Growth vs. Profitability Strategy

Document Type: Guide
Version: 1.0
Last Updated: February 2026
Distribute To: Owners, Executives

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Purpose

Provide a framework for making strategic decisions about growth and profitability trade-offs.

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The Fundamental Tension

Growth Requires:

• Cash (working capital)
• People (hiring ahead of revenue)
• Infrastructure (systems, facilities)
• Risk tolerance (new clients, larger projects)

Profitability Requires:

• Discipline (selective bidding)
• Efficiency (process optimization)
• Margin protection (pricing discipline)
• Cost control (overhead management)

The Challenge:

Aggressive growth often sacrifices profitability short-term. Maximizing profitability may limit growth.

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Understanding Your Position

Where Are You Now?

                    HIGH PROFIT
                         │
     Harvest/Cash Cow    │    Stars
                         │
    ─────────────────────┼─────────────────────
                         │
     Turnaround          │    Growth/Invest
                         │
                    LOW PROFIT

         LOW GROWTH ◄────────► HIGH GROWTH

Assessment:

Metric	Your Value	Industry Avg	Position
Revenue growth	___%	5-10%
Gross margin	___%	12-18%
Net margin	___%	2-5%
ROIC	___%	10-15%

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Growth Considerations

Healthy Growth Looks Like:

Indicator	Healthy	Warning
Backlog	Steady increase	Spike then crash
Margins	Maintained	Declining
Cash flow	Positive	Constant strain
Quality	Maintained	Increasing issues
Safety	Maintained	Incidents rising

Growth Constraints:

Bonding Capacity:

Current single limit:     $___________
Current aggregate:        $___________
Utilization:              ______%
Growth capacity:          $___________

People Capacity:

Role	Current	Needed for Growth	Gap
PMs
Supers
Estimators
Field

Working Capital:

Current working capital:  $___________
WC as % of revenue:       ______%
Target for growth:        $___________
Gap:                      $___________

Growth Risks:

Risk	Mitigation
Overextension	Conservative leverage
Quality decline	Systems and training
Culture dilution	Careful hiring
Cash strain	Financial planning
Key person burnout	Capacity planning

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Profitability Levers

Margin Improvement:

Gross Margin:

• Better estimating
• Productivity improvement
• Material purchasing
• Subcontractor management
• Change order capture
• Quality (reduce rework)

Overhead Reduction:

• Process efficiency
• Technology
• Right-size organization
• Facility optimization

Profitability vs. Volume:

Scenario Analysis:

Current:
Revenue:        $10,000,000
Gross Margin:   12% ($1,200,000)
Net Margin:     2.5% ($250,000)

Option A: Grow 20%, margin holds
Revenue:        $12,000,000
Gross Margin:   12% ($1,440,000)
Net Margin:     2.5% ($300,000)
Growth:         +$50,000 profit

Option B: Same revenue, improve margin 2%
Revenue:        $10,000,000
Gross Margin:   14% ($1,400,000)
Net Margin:     4.5% ($450,000)
Improvement:    +$200,000 profit

Often, margin improvement > volume growth

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Strategic Options

1. Growth Strategy

When to Pursue:

• Market opportunity exists
• Capacity available
• Cash/financing available
• Competitive position strong
• Team ready

How:

• New markets/services
• Larger projects
• New clients
• Geographic expansion
• Acquisition

Watch Out For:

• Margin dilution
• Cash strain
• Quality issues
• Culture change

2. Profitability Strategy

When to Pursue:

• Margins below target
• Cash constrained
• Market challenging
• Capacity issues
• Consolidation phase

How:

• Selective bidding
• Price discipline
• Operational efficiency
• Cost reduction
• Portfolio optimization

Watch Out For:

• Revenue decline
• Market share loss
• Team retention (boredom)
• Missing opportunities

3. Balanced Strategy

The Middle Path:

• Grow at sustainable rate
• Maintain margin targets
• Invest in capabilities
• Build selectively

Decision Rules:

• Grow only at target margin or better
• Invest in growth enablers
• Optimize current operations
• Balance short and long-term

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Decision Framework

For Each Opportunity:

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         GROWTH OPPORTUNITY ASSESSMENT
================================================================

Opportunity: _______________________________________________

Revenue Potential:        $___________
Margin Expectation:       ______%
Profit Potential:         $___________

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STRATEGIC FIT:
☐ Aligns with core competency
☐ Target market/client
☐ Reasonable risk profile
☐ Team capable

RESOURCE REQUIREMENTS:
Bonding required:         $___________
Working capital required: $___________
People required:          ___________
Infrastructure needs:     ___________

RISKS:
☐ Capacity strain
☐ Cash flow impact
☐ Quality risk
☐ Relationship risk
☐ Market risk

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RECOMMENDATION:
☐ Pursue aggressively
☐ Pursue cautiously
☐ Pass

Rationale:
___________________________________________________________

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Annual Strategic Review:

Question	Answer
What is our growth target?	___%
What is our margin floor?	___%
What capacity do we have?	$___ revenue
What investment is needed?	$___
What are we willing to risk?

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Financial Modeling

Growth Scenario Planning:

Scenario	Revenue	Gross Margin	Net Margin	Cash Need
Current
+10% growth
+20% growth
Flat + margin focus

Key Questions:

• Can we fund growth internally?
• What financing is available?
• What's the payback period?
• What's the downside risk?

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Industry Benchmarks (CFMA)

Performance Targets:

Metric	Median	Top Quartile	Goal
Revenue growth	5-8%	10-15%
Gross margin	14-16%	18-22%
Net margin	2-3%	4-6%
Backlog months	8-12	12-18
ROE	10-15%	20%+

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Related Documents

• Business Planning
• Succession Planning
• Financial Reporting
• Win Rate Analytics

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Template provided by support.construction. Growth without profit is just busy work.