Every other year, ELECTRICAL CONTRACTOR conducts a survey of its readers to provide a checkup on the industry and to gauge the temperature of its chief participants. By carefully listening to those who make the industry tick and then examining their responses, we can provide an accurate diagnosis of what is happening in the electrical construction market and how electrical contractors (ECs) are faring.
The survey results aren’t a panacea with all the antidotes for company health, but they help provide an educated diagnosis of where ECs are and how they compare to their peers. As we delve into the survey, consider the information as if it were a series of doctor-prescribed tests that will help uncover exactly where you stand and what you should be considering as you move forward.
Upon examination of the survey results, a few key findings bubble to the surface:
• The economy had a severe impact on ECs.
• Annual revenues are down, particularly among firms with revenues of less than $1 million.
• ECs remain a trusted partner in design, specification and brand selection.
• Green/sustainable building is gaining momentum.
• The aging work force continues to be a serious concern.
• ECs branched out into new project types to fill gaps created by less new home and CII construction.
Before we can explore the detailed findings of the survey, we must first know what a typical EC looks like. In terms of size, a great majority of the firms are small in both number of employees and revenue. About 70 percent have less than 10 employees and have annual revenue of less than $1 million. There also are fewer companies with 10–19 employees in 2009 (9 percent) versus in 2007 (12 percent). That certainly is a byproduct of the economic crisis.
This year’s survey resoundingly demonstrates that the industry is suffering from the ills of the economic crisis that has hindered the construction markets since 2007. While there are some signs of hope and opportunities to embrace, the overall profile shows the effect the economy has had on ECs. Some ECs have changed their business models altogether to adapt to the major disturbances in the market while others were forced to lay off employees to stay healthy. These are difficult times, and ECs are not immune.
Nearly 40 percent of all those surveyed said their firms lost employees over the past 18 months, while a mere 8 percent added employees during that timeframe. Thankfully, 53 percent reported that the number of employees stayed the same over that time period. In total, about 61 percent kept the same amount of employees or added new employees in the last 18 months. Still, growth must wait for better times.
Electrical construction companies with 10-plus employees were most likely to report losing employees, while firms with less than 10 employees were most likely to have stayed the same. So, the smallest companies in terms of employees and revenues avoided layoffs more frequently than their larger counterparts (see Table 2).
Layoffs are often a symptom of a greater ailment—lost revenue. Compared with the 2008 Profile, a significantly higher percentage of ECs said their annual revenues were less than $250,000, while fewer reported having annual revenues between $250,000 and $1 million.
Larger firms ($1 million-plus in revenue) didn’t change much in terms of revenue, but the smaller contractor revenue classes (less than $250,000 and between $250,000 and less than $1 million) experienced offsetting changes. The less-than-$250,000 revenue companies grew by about the same percentage by which the $250,000 to $1 million revenue group shrunk. We can infer, then, that the economy took many ECs back under the $250,000 revenue mark that were above it for the 2008 survey (see Table 3).
It’s no secret that the bursting of the residential bubble had a profound impact on ECs. The market was simply flooded with too many available for-sale homes. With too much inventory, new construction slowed dramatically, leading to a dearth in the new residential construction market.
New construction in total, which had accounted for 42 percent of average revenue among ECs in the 2008 Profile, dropped to an average of 34 percent for 2010. The smaller firms, which rely more heavily on the residential market, suffered the hardest blow from the slowdown in new construction (see Table 4).
Residential vs. CII and Nonbuilding
Overall, ECs continue to get more of their total business from commercial, industrial and institutional (CII) work than from residential projects. Nonbuilding projects—line work, power generating plants, substations, transportation lighting and utility work—account for about 5 percent of the contractors’ business.
As has been the case during past surveys, there are clear differences between the types of work performed by larger and smaller ECs. Residential construction accounts for a much greater proportion of work among smaller ECs (those with less than 10 employees), while CII projects account for more of the work of larger firms. Nonbuilding projects are much more the domain of large firms than their smaller counterparts.
The percentage of residential work declines and the percentage of nonbuilding work increases as company size increases. In the case of CII, there is a big jump between companies with fewer than 10 employees (average revenue is 43 percent) and firms with 10-plus employees (average revenue is almost twice as high). This suggests that the companies with 10 or more employees represent the critical mass that works on CII projects. In 2008, the critical mass for CII work was the 20-plus-employee firms (see Table 5).
Among firms with 10–19 employees, the percentage of revenue from CII rose to almost 78 percent in 2010 from 66 percent in 2008—a 12 percentage-point bump. At the same time, the average revenue from residential work plummeted from 32 percent to 18 percent—a 14 percent dive.
Residential work also decreased among firms with 20–99 employees (although the decrease is not significant), while the percent of revenue from nonbuilding nearly tripled from 5 percent in 2008 to 13 percent in 2010. This trend indicates a willingness to adapt to the changing market landscape to stay successful in a difficult economy and also, perhaps, it could be influenced by some of the American Recovery and Reinvestment Act (ARRA) funds that were directed to road and infrastructure construction (see Table 6).
Although on average, the greatest portion of ECs’ revenue comes from CII work, single-family housing accounts for the largest single revenue source. Within the multifamily housing market, a higher percentage of revenue comes from multifamily housing that is up to five stories compared with taller residential buildings.
Within the CII market, a greater percentage of ECs’ revenue is from commercial construction than from industrial or institutional projects. There is only one notable difference compared to two years ago: The percent of revenue from utility projects appears to have about doubled from 1.8 percent in 2008 to 3.7 percent in 2010. This could have been a ripe opportunity that smart ECs have embraced to offset losses in other areas of work or because of ARRA projects (see Table 7).
Single-family housing projects account for a high percentage of revenue across the board, but it is most important to electrical contracting firms with 1–9 employees. On average, these small businesses earn almost half of their revenue from single-family home projects. Simplified in general terms, the smaller the construction firm, the more they rely on single-family housing. As the firm size increases, the more they tend to branch out into multifamily housing, CII and utility-related projects.
Electrical contracting firms with 10-plus employees get the largest percentage of their revenue from commercial projects (37 percent). ECs with 100-plus employees get a disproportionate percentage of their revenue from industrial and institutional projects and from nonbuilding work, particularly power-generating plants (see Table 8).
New, modernized, or maintained and repaired?
On average, maintenance, service and repair combine to account for a slightly larger percentage of revenue (38 percent) than new construction (34 percent). Modernization/retrofit work accounts for an average of 28 percent of revenue.
Consistent with the sagging economy, the percentage of revenue from maintenance, service and repair jumped from 31 percent in the 2008 Profile to 38 percent in 2010. Simultaneously, new construction dropped substantially from 42 percent in 2008 to 34 percent. This is another case in which ECs filled the new home/CII construction gaps with another revenue stream—maintenance, service and repair work (see Table 9).
According to the data, ECs also are embracing the environmental movement in great numbers, at least in terms of the work they do. For example, in 2010, almost 60 percent of those surveyed said some portion of their 2009 sales included projects with green or sustainable building elements, which marks a dramatic increase from 46 percent in 2007. On average, about 11 percent of 2009 revenue involved projects with green or sustainable building elements, compared with 9 percent in the 2007.
Firms with 100-plus employees are significantly more likely than smaller firms to derive a higher percentage of their revenue from green or sustainable building elements. About 90 percent of firms with 100-plus employees estimate that some portion of their sales will include projects with green or sustainable building elements in 2010 (see Table 10).
Almost half of the ECs that took part in the survey reported working on one or more of the types of green/sustainable building and alternative-energy projects that were included in the 2010 survey. About 35 percent of ECs performed Leadership in Energy and Environmental Design (LEED) green building rating system and non-LEED energy upgrades. Of the alternative-energy projects that were tested in both 2010 and 2008, three types posted increases in 2010:
• LEED projects jumped from 9 percent to 19 percent.
• Solar/photovoltaics increased from 11 percent to 16 percent.
• Wind generation rose from 3 percent to 5 percent.
Types of work—branching out
In the survey, we showed ECs a list of 35 different project types and were asked to indicate which they had performed the previous year. Eight new project types were asked about for the first time in the 2010 Profile: preassembly/prefabrication of electrical components, radiant and/or electrical heat, energy storage, nuclear, energy-efficient projects/upgrades (non-LEED), energy audits, and CII automated building systems/connectivity. For the eighth project type, we asked for “other” project types and then asked the respondents to specify what they had worked on.
When asked about the types of work performed in the previous year, not surprisingly, 94 percent of firms mentioned traditional power/lighting. About two-thirds said they worked on power quality, communications/systems connectivity and/or [CII] automation/controls in the previous year.
Fifty percent said they had worked on residential automation/controls in the previous year and about the same percentage worked on alternative energy/sustainable building technology. In addition, 50 percent worked in two of those new areas added in 2010: radiant/electric heat and preassembly and/or prefabrication of electrical components (see Table 13).
Companies with 10 or more employees are more likely than smaller firms to perform power quality and/or CII automation/controls work. The one exception is that residential automation/controls work is more likely to be performed by firms with less than 10 employees.
In addition, compared to the 2008 Profile, significantly fewer ECs reported working on residential fire/life safety, while significantly more ECs reported working on CII industrial controls and on data centers and fiber optics. Again, this trend demonstrates how ECs seek opportunities in various areas when new construction suffers. Adapting to the changing dynamics of the market is critical to a company’s long-term health.
To flesh out that adaptation trend, consider that, although electrical power distribution accounts for an average of 54 percent of revenue and is the largest component by far, it has been dropping steadily. In 2008, it accounted for an average of 64 percent of revenue; in 2004, it accounted for 69 percent of revenue.
To further demonstrate how ECs are seeking opportunities to replace lost new construction revenue, about 40 percent of those surveyed are actively engaged in systems integration or work in data centers. More ECs in 2010 said that they were actively involved in the design or specification of data centers or the installation of data centers than in 2008 (see Table 11).
Plans, specs and brands
More than 80 percent of ECs reported having a “medium” or “high” ability to influence the overall electrical design or specifications with building owners or design team members. About half describe their level of influence as “medium” while about a third characterize their level of influence as “high” (see Table 14).
Twenty percent of ECs say they now get involved earlier in design collaboration; 55 percent reported no change compared with five years ago. However, earlier Profiles showed that a shift occurred: ECs have increased their involvement earlier in the process. Very large companies (100-plus employees) are more likely than their smaller counterparts to report getting involved earlier, while firms with less than 10 employees are more likely than larger firms to report no change in when they get involved in the design collaboration process (see Table 15).
Seventy percent of ECs performed design/build or design/assist work in 2009. As in the past, larger firms are even more likely than smaller firms to have engaged in design/build or design/assist work. While 65 percent with less than 10 employees performed design/build or design/assist work in 2009, 86 percent of firms with 10 or more employees performed design/build or design/assist work during the same timeframe.
Compared to the 2008 Profile, the percentage of firms working on a design/build or design/assist basis declined from 77 percent to 71 percent—due mainly to the decline in design/build and design/assist work among firms with fewer than 10 employees and perhaps a smaller number of design/build or design/assist projects getting underway due to the economy.
An average of 40 percent of ECs’ revenue was generated through a design/build or design/assist basis, marking a 7 percent decline from the 2008 Profile. This decline is likely tied directly to the smaller amount of new construction reported in 2010 when compared to 2008. (For more on the design/build results of the survey, see the story that will appear in the next issue of Electrical Contractor).
Not only are ECs trusted partners when it comes to collaboratively designing projects, but they are being trusted to complete unfinished specs. A whopping 83 percent of respondents reported receiving plans and specs that were incomplete (where their firm is responsible for completing the design documentation). On average, the contractors say plans and specs are incomplete 45 percent of the time. These 2010 Profile results are essentially no different from the 2008 Profile.
Compared to two years ago, there is no change in the percentage of ECs who say a higher percentage of CII plans and specs are now incomplete versus five years ago. However, a lower percentage of ECs say the residential plans and specs they receive are incomplete (single-family housing: 24 percent incomplete in 2010 versus a directionally higher 28 percent incomplete in 2008 and multifamily housing: 22 percent incomplete in 2010 versus 31 percent incomplete in 2008). Again, these results could be related to a down economy.
Companies with 10 or more employees, who we know tend to obtain a higher percentage of their revenue from CII projects, also are more likely to say a higher percentage of the CII plans and specs they now receive are incomplete. Twenty-two percent of ECs with less than 10 employees say a higher percentage of the CII plans and specs they now receive are incomplete as compared 42 percent among firms with 10 or more employees.
When it comes to brand, ECs are trusted to pick the one they see is the best fit. ECs were shown a list of four options and were asked what percentage of the specs that their company receives fall into each category. On average, a single brand is specified about 25 percent of the time. In all other cases, other factors—multiple brands, “or equal to,” or performance-specified—come into play (see Table 16).
Note that a single brand specification is far more common among companies with 1–9 employees than among larger firms. “Or equal to” is most common among firms with 10–19 employees, while “performance--specified” is least common among ECs of this size (see Table 17).
Availability and price are the top reasons for original brand selection. Availability and price were chosen by 73 percent and 67 percent, respectively, of ECs as either their first, second or third reason for initial/original brand selection. Prior experience, ease of installation, durability and manufacturer reputation form the second tier of reasons. Interestingly, energy efficiency was only chosen by fewer than 20 percent as a top reason for original brand selection.
Availability and price are also the top reasons for brand substitution. Again, it is surprising that energy efficiency does not play a larger role (see Table 19).
As was the case in previous Profile studies, a third of electrical contracting companies perform their work in multiple states, again suggesting that there may be issues of licensing and certification. Not surprisingly, working in multiple states is more prevalent among larger firms.
Compared to 2008, a small but significantly higher percentage of ECs reported working in five or more states (7 percent in the 2010 study versus 5 percent in 2008). The poor economy may have spurred some larger ECs to seek opportunities in other states. This may also account for work done in natural disaster--ravaged areas, such as New Orleans and other Gulf Coast areas impacted by Hurricane Katrina. That rebuilding process continues (see Table 20).
Just as ECs must be on the alert for new opportunities and revenue streams, they must also be alert to counterfeit electrical products. Counterfeit products can be very dangerous and could create liability issues for ECs that handle them.
As was the case in 2008, about 60 percent of ECs expressed a high level of concern about counterfeit electrical products, the effectiveness of tools and materials, and their ability to meet codes. The percent falling into each of the other categories: “somewhat,” “not very” or “not at all” concerned is also statistically unchanged from 2008.
Smaller firms are more likely to be highly concerned about counterfeit electrical goods than their larger contractor counterparts. About 65 percent of contractors with fewer than 10 employees are “extremely/very” concerned while 47 percent of the ECs with 10 or more employees fall into that category.
However, compared to 2008, there appears to be a solidification of beliefs.More ECs now appear to be reassured that they are, in fact, not encountering counterfeits. Perhaps industry efforts to educate and build awareness are having the intended results.
Training and education
Speaking of training and education, more than 60 percent of ECs say they or someone in their firm has taken some form of training in the past 12 months or plans to be trained in the next 12 months. This could be in the form of online, correspondence or classroom training. There is no significant difference between the percentages that took training (61 percent) or who plan to take training (67 percent).
Hands-on training, preferred by 62 percent of respondents, rises to the top as the single most preferred method of learning. Conversely, one-on-one, classroom, self-paced videos/CDs and webinars are each preferred by between 5 and 10 percent of those surveyed (see Table 21).
Training plans are a strong indicator of emerging opportunities that ECs have embraced. Aside from the regular cycle National Electrical Code (NEC) changes and lighting (50 percent on a pooled basis), the next most popular topic among those who will take training is green/sustainable building, which was mentioned by more than 40 percent.
Future interest is significantly higher in courses in high-tech areas such as lighting fixtures; all tested aspects of green/sustainable building/energy; commercial and home automation; in business management areas, such as estimating/financial management and design/build or building information modeling (BIM); and in power quality (see Table 22).
In terms of subjects they would like to know more about, the NEC leads the pack at 69 percent, followed by lighting (56 percent), grounding/bonding (53 percent), alternative-energy systems (49 percent) and residential automation/smart homes (45 percent).
Training only goes so far. What about formal education? A majority of survey respondents (55 percent) have some college education; this is the case regardless of the number of employees. However, as was the case in the 2008 Profile, those who work in smaller firms (1–9 employees) are more likely to have only apprenticeship, trade or vocational school training, compared to those in firms with 10 or more employees (32 percent versus 25 percent). Those in the smallest firms (fewer than five employees) are less likely to have any college training, particularly a bachelor’s degree (see Table 23).
Across the total sample of respondents, there were no significant differences in terms of education versus two years ago. But, in the 2010 Profile, 34 percent of ECs working in firms with 100-plus employees reported having a bachelor’s degree or higher level of education, compared to 22 percent in the 2008 Profile. Likewise, only 3 percent of ECs working in firms with 100+ employees in the 2010 survey said they had only a high school education, compared with 10 percent in the 2008 survey.
Clearly, the data indicates that the larger the firm, the more likely it is that the EC in the CEO’s chair is educated with at least a bachelor’s degree. The data also suggests that across the board, ECs are going further in terms of education and training than in the past. Perhaps this has something to do with the increased sophistication of the industry and advances in technology, not to mention the new areas ECs are exploring to expand revenue.
Training isn’t the biggest concern when it comes to human resources. Age is. Regardless of company size (number of employees), the survey respondents tend to be at least middle aged. Across the total sample, about half are between the ages of 35 and 54 and almost 80 percent are between the ages of 35 and 64. As noted in 2006 and 2008, younger contractors do not appear to be filling the leadership pipeline. However, this survey queries electrical contractors and not electricians, and many ECs do not incorporate their own companies until they are older.
In addition, between 2006 and 2010 there has been a consistent, significant decrease in the percentage of ECs who are aged 35–54 (from 58 percent in 2006 to 52 percent in 2008 and to 45 percent in 2010). We know where those losses are going; they are getting older and moving to a new category. There has also been a consistent, significant increase in 55-and-older crowd (from 33 percent in 2006 to 39 percent in 2008 and to 47 percent in 2010). For the 65-and-older crowd, the percentages have increased as well, from 8.3 percent in 2006 to 12 percent in 2008 and to 16 percent in 2010 (see Table 24).
Also, the mean age of survey respondents is now 53.2, compared with 51.5 in the 2008 study, 50.0 in 2006 and 48.6 in 2004. Each of these increases is statistically significant and clearly demonstrates how much the industry’s participants are approaching retirement age in large quantities.
This aging work force and leadership issue will only get worse for the next survey, unless ECs begin setting up succession plans and hiring (and then training) younger employees.
After analyzing the survey results, it’s easy to see how the economy dampened new construction, specifically the residential market. Contractors have spread themselves out to book business in some nontraditional areas for their companies.
That’s just one way to stay healthy during a tough economy. Other ways include embracing an increasingly collaborative role in the design process and jumping on the green/sustainable energy bandwagon. It could be the difference between layoffs and growth.
Now that you have a pulse of the industry, you can determine how healthy your company is and what you have to do to maintain a clean bill of health until your next checkup.Editor’s note: Stay tuned for more 2010 Profile results next month.
KELLY, former editor of ELECTRICAL CONTRACTOR, is a Baltimore-based freelance writer. Reach him at firstname.lastname@example.org.
The survey was conducted by postal mail and through the Internet among a random sample of ELECTRICAL CONTRACTOR subscribers. As of the deadline for the July 2010 article, 808 completed surveys were received—394 via the Internet and 414 via postal mail. Each respondent who received the survey via the Internet was sent two follow-up e-mails. (In addition, a portion of the Internet sample also received either a reminder postcard or a printed letter containing their unique survey link.) However, follow-up mailings were not made to nonresponders in the postal mail sample. An incentive was offered for participation in the survey: For each completed survey, ELECTRICAL CONTRACTOR would contribute $5 to charity.
The Internet option was first introduced in 2004. In 2004 and 2006, the proportion of surveys completed via the Internet versus postal mail was approximately 60/40. In the 2010 and 2008 surveys, the proportion was closer to 50/50.
As was the case since 2004, the survey was produced in different versions. As was the case last year, there were four versions of the survey, which differed from each other on fewer than 10 questions. The postal mail portion was conducted as a five-page booklet, with the first four pages containing core questions that were common to each version. The differences among the versions occurred on page 5. The Internet portion of the study was essentially the mail portion of the survey posted on the Internet. The major difference was that in the Internet portion respondents were required in almost all cases to have percentage questions add up to 100 percent.
In 2010, a series of questions relating to the Internet and social media was asked only of the Internet sample.
Tables and figures contained in this article come from the data generated by this year’s ELECTRICAL CONTRACTOR Survey, which was conducted by New York-based Renaissance Research & Consulting Inc. (www.renaiss.com), an independent marketing research firm that specializes in market research for the construction industry.
The margin of error on the total sample of 808 is +/–5 for percentages around 50 percent (i.e., the difference between 42 percent and 47 percent would be statistically significant at the 90 percent level of confidence). Please note that different rules apply to testing of averages, which were also tested at the 90 percent level of confidence and are also noted in the report.