Winning the job is only the beginning. A flooring company can win a large commercial contract and still put itself in a very difficult position if it doesn't have the capacity, cash flow and commercial experience to manage what comes next.

➡️ Cash flow works differently

This is probably one of the biggest shocks for residential flooring companies. The commercial cycle is longer at both ends. It can take much longer to develop the relationship, find the opportunity, price it and actually win the work. Then, once you've done the job, it can take much longer to get paid. In some cases, the whole cycle can stretch toward a year but your suppliers and installers aren't going to wait a year.

Materials need to be paid for and installers need to be paid. Your business still has expenses every month. As commercial projects get larger, having access to enough working capital or some form of bridging finance becomes increasingly important. 

This is one of the reasons I don't see commercial flooring as a quick fix for a residential business that needs more revenue. If anything, trying to grow commercial too quickly without understanding the cash-flow side can make your problems worse.

➡️ Commercial installation is different too

You also have to think differently about installation. On a residential project, you generally have far more control over the space. Commercial projects can have multiple trades working around each other. Your flooring crew isn't operating in a vacuum. There may be electricians, painters, drywall crews, plumbers and other contractors all trying to get their part of the project finished. Your schedule can depend on somebody else finishing theirs. 

And somebody else's delay can quickly become your problem. That's why having installers who understand commercial environments matters. Being an excellent residential installer doesn't necessarily mean someone is ready to walk onto a large commercial project and operate effectively around multiple trades, schedules and site requirements.

➡️ You need different skills before you even win the job

There are also basic commercial capabilities that residential businesses sometimes overlook. Takeoffs are a good example. If your team can't accurately read blueprints and perform commercial takeoffs, that's a problem before you've even started.

You need to know what you're pricing and you need people who understand commercial installation. You also need to understand the longer sales and payment cycle. You definitely need the financial capacity to support the work and you need patience.

Commercial flooring is not something I'd recommend a company simply "tries" because residential has been quiet for a couple of months.

➡️ Not every General Contractor is a good customer

Another lesson we learned is that getting commercial opportunities isn't enough. You need the right opportunities from the right customers. Some General Contractors will hold payments, some set unrealistic targets and some are interested almost entirely in getting the lowest possible price.

I've seen GCs get ten flooring estimates for a project. Personally, I don't want to be one of ten. That isn't the commercial business we wanted to build.

There is a belief that General Contractors always choose the lowest flooring bid. Good ones don't. In my experience, the customers we wanted were looking for a balance of price, quality and service. We were normally somewhere around the middle on price. Some flooring companies would go in very low and then make up the difference with change orders. That wasn't how we wanted to operate.

We found that good commercial customers would often rather pay a little more and know what they were getting. Less stress, fewer surprises, good communication, attention to detail and a can-do attitude when something inevitably changes on a project. Over time, that's what builds trust.

➡️ The biggest difference is how you think about the customer

This is probably the most important lesson I learned. There's a big difference between doing commercial flooring jobs and building a commercial flooring division. You can install flooring for a law firm, a church, an office or another end user and say you do commercial flooring. There's nothing wrong with that. But that's not necessarily a commercial division.

For us, the bigger opportunity came from building relationships with organizations that had an ongoing need for flooring. General Contractors are an obvious example. If you become a trusted flooring partner to the right GC, you're no longer thinking about one project. They have another project. And another.

The same principle applies to the right Property Managers, facilities teams and other commercial relationships. That's when the economics of the business start to change.

➡️ Relationships beat volume

There's a piece of commercial flooring advice I've heard over the years that I don't agree with. It goes something like this: “Commercial is a volume business. Put out as many estimates as possible and eventually you'll win some.” That's never been the business I wanted.

I'd rather have strong relationships with a smaller group of good commercial customers who understand the value we bring than constantly fight nine other flooring companies to be the cheapest number on a spreadsheet. The best commercial relationships we built weren't based purely on price, they were based on becoming a partner in the customer's success. When customers know you communicate, do what you say, pay attention to the details and help solve problems, they have a reason to call you again. That's a very different business from constantly hunting for the next bid.

➡️ So, should a good residential flooring company move into commercial?

Absolutely, it can be a great opportunity! Commercial gave us something I found very difficult to achieve through the residential side of the business: more control over our growth.

We tried Facebook marketing, magazines, direct mail and other forms of advertising over the years. My frustration was always the same… You put the money out there and wait. It's difficult to know exactly what's working, and ultimately you don't control when the phone rings.

Commercial changed the way I thought about growth because we could identify the market we wanted, go out and build relationships, look after those relationships and create recurring business.

But there is an important distinction. Commercial isn't just another marketing channel for a residential flooring company. You're building a different part of the business.

Different margins.

Different timelines.

Different cash-flow demands.

Different installation requirements.

Different customer expectations.

And a different approach to winning work.

Understand those differences before you chase the revenue because the goal shouldn't be to do more commercial jobs. The goal should be to build a commercial business worth having.

About Lawrence King

Lawrence King spent more than 12 years building Sanford Carpet & Flooring in Florida, completing more than $20 million in commercial projects and serving commercial customers. After building and recently selling the business, Lawrence now works with established flooring companies through Commercial Flooring Pipeline™ to help them build profitable, predictable commercial divisions.

Thinking about building the commercial side of your flooring business?

Commercial Flooring Pipeline™ helps established flooring companies understand what it takes to build commercial properly, from the markets and relationships worth pursuing to the systems and commercial operation needed to support long-term growth.

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