2024 National Subcontractor Market Report
National Subcontractor
Market Report
Subcontractors who account for the cost of working capital have higher revenues, larger profit margins, and have bigger growth plans
Table of Contents
About the Report
In December 2023, Billd surveyed subcontractors across the nation to create the fourth annual National Subcontractor Market Report. This survey investigated the market conditions subcontractors faced in 2023, yielding the perspectives of nearly 700 construction executives. This information served as the foundation of all insights captured in the 2024 report.
Report Highlights
Subcontractors undertake a massive financial burden on every project, acting as the “interest-free banks” of GCs and owners. Financing those projects with lines of credit, supplier terms, credit cards and even cash on hand has tangible costs for the subcontractor — costs that strain their profit margins. All the while, inputs like labor and materials steadily rise year after year.
With financing costs forming a silent but significant burden, the profitability of subcontractors now depends, in part, on their ability to recognize and capture the cost of financing in bids.
14.1%
Profit margin for subs who account for working capital costs
12.7%
Profit margin for subs who do not account for these costs
57 days
Average wait to get paid after submitting a pay application
Subcontractors who accounted for the cost of working capital in their bids are seeing higher revenues, larger profit margins, and have bigger growth plans in 2024. They also report having more positive relationships with their GCs. Those businesses saw 11% larger profit margins versus those who did not. Despite the obvious impact on profit, only half of subcontractors increased their bids to account for financing.
The Worsening Burden of Slow Pay
A Well-Known Problem in Construction Intensifies
Every subcontracting business owner and CFO is deeply familiar with the challenges of slow pay and this year respondents reported the problem worsening. Months of unseen back and forth between GCs and property owners can take place before subcontractors start to receive progress payments for the work they've done. The survey saw an 11% increase in the number of subcontractors reporting the problem year-over-year.
71%
Of respondents said they are generally slow paid by GCs, up from 60% the year prior
77%
Of subcontractors came out of pocket for materials before receiving payment in 2023
46%
Of subcontractors said cash flow posed a substantial challenge for business growth
57
Days
Average time waiting to get paid for completed work
92
Days
Worth of working capital available to the business
Early Payment Willingness
Many subcontractors are willing to pay a percentage in exchange for guaranteed payment upon pay application approval. Of those who said yes, 89% would offer 1–5% off their invoice. A select few would go as far as 10%, showing just how serious slow payments can be.
More GCs Understand the Impact, But Nothing Has Changed
While 35% is still significant, it is a dramatic drop from 2022, when 52% of subcontractors felt GCs didn't understand. It might be anticipated that heightened awareness would mitigate delayed payments. However, evidence suggests that increased awareness by general contractors has not had an impact on improving the problem.
35%
Of subcontractors believe GCs don't understand the importance of prompt payment
33%
Of subcontractors believe GCs don't express the urgency of prompt payments to the owner
The Universal Rising Costs of Inputs
The State of Skilled Labor
Amid an ongoing labor shortage, the cost of labor was once again on the rise. However, this incline is getting less steep over time.
13%
Average increase in skilled labor costs in 2023, compared with 15% in 2022
48%
Said lack of quality skilled labor will be the biggest risk to their business in 2024
The State of Material Costs
Sharp material price hikes defined the pandemic and the years that followed, but in 2023, that impact appeared to soften.
19%
Average increase in material costs in 2023, compared with 26% in 2022
37%
Said material price volatility negatively impacted supplier relationships, down from 73%
The unprecedented material shortages and price hikes seen during the pandemic have cooled, but rising material costs are still a concern. 65% of subcontractors foresee price volatility impacting their businesses in 2024. The ability to navigate pricing conversations with GCs will continue to be critical to profitability and business success. 61% sought out new suppliers as a result of material procurement challenges.
The Financing Tools Subcontractors Leverage
Supplier Terms: The Flawed Favorite
Supplier terms continue to be the most popular method of purchasing material, with 92% of businesses using terms. Over 77% use terms more than any other option, a 17% increase from the prior year.
How subcontractors purchased materials in 2023
73%
Have terms that are only 30 days or less but wait 57 days to get paid
39%
Believe the length of their supplier terms are not sufficient
85%
Report having supplier terms that do not align with their DSO
The Real Cost of Working Capital
Working capital solutions, however vital to getting subcontractors through cash flow deficits caused by slow pay, have real costs associated with them.
| Source | Hard Cost | Source of Cost |
|---|---|---|
| Line of Credit | 10–15% APR | Interest |
| Supplier Terms | 2–4% per month | Cost of servicing baked into pricing |
| Material & Receivables Financing | 2–4% per month | Financing charges |
| Credit Cards | 18–36% APR | Interest / Merchant fees |
| Cash | 5–10% APY | Forgone investments / Delayed business growth |
Success in Accounting for the Cost of Working Capital
Almost half of subcontractors are accounting for the cost of working capital and raising their bids accordingly to protect their profit margins. Much like materials, labor and overhead, the cost of working capital directly impacts a subcontractor's bottom line.
48%
Of subcontractors account for the cost of working capital in their bids
91%
Of respondents increased their overall bids in 2023, compared with 78% in 2022
The Improved Profitability
The inclusion of working capital costs has a palpable impact on profitability. 59% of those who did reported having a more profitable year, compared with just 50% of those who didn't.
14.1%
Profit margin of subs who added the cost of working capital into bids
12.7%
Profit margin of subs who did not add the cost of working capital into bids
66%
Of cost-conscious subs reported revenue growth, compared to 63% for peers
29%
Who increased bids enjoyed 20%+ growth rates, vs only 23% for those who didn't
Better GC Relationships & Better Growth Prospects
Subcontractors who account for the cost of working capital tend to have better GC relationships. Both groups experienced slow pay with the same frequency, but cost-accounting subs outperformed their peers on other benchmarks. 79% of subcontractors who increased bids planned for growth in 2024, compared to just 67% of those who didn't. They were also 7% more likely to take on larger projects and 15% less likely to fund growth with their own cash.
Revenue Growth & 2024 Outlook
2023 Business Growth in Review
More subcontractors attained business growth in 2023 than in 2022. 75% experienced revenue growth between 1–20%, with 41% reporting larger revenue gains (11–20%) than last year.
How much did your business revenue grow in 2023?
67%
Of respondents' business revenue grew in 2023, up from 61% in 2022
55%
Said their business was more profitable in 2023 than 2022
2024 Business Growth Aspirations
Subcontractors' desire to grow and pursue bigger projects is remarkably consistent. Those who don't plan to grow flagged the labor shortage as their chief concern: 57% cite the shortage of quality skilled labor.
73%
Of respondents plan to grow their businesses in 2024, up from 71% in 2023
57%
Of respondents are interested in going after larger projects in 2024
How subcontractors plan to fund growth in 2024
Technology Adoption
More and more companies are turning to construction technology. Estimating and takeoff software is now used by 71% of respondents, compared with 62% just one year ago.
71%
Estimating / Takeoff
68%
Project Management
57%
Project Accounting
49%
Bid Management
An Industry Veteran's Perspective
One thing genuinely struck me in this year's report: the fact that half of subs don't charge for the cost of their working capital. However, it was clear why those that do have demonstrably higher profit, higher revenue and have bigger growth plans for this year.
Accounting for costs matters in an industry where staying in the black is an uphill battle. Unlike other markets, construction operates on a razor thin margin and turbulent cash flow. Subs are constantly fighting to get paid fairly on change orders, compete with lower bids, and collect payment before working capital reserves run dry.
We hope that the report emboldens subcontractors nationwide to seek out the timely payment they deserve. Subs incur astronomic cash deficits when they don't leverage all their working capital options. When you combine that capital stack, the costs should be included in all bids. Reflecting that cost in bids ensures the sub can financially thrive, but most importantly, that they can grow.
The true injustice here is not that 48% of subs are eating the cost of financing; it's that they're hindering their own growth.
Chris Doyle
CEO of Billd
About the Survey Respondents
The survey was completed by 696 construction professionals across various trades. It captured data on their revenue, profitability, ability to fund labor and materials, vendor relationships, and the impact of industry payment cycles. Respondents were surveyed in December 2023.
85%
Owner / Executive
91%
In business 10+ years
72%
Subcontractor only
55%
Both commercial & residential
Annual Revenue in 2023
Region
34%
Southeast
21%
Southwest
18%
Northeast
15%
Midwest
12%
West
About Billd
Billd stands alone as a partner that truly champions the subcontractor. Their financial and payment products empower subcontractors to bypass project hurdles by providing access to upfront funds to cover their most pressing costs. Unlike traditional financing outlets, Billd provides flexible lines of credit to accommodate the unpredictability of cash flow in construction, and extends their customers longer terms to align with industry payment standards.