Construction businesses that are looking to thrive would do well to pay close attention to the differences between residential and commercial construction projects. It’s common for companies to specialize in one type of construction—and companies that do both residential and commercial construction are usually broken up into specialized divisions.
At first glance, residential and commercial projects have similarities. After all, both involve building structures with common features: windows, doors, roofs, etc. However, the truth is that residential and commercial construction can be very different from start to finish—from the sales process and materials and equipment used, to the project timeline and scope.
Read on to learn exactly what businesses need to know about finding success in the very different worlds of new residential and commercial construction projects.
Residential vs. commercial construction definitions
Before diving too deep into the main differences between residential and commercial construction, it’s helpful to know exactly what we mean by those terms. There are several ways of categorizing the various types of construction projects, and residential vs. commercial is an important distinction.
Here are the key features to know about each of these different project types.
- Generally includes single-family homes or small dwellings with a few units
- Typically owned by a single individual or a family
- Often located in neighborhoods zoned for residences
- Can include both new construction and renovation or restoration work
- Involves larger structures that serve a variety of business or industrial purposes
- Buildings include hospitals, office buildings, retail spaces, apartment buildings, and many others
- Usually owned by a business rather than an individual
- Often located in commercial corridors or industrial sites
Residential and commercial projects serve different purposes and have very different project scopes. As a result, the entire construction process is quite different, which is why construction businesses tend to focus on one type of construction or the other. Read on to see ten key differences in how construction companies approach these project types.
The cost differences between a typical residential and commercial project cannot be overstated. While many residential construction contracts cover jobs from hundreds to tens of thousands of dollars, commercial contracts can involve hundreds of thousands or millions of dollars for a single job.
View the costs of construction for residential and commercial projects:
The cost differences have to do with all of the other factors we’ll discuss below, including materials, equipment, project scope, and more.
A typical residential project—like replacing a roof—will generally involve a single subcontractor, a small amount of materials, and a small team working over a few days or weeks. By contrast, many commercial projects involve dozens of subcontractors and material suppliers, hundreds of construction workers, and months or years of building time. As a result, the costs are simply on different levels for residential and commercial projects.
Bottom line: Commercial construction is significantly more expensive than residential construction simply due to the much larger scale of most projects.
While some materials are used in both residential and commercial construction, there are notable differences.
For example, residential projects are likely to involve wood framing, while commercial projects are framed with wood, steel, or concrete. While steel-slope roofing materials are most common for single-family homes, commercial structures are usually constructed with low-slope roofing materials.
Even materials that are used in both types of construction tend to be used differently. For example, glass is generally reserved for small windows in residential construction, whereas large architectural elements—like huge glass facades—are used in many modern commercial buildings.
The scale of materials required is also massive. For example, a single-family home’s foundation may have 200 tons of concrete, but a skyscraper could contain 200,000 tons of concrete or more throughout its structure.
Due to ongoing material shortages, the cost of all construction has increased significantly—and delays of months up to one year are common on commercial construction projects simply due to necessary items being unavailable.
Bottom line: Residential construction typically involves fewer overall components than commercial construction.
In general, larger and more specialized equipment comes into play during commercial construction projects.
There’s a fairly straightforward reason for this: Since residential projects tend to involve smaller buildings, the required equipment is generally smaller.
On the other hand, commercial projects often involve sites that are many acres large. In fact, large earthmoving equipment is often necessary simply to prepare a site for construction. During construction, cranes, lifts, loaders, pavers, and more are integral parts of completing a large-scale commercial project.
Bottom line: Both residential and commercial projects have a need for specialized equipment, though commercial equipment tends to be significantly larger and more costly.
Read more about financing and leasing options for construction equipment.
4. Timeline and scope
Residential projects tend to be shorter and less complicated than commercial projects. For example, commercial projects may need to secure funding, create a design, solicit bids, and hire contractors — all before starting construction, which takes longer simply because of the scope of the actual project.
Residential projects may take a few weeks or months to complete, depending on the type of project, but commercial projects may take several months — especially when factoring in time for funding, design, and bidding.
Bottom line: Complex residential projects are a minority of the overall residential construction space, but complex projects are the norm in the commercial space.
5. Location and construction site
Residential construction projects and commercial construction projects tend to take place in different locations, which affects every stage of the construction process.
Because homes tend to be bundled in close quarters, residential contractors have to be mindful that their workers and equipment don’t affect neighbors. Additionally, residential construction businesses tend to work different hours as they generally can’t start working early due to potential noise complaints.
Commercial projects that are located in commercial corridors tend to involve lengthy environmental reviews and site selection processes. Before construction begins, the site needs to be prepared by properly grading and ensuring utilities are in place. During construction, the site may be active earlier and later in the day than an average residential project. Because the risk of theft is higher, commercial projects may involve more elaborate security systems, including fences, cameras, or guards.
When a commercial building is constructed in a dense area, contractors will need to carefully consider how equipment and materials will move in and out without disrupting nearby buildings.
Bottom line: Residential contractors may need to consider nosiness and proximity to other dwellings during projects, while commercial construction businesses have to think about ensuring sites are prepared, safe, and secure for construction.
6. Property owners
Residential construction businesses tend to work directly with homeowners for small-scale renovation projects, but for new construction projects, general contractors oversee residential projects from start to finish. Similarly, commercial contractors deal directly with property owners on renovation projects, but may work with a general contractor for new construction projects.
Because commercial buildings are usually owned by businesses or business groups, they tend to hire a general contractor to manage large-scale construction projects. This includes scheduling and hiring the various subcontractors required to complete the building. By the time a project starts, many subcontractors, sub-subcontractors, and material suppliers who do not have direct relationship with the owner may be involved in construction.
On the other hand, even when a small-scale residential renovation project involves subcontractors, it’s likely that they have some relationship with the homeowner. Additionally, homeowners have more of an emotional relationship with the project than commercial property owners, who typically have a more financial relationship with a project.
Furthermore, residential homeowners may have relatively few projects done on their homes—after all, how often is one person going to upgrade an electrical panel or replace their roof? As a result, contractors who work on residential renovation projects often need to carefully respond to the homeowner’s needs and requests before and during construction.
Bottom line: Commercial property owners may not have a direct relationship with many of the contractors on a project, but homeowners who are emotionally attached to their homes require a different kind of commitment.
7. Payment and cash flow
Payment and cash flow tend to function very differently on residential and commercial projects.
For example, payment usually comes once the house or certificate of occupancy is complete for contractors working on new construction projects.
However, commercial contractors tend to receive payment 30 days after completion on a new build, and they may not receive final payment until after the entire project is completed.
Residential contractors tend to have a higher volume of contracts, but each contract is relatively small. By contrast, commercial contractors take on fewer contracts, but each one is for a larger sum of money. However, that money may not actually arrive for a long period of time. As a result, commercial construction businesses need to be especially careful with cash flow.
Bottom line: All contractors can deal with payment problems, but commercial construction businesses need to be especially careful with cash flow given long payment timelines.
Finding success in residential and commercial construction
Construction companies can find success by tailoring their business approach to the particular space they operate in.
Residential contractors need to focus on building a successful sales strategy that meets homeowners where they’re at, then delivers a high-quality result with relatively tight timelines. Over time, word-of-mouth marketing can help these businesses build up the contract volume required to keep cash flow issues at bay and stay profitable.
Meanwhile, commercial contractors must be able to manage the complexities of larger-scale projects, including bidding, longer timelines, and more elaborate construction. Commercial construction companies that can successfully manage cash flow despite slow payment are likely to outlast other businesses.
Residential and commercial construction are very different, and understanding those differences is key to building a successful business that targets a specific type of construction.