One of the biggest strategic decisions a subcontractor makes is whether to focus on commercial or residential work. They're different worlds with different requirements, risks, and rewards. Understanding these differences helps you choose the right path for your business.
Key Differences at a Glance
Project Size
Commercial projects are typically larger — thousands to millions of dollars versus hundreds to thousands for most residential work.
Payment Terms
Commercial work often involves 30-60+ day payment terms with retainage. Residential work usually means faster payment (often upon completion) but smaller amounts.
Clients
Commercial work means working for general contractors. Residential work often means working directly for homeowners or smaller builders.
Documentation
Commercial work requires extensive paperwork: submittals, RFIs, AIA billing, certified payroll on public work. Residential work is typically simpler.
Licensing and Bonding
Commercial work often requires higher license classifications and bonding capacity.
Advantages of Commercial Subcontracting
Larger Projects
Bigger projects mean more revenue per job and less time chasing small contracts.
Professional Relationships
Working with experienced GCs often means clearer expectations, professional communication, and established processes.
Repeat Business
A good relationship with a commercial GC can provide steady work across multiple projects.
Growth Potential
Commercial work provides a path to scaling your business to significant revenue levels.
Predictable Scope
Commercial projects have detailed specifications, reducing guesswork about what's expected.
Challenges of Commercial Subcontracting
Longer Payment Cycles
Net 30-60 payment terms plus retainage means you're financing work for months before getting paid.
Complex Billing
AIA billing, progress payments, and change order processes require administrative capability.
Higher Entry Barriers
You need larger license classifications, more insurance, bonding capacity, and financial strength.
Less Direct Control
You're several steps removed from the end client, which means less control over project decisions.
Cash Flow Pressure
Large projects require large outlays for labor and materials before payment arrives.
Advantages of Residential Subcontracting
Faster Payment
Many residential jobs pay upon completion or with simple progress billing.
Lower Entry Barriers
You can start with basic licensing and minimal capital.
Direct Relationships
Working directly with homeowners lets you build personal relationships and referral networks.
Flexibility
Smaller jobs offer more flexibility in scheduling and workload management.
Less Administrative Burden
Simpler contracts, simpler invoicing, less paperwork.
Challenges of Residential Subcontracting
Smaller Projects
You need more projects to hit revenue goals, which means more sales effort and coordination.
Variable Clients
Homeowners vary widely in professionalism, expectations, and payment reliability.
Emotional Decisions
Homeowners make emotional decisions about their homes, which can lead to scope changes and disputes.
Harder to Scale
Managing many small residential jobs is operationally complex.
Seasonality
Residential work is often more seasonal, with slower periods requiring cash reserves.
Which is Right for You?
Consider Your Strengths
Do you excel at managing complex documentation and formal processes? Commercial might suit you. Do you prefer direct client relationships and variety? Residential might be better.
Consider Your Resources
Do you have the capital to finance 60+ day payment cycles? The bonding capacity for large projects? The administrative capability for complex billing? If not, start residential while building these capabilities.
Consider Your Goals
Do you want to build a large company with multiple crews? Commercial work scales more efficiently. Do you want to stay small and hands-on? Residential keeps you closer to the work.
Consider Your Market
What's the construction landscape in your area? In some markets, commercial work is booming. In others, residential is stronger. Go where the demand is.
The Hybrid Approach
Many subcontractors successfully work both commercial and residential markets. This diversification provides steady residential work to smooth cash flow between commercial payments, commercial projects for revenue growth, and flexibility to shift focus based on market conditions.
If you go hybrid, be prepared for the administrative complexity of managing both types of work.
Making the Transition
From Residential to Commercial
Build your financial strength and working capital. Get higher license classifications if required. Develop relationships with GCs through networking. Start with smaller commercial projects to build track record. Invest in administrative capability for complex billing.
From Commercial to Residential
Build direct marketing capabilities (website, reviews, referral network). Adjust pricing for smaller jobs with faster payment. Develop customer service skills for homeowner relationships. Streamline operations for higher volume of smaller jobs.
Frequently Asked Questions
Can I do both commercial and residential work?
Yes, many subcontractors do. Just be prepared for the different requirements of each.
Which pays better?
Neither inherently. Commercial often has higher gross revenue but longer payment cycles. Residential has faster payment but smaller projects. Profitability depends on your efficiency and pricing.
Is commercial work more secure?
Not necessarily. Commercial work can be feast-or-famine based on economic cycles. A diversified residential business can be more stable.