First Quarter Prices Released, New Labor Rates
January 13, 2010 by nolan · Leave a Comment
On 1/2/2010 we uploaded the most recent pricing data.
Also, new recommended Hourly Labor Rates (HLRs) have been posted. Click here to view them!
All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:
Most Building Materials Subject to Minor Price Corrections
- Dimensional lumber prices increased 4%.
- Fiberglass shingle prices down 2%. Plywood pricing up 2%.
- Fiberglass insulation decreased 2%.
- Wood stud pricing stayed constant.
Here are some other relevant articles:
Not for the Fainthearted
By Patrick O’Toole
Qualified Remodeler
November 2009
The list of motivations for striking out onto one’s own and starting a remodeling business is long, but here is a good start. There is a desire to make more money. There is a strong desire to not let your ideas make someone else rich. There is a desire to chart one’s own course in life, not to be controlled by a course or business path that other people choose. There is a strong sense that you have hit upon a unique value proposition, perhaps a niche in the market that is underserved. These, among other motivations, lead many to start a remodeling business.
Onetime Qualified Remodeler columnist Michael Gerber famously called this moment an entrepreneurial seizure. The humor and the dark underbelly of Gerber’s phrase “entrepreneurial seizure” is that starting a business is not usually based on sound reasoning or even business sense. It represents a leap of faith that you will hit the ground running and never stop. This industry is filled with great carpenters who dropped their tool belts to market and sell jobs, to price them and build them. The hard reality of being in business means having to spend time doing things you may not enjoy or even be good at.
This leap-of-faith is often rooted in an overestimation of one’s own abilities. A lot of very talented designers and trim carpenters create businesses that are craft based. Among many of these, there is a sense that the excellence of their core skills will carry the business forward, and money will follow naturally. This does happen for a lucky few who are well connected to a network of paying customers. But today’s remodeling market is not as frothy on the demand side anymore. And the scope of jobs has shifted dramatically. More people are looking for house doctors and fewer are looking for a modern-day Michelangelo.
Successfully running a business requires a combination of skills that is not often found in one person. In 2010, the remodelers who will thrive will be the ones who see the challenges of the road ahead clearly and prepare to address those challenges ahead of time. Sales and marketing will be the No. 1 challenge for most remodeling firms. Take a day or two days this fall/winter to put a plan together that you feel will work. Then seek out expert opinions to tweak that plan. Lead costs are growing. You need to be sure that your plan is an efficient one.
Challenge No. 2 is really a group of challenges posed by a changing regulatory environment that have been in the offing for many years. How prepared are you to perform lead clearance testing on homes built before 1978 where children are present? Do you have a plan for communicating with your customers about lead-based paint given the April 10th implementation of the new lead-based paint rule? Have you identified a place to get the training you need? The new year will also bring with it new options and requirements with regard to providing health insurance to your employees. Some of you, who do not now offer it, may be required to do so. Is there someone on your team who is prepared to handle the issue of health insurance? Do you have a good insurance professional that you can rely on?
The new year will bring an improving market for remodeling activity, but it will also bring with it a set of challenges that will test your full range of business capabilities. Unfortunately, the fun and rewarding part of the business creating great solutions for customers will not be your sole focus for 2010. The one indispensible trait for successful remodelers will be overall business resourcefulness. The winners will listen to others. They will cast a wide net for business ideas and for people to help them navigate this challenging business environment.
——————————-
Indicator Points to Cyclical Bottom for Remodeling, Start of Recovery in 2010
The Joint Center for Housing Studies
October 15, 2009
CAMBRIDGE, MA - The declines in owner spending on home improvements will moderate through the end of 2009 and first half of 2010 according to the Leading Indicator of Remodeling Activity (LIRA), released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The indicator suggests the remodeling industry is turning a corner. Annual spending levels should start to rise in the beginning of next year causing year over year declines to shrink to 8.9 percent by the second quarter of 2010.
“Remodeling spending by homeowners shows early signs of stabilization,” says Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “While the housing recovery has been erratic, a strengthening economy could produce spending increases on home improvement projects by the second quarter of next year.”
Some positive signs for the industry are emerging. “Favorable financing costs - for those households with access to credit - and a pickup in homes sales are producing more opportunities for home improvement projects,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies. Several factors, however, still impede remodeling growth. “A generally weak housing market with unstable prices, near record levels of foreclosures, and other distressed sales are discouraging households from undertaking nonessential remodeling projects.”
——————————-
Radical discounting is business suicide
Remodelers won’t survive long slashing prices
By Wendy A. Jordan, Contributing Editor
Professional Remodeler
October 1, 2009
Can remodeling contractors survive a strategy of radical discounting?
- Kitchen and bath designer, California
The short answer is no. If you slash prices deeply to generate business, you may see success in the short-term, winning contracts from bargain-hunting homeowners. In the long run, though, you are setting yourself up for failure.
Radical discounting is a topic that stirs strong emotions among established remodelers. I contacted several around the country, and they said it is business suicide for all but extremely large companies, and eventually those giants, too. As design/build remodeler Iris Harrell of Harrell Remodeling in Mountain View, Calif., put it, the only way to survive radical discounting is to stop doing it. Now.
Say you cut prices by 20 percent or more, which is one general definition of radical discounting. You’ve fried your profit and probably a good share of your overhead coverage. Even if the low prices draw new business, your company has only so much sales and production capacity. You’ll never be able to make up the lost revenue through increased volume.
Radical discounting carries another danger as well. It devalues your company. And once you start down that road, it’s hard to turn back. Jesse Morado is a remodeling pro who now runs a residential remodeling consulting firm, Renovation Coach, in Atlanta. He warns that repositioning yourself as a low-price company moves you into the market niche of bottom-dollar companies. It’s a whole different world where buyers fixate on price negotiation and don’t think about the workmanship, customer service and reliability. You will have to cut corners to save money perhaps reducing the number of workers on the job, providing less frequent production oversight, scheduling fewer dumpster pickups, doing less painstaking site protection, and so on. All this raises the risk that you will make more errors, fall behind, disappoint your clients and sow the seeds of negative PR. That’s a deadly price to pay.
Moderate price reduction is a different matter. Many remodelers are tightening their operations to lower their estimates a few percentage points. The difference is that they are calculating the price cuts around careful cost cutting that protects the quality of their remodeling product and safeguards their profit margin.
Morado says that by doing a line-by-line analysis of projects completed in the last year you may be able to identify a 25 percent savings without altering your margin. Look at the schedule: Is there waste? Can you shave off some labor hours? Could you save money, without hurting quality and control, by subbing out some aspects of production? And so on.
Over the past five years, Dave Bryan has systematically cut costs within Blackdog Builders in Salem, N.H. Today it costs $1 million less to run the $5 million-volume operation.
At Atlanta’s Small Carpenters at Large, Danny Feig-Sandoval is doing a company-wide cost analysis now. He’s looking not only for savings within the company; he’s asking suppliers and subcontractors to pass along savings. He’s also shopping other high-quality trades, which he figures may uncover better prices and keep him more attuned to competitive rates.
Belt-tightening may enable you to reduce your bids somewhat, but they are likely to be higher than the prices quoted by low-ball companies. So be it. You also can offer multiple options, including modest, economical designs, along with more full-bodied plans. For example, says Harrell, you could base estimates on grade A or good-quality-but-less-expensive grade B cabinets, depending on the homeowners’ priorities and budget.
Fourth Quarter Prices Released
October 2, 2009 by nolan · Leave a Comment
On 10/2/2009 we uploaded the most recent pricing data. All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:
- Drywall costs have slipped lower during the 3rd quarter hitting all time lows.
- Roofing costs have declined after the stabilization of oil costs.
- Plywood costs have risen as much as 20% in some areas.
- Dimensional lumber cost have incresed 10-15% during the 3rd quarter.
- Fiberglass insulation costs have returned to early 2009 costs after sharp mid-year increases.
Here are some other relevant articles:
Remodeling Market Down, But Remodelers Expect Recovery
By Jonathan Sweet, Senior Editor
August 1, 2009
Professional Remodeler
Two-thirds of remodelers say their market is worse than it was a year ago, but at the same time they’re seeing some relief on the horizon, according to the latest Professional Remodeler survey.
Sixty-seven percent of remodelers said their local market conditions have gotten worse over the last 12 months, compared with 19 percent who said the market was unchanged and 14 percent who have seen an improvement. And that’s coming off of 2008, when 50 percent of remodelers had a decrease in revenue from 2007, according to our annual Business results Survey. (Visit www.HousingZone.com/bizresults for more information.)
Remodelers tend to be an optimistic lot, though, and most are expecting things to get better next year, with 57 percent predicting an improvement in the market and only 11 percent saying things will worsen in 2010.
The lone exception to this optimism is the Midwest. Only 46 percent of remodelers there are expecting a better 2010, and 20 percent say the downturn will continue over the next year. It’s the only region of the country where more than 10 percent expect the market to worsen.
Although 67 percent of remodelers say the market is worse now than a year ago, only 11 percent expect it to continue to worsen over the next 12 months. Fifty-nine percent of remodelers in the Northeast and West and 66 percent of Southern remodelers think conditions will improve over the next year.
The results are not that surprising when considering the local economic conditions. The Midwest has a 10.2 percent unemployment rate, tied with the West for the highest in the country, and the Midwest has seen the biggest increase in unemployment over the last year, according to the U.S. Bureau of Labor Statistics. The region also includes several states hit hard by the recession, including Michigan, with it’s national-high 15 percent unemployment rate, and three other states with unemployment of more than 10 percent (Illinois, Indiana and Ohio).
Consumer confidence is key
The biggest factor in improving the remodeling market will be increasing confidence, remodelers say.
We asked remodelers to rank several factors on the importance in driving a recovery in their local market. Consumer confidence topped the list, with nearly 90 percent of remodelers ranking it in the top three. Coming in second was “Consumers’ inclination to spend rather than save,” followed by availability of financing, increased housing values, higher employment and fewer foreclosures. Not surprisingly, these are all factors that drive consumer confidence.
We also separately asked remodelers what was needed to turn their market around, allowing them to provide any answer. More than a third listed some variation of consumer confidence. The only other answer that was close was the more than 10 percent who responded with some sort of complaint about the government.
Smaller jobs, fewer leads drive downturn
Anecdotally, it’s not hard to understand why so many companies are struggling this year. Take fewer leads, a lower close rate and smaller job sizes, then toss in increased competition in many markets and you’ve got a recipe for disaster.
The numbers back the stories. Most remodelers are seeing significant drops in average job size. Nearly half of remodelers reported a “substantial” drop in average price tags from a year ago, and 77 percent saw at least some decrease. Only 11 percent of firms had an increase in average job size over the last year.
Leads are down for 72 percent of companies, compared with the 15 percent of companies that are getting more leads. And once they get those leads, remodelers are finding it harder to close the deal, with 64 percent saying their close ratio has dropped over the last 12 months (although 13 percent did report higher close ratios).
Many remodelers are also seeing more competition. More than 40 percent of companies reported an increase in competitors. The recession also seems to be knocking some companies out of the market, though, as 36 percent of firms said the number of their competitors has decreased.
Of those companies that are facing increased competition, 68 percent are dealing with new home builders; 57 percent, former trade contractors; and 53 percent, former employees of new construction and remodeling firms. Ten percent said they are seeing increased competition from other sources, such as unemployed DIYers and college students.
What will it take to change your market?
378 remodelers with 2008 revenues of more than $500,000 completed the survey online. Data were collected June 8 to June 27, and participants were chosen from a random sample of subscribers to Professional Remodeler magazine and eNewsletters.
We asked remodelers, “What’s the most important thing that needs to happen to turn your market around?” Here’s a sampling of their write-in responses:
“Get the government out of our business.”
“The media and Wall Street need to instill consumer confidence to American people. There is way too much doom and gloom out there, and people are very nervous.”
“The national economy must stabilize and turn around and start growing.”
“Consumers need to feel good about their current and immediate future financial condition and employment outlook. Until confidence improves, even those with the cash aren’t going to spend on anything but the necessities.”
“The government needs to have leaders who do what is good for the country instead of political gain.”
“Our market is not bad.”
“[We] need to have more large companies to employ more people.”
“The builders need to go back to building houses. They don’t know how to manage remodeling clients and therefore price their jobs way too low.”
“Consumer confidence seems to be the key. People appear to be interested in renovations; however, they are waiting to see if more bad news awaits us. Most of our work is done through discretionary spending. On a political note, I think it would help if the minority in Congress would try to work with the majority and vice versa, showing a united approach to the problems.”
“No turnaround [necessary]; it has never been that bad.”
“Everyone should get busy doing and stop waiting for others, i.e. the government, to do it for them!”
“The financial sector has to improve a lot. People have to get their investments back closer to what they have lost in order to start spending on their homes.”
“Unemployment needs to stop increasing, and home values need to stabilize. Also, home builders, tradespeople and unemployed professionals need to stop ‘trying their hand’ at remodeling.”‘
——————————-
Survival of the Fittest, Revisited
Survival is more than just hanging on. It requires a team effort, a return to sound business fundamentals, and an ability to respond to a changing market.
By Mark Richardson
September 2009
Remodeling Magazine
Since last year’s “perfect storm” of banking crisis, stock market crash, and housing foreclosures, I have traveled across the country speaking to thousands in the remodeling industry about “The Remodeling Outlook,” which looks both at the fundamental demographic of our industry and at changes that have taken place over the last few years.
Everywhere I go, I get questions that reflect the pain remodelers are feeling as well as their thirst for certainty. Many ask, “When will the market improve?” “How do I get the phone to ring?” “Will my business survive?”
A few years ago, the word “survival” was not in most remodelers’ business vocabulary. Most had experienced double-digit growth for so many years that they lost sight of the ingredients needed for a business to be healthy.
These basic ingredients are the same today as they were when I wrote about them more than a year ago, but this time the perspective is that of someone who has seen the scars and bruises that many have suffered in the past year.
Mindset
All businesses today need the right mindset. Given what we have experienced over the past 12 months, this mindset needs to begin with the notion that survival will be a team effort, not something carried on the back of the owner or leader. Business owners who are working their way through this muck are not acting shepherds leading sheep, but instead have made survival a team priority.
Another critical element of right mindset is maintaining a positive attitude. In times like these, a negative attitude is like a cancer that will eat away at a business. Work ethic is also essential. The status quo isn’t enough anymore, and success may require working longer hours and some weekends.
Finally, the right mindset depends on being more creative and flexible and less dogmatic. Processes and systems are important, but don’t let them be a ball and chain that pulls the business under.
Basic Business Fitness
To survive this economic hurricane, businesses need to not only bail water when the boat is sinking but steer the boat to calmer waters. Many businesses today are so focused on getting through the week and meeting payroll that they are getting further and further off-course. Their goal is short-term survival, but without a vision for medium- and long-term health.
Finding a balance can be difficult, but as with your personal health, if you don’t invest some energy into staying fit, you will move further away from being in shape. Take time out for a business fitness check up, and then invest 10% of your week into those areas that need attention.
Change
Although change is critical to survival, most businesses are reluctant to change and must be dragged into it against their will. This is a sorry state of affairs, because, as a friend of mine once said, “If businesses are not changing, they will become irrelevant.” Wow, who wants to become irrelevant?
In the remodeling business, change begins with understanding how your client has changed, how marketing strategies need to adjust, and how fundamental business priorities and structure are being transformed. The common denominator among the businesses I have touched during the last year is that they think they are changing, but they are not changing enough.
Change also needs to be managed. The faster and more dramatically you change, the more difficult it will be to get everyone onboard. That means you need a plan not just for the change itself, but for how you will communicate the change and handle the fallout it creates.
Survival requires looking for specific solutions in the context of your clients, your market, your product, and your team. With the right approach, you can do more than just survive in this market you can thrive.
Mark Richardson, co-chairman of Case Design/Remodel, recently accepted a one-year appointment to Affiliate in Housing Studies at Harvard’s Joint Center for Housing Studies.
Third Quarter Prices Released
July 6, 2009 by nolan · Leave a Comment
On 7/1/2009 we uploaded the most recent pricing data. All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:
- Dimensional lumber continued to slip lower by 5% or more during the past quarter.
- Drywall stayed low and stable.
- Fiberglass shingles continued to climb at a steady rate with some areas up by 15% over the past 3 months.
- Plywood costs remained stable in many areas but also increased up to 5% in some areas.
- Brick costs decreased in most areas.
- Fiberglass insulation costs dropped across the country, in some areas as much as 20% during past 3 months.
- Wood stud costs stayed fairly stable, dropping by 5% or less in a few areas.
Here are some other relevant articles:
The Perfect Time to Grow Market Share
Bruce Case Explains Why Remodelers Need to Grab Market Share Now
Bruce Case, Contributing Editor
June 1, 2009
Professional Remodeler
Contributing Editor
If your sales have shrunk by 50 percent in the last 6 months, are you a bad business person? It depends. How many remodeling projects are being done in your service area within that niche?
Have the total available opportunities for remodeling also shrunk by 50 percent?
This is called market share, and it really matters. Market share is determined by dividing the number of your company’s projects by the total number of projects done by all homeowners in your target market, i.e. kitchens and bathrooms for upper-middle-class households. Market share tells you what percentage of the total market you have captured.
It seems sort of philosophical to bring all this up now when we are all fighting for the same jobs, dancing with the temptations to lower margins and trying to hold on to our team members. We should be beating the streets, trying to get every nickel we can and not worrying about data crunching or statistical analysis, right?
But now is precisely the right time to bring this up. Now is the time to gain market share on our competitors so we can help pay the bills in the short term. Competitors have cut back on their marketing budgets, our team members are more eager to participate in their communities (think home shows, parades, seminars, etc.) and we need to be as competitive as possible.
In the mid-term and long-term, market share will rocket our business to new heights. In the short-term, there is less demand for remodeling. Regardless of how much market share we garner we are still shrinking. In the long term when the economy bounces back, any increases in market share we gain now will multiply our revenue exponentially as the pool of remodeling demand grows.
Cash and corporate energy is tight. So if you buy into this concept of market share, what can you do about it? Here’s a sampling of our initiatives:
1. We spend some of our marketing budget on branding. These efforts, which typically are spent on more traditional forms of marketing (radio, print advertising, etc.), are not expected to generate direct leads. With these we want to build our brand; we want to plant the seeds that grow into future market share.
2. We spend some of our marketing budget on lead generation. These efforts have evolved as traditional marketing avenues have proven ineffective for lead generation. Today, our efforts include home shows, community events, open houses, seminars and, of course, past clients and referrals.
3. We want to hear how we are doing in the eyes of our customers and potential customers. We have surveyed past clients for many years. Three to four years ago we stepped up these efforts by investing in a third-party surveying firm to gather the feedback of our past clients and give it back to us in easily understood and indexed forms. About three months ago, we started surveying leads as well clients who have not proceeded. It is not to try to change their minds; it is because we are committed to gaining market share. We want to know if we left a good impression even through they did not proceed with Case.
4. A focus on market share means a focus on clients, not on projects. Our handyman services give us the ability to get our foot in the door with a prospective client, show our worth and earn that client for life. Our breadth of services (handyman, kitchens, baths, remodeling, design/build) gives us the ability to capture the majority of remodeling dollars spent by that client, assuming we exemplify excellence each step of the way.
We are constantly fighting for market share. With more market share, we have more of a base of clients. With more clients we are more stable. With stability comes more income potential short-, medium- and long-term for our entire Case team. All that means our business is truly a business; it has a brand, and it is valuable because of the awareness customers have about it.
Give your input and continue the dialogue on Bruce’s blog at www.housingzone.com/brucecase.
——————————–
Bruce Case is president of Case Design/Remodeling and COO of Case’s national franchise organization, Case Handyman & Remodeling. He can be reached at bcase@casedesign.com.© 2009, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
13 Ways to Get Referrals that Reward
More than ever, successfully tapping past client bases is the key to remodelers’ success
By Jonathan Sweet, Senior Editor
May 1, 2009
Professional Remodeler
With a sputtering economy and crashing home prices, it’s not an easy time to find new remodeling clients. But it is a good time to take a back-to-basics approach to marketing and work on mining your most lucrative lead source: past clients. This isn’t exactly a cutting edge idea, but it’s something many remodelers got lazy about over the last few years as business boomed. If you’ve done a good job, past clients offer a wealth of advantages over new clients.
“No. 1 is instant credibility,” says Dale Nichols, president of Artisan Remodeling in Granite Bay, Calif. “People know exactly what we’re capable of doing.” It’s also much less expensive to land new business from old clients than it is to grab new ones, Nichols says.
At the same time, it’s easier for a remodeler to work with a client she knows because you know all their idiosyncrasies, says Patty McDaniel, president of Boardwalk Builders in Rehoboth Beach, Del. “We’re familiar with the house, we’re familiar with the client,” she says. “We know what it’s going to take to make them happy and we can be more comfortable putting a number together.”
The most important part of getting referrals is doing a good job in the first place, but even after that, it’s important to reach out to those clients to make sure you stay top-of-mind. Here’s how several remodelers across the country are reaching past clients and rewarding them for their repeat and referral business.
1. Reward Testimonials
Black Diamond Builders e-mailed all of its past clients asking them for testimonials. Anyone who responded got their name entered into a drawing for a dinner for two at a local restaurant. It offered several benefits for the Lake Forest, Calif.-based firm, according to owner J. M. Steele. Besides giving Black Diamond fodder for its marketing efforts, it also makes sure the company is on the minds of past clients for referral or repeat business. Giving them a chance to relive their successful remodel brings them positive vibes and memories, Steele says.
2. Stretch That Referral Reward
Lots of companies give out gift cards to thank past customers for referrals, but Thompson Remodeling in Grand Rapids, Mich., wants to make that reward last a little longer. Instead of giving out a $50 or $100 gift card for an expensive dinner somewhere, Thompson spends that money on cards for the local coffee shop. That way, says President Ben Thompson, the client will get multiple uses out of the card and think of Thompson every time they use it.
3. Make Them Part of the Team
Like many remodelers, Larry Murr tries to keep in touch with his past clients through things such as Christmas cards and periodic letters. What makes the approach Murr uses for his company, Lawrence Murr Inc., so striking is how honest and open he is with his clients about his company, the market and the current business environment.
Consider the most recent letter from the Jacksonville, Fla., design/build firm: “First of all we are still in business, but business has been very slow,” he writes. He goes on to discuss decisions in the company to reduce salaries and cut staff as the company adjusts to the market. He also talks about the challenge the company is facing from new, low-price competition. Murr has received a positive response to the letter, with many clients calling about jobs and saying they were glad to hear he was still in business. Clients were reassured that the company was taking steps to survive the downturn, Murr says.
But it’s not all negative. Murr also uses the letter as an opportunity to keep clients informed about his recent CGP designation from NAHB and the opportunities afforded by the new energy tax credits.
4. Work on the Honey-Do List
Every homeowner has little projects that need doing, so Synergy Builders decided to capitalize on that by offering handyman services in exchange for referrals. Any referral that leads to an appointment is rewarded with two hours worth of labor. Once the homeowner has accumulated at least half-a-day they can redeem that for work on their home.
The West Chicago, Ill., design/build firm sends out mailings promoting the program to not only past clients but also to any other homeowner the firm has had contact with over the last few years even those who didn’t hire them. The program not only drives referrals, but often also leads to additional business from the referring clients who may need more work done, says CEO John Habermeier.
5. Send Them Sailing
East Meadow, N.Y., remodeler Alure Home Improvements has a PartnerPoints program that allows clients to earn points toward a Caribbean vacation. Homeowners earn a point for every dollar they spend on remodeling, plus a point for every dollar referred customers spend on their first project with the company.
Clients can also earn additional points by attending events at Alure. With 200,000 points, they get a free trip, this year to Puerto Vallarta, Mexico. So far, the company has already sent 58 couples on vacation. Points never expire, so clients can earn their trip over time even with smaller projects.
6. Don’t Let Them Forget Your Face
Gehman Custom Remodeling uses a variety of methods to get face time with its past clients. The Harleysville, Pa., company calls past clients on the anniversary of their project to arrange a walk-through to make sure there are no warranty issues during the five-year warranty period. Gehman staff also ask if they can take after-photos of the project as another way to spend some time with the homeowners. Those photos are then used to produce photo CDs and albums that the homeowners can share with their friends and co-workers. Hand delivery of the albums also gives him more face time with the clients, says President Dennis Gehman.
These visits result in at least some small additional work for the clients about 25 percent of the time, Gehman says. It also reinforces the idea of the company as one that cares and keeps them in the clients’ thoughts when people ask for referrals.
7. Publish a Coffee-Table Book
Quality Design & Construction in Raleigh, N.C., is publishing a high-quality, hardcover, before-and-after photo book of its past projects. The book will also include articles on tips and trends in remodeling. The full-service remodeling company is going to send out copies to previous clients whose projects appear in the book so they can display them in their homes and hopefully show them off to potential future clients.
The firm is also going to try to drive more vendor referrals as well by customizing versions of the book, says Vice President Peggy Mackowski. For example, the local plumbing supplier will get a version with fancy fixtures on the cover. That way, when customers are visiting these suppliers, they’ll get a chance to see the work Quality Design & Construction does, Mackowski says.
8. Go Digital
Myers Constructs in Philadelphia is taking full advantage of modern communication to keep in touch with its past clients. Myers is using LinkedIn and Twitter to keep in touch with past clients and asks them to pass the firm’s information to their friends on the social networking sites, says COO Diane Menke.
The company sends monthly e-newsletters, each focused on a single topic to keep it short and sweet. Besides that, employees send occasional “hello” e-mails to check on clients, ask how their pets or kids are doing and generally keep in touch. They also send messages anytime there is press about the firm. It’s all about contacting past clients regularly, Menke says.
9. Cold, Hard Cash
It may be simple, but you can’t argue with the value of money. Atlanta Design & Build has a Referral Rewards program that gives clients up to $300 when they refer a project. Rewards are given out on a sliding scale of $100 for projects less than $20,000; $200 for projects $20,000 to $75,000; and $300 for the largest projects.
The Marietta, Ga., company is also reaching out to past clients, sending them letters telling them that now is a great time to remodel because suppliers and vendors have reduced costs in the face of declining demand.
10. Let Them Brag
Cipriani Remodeling Solutions recently launched a contest for the best “Before and After” project that encourages past clients to send their friends and families to the company’s Web site.
The Woodbury, N.J., company sent out e-mails to each client that contain their before and after photos and asked them to forward those e-mails to everyone they know. Anyone who gets the forwarded e-mail can follow a link in the message that takes them back to the Cipriani Web site to vote for the project as the best “Before and After.” The top vote-getter will get $1,000 from Cipriani and Cipriani is exposed to potentially hundreds of new customers. It’s an extension of a program the company has been doing for years, putting together polished “Before and After” e-mails for all of its clients that they encourage them to share with their friends and families.
11. Keep ‘Em Charged Up
Everybody knows that you’re supposed to change the batteries in your smoke detectors when you change your clocks for daylight-saving time. Renaissance Remodeling wants to make sure its clients don’t forget that and don’t forget the company, so twice a year the Boise, Idaho, firm sends out batteries along with an update of what the company is doing.
Prior to starting this three years ago, the company had only completed a handful of projects for past clients, says Principal Chad Vincent. Now, the company gets calls and e-mails from past clients every time the batteries go out and repeat and referral business has drastically increased.
12. Open House
Advanced Kitchens in Atlanta has staged open houses at past clients’ homes where the company invites neighbors to come see the completed work. This gives the company an opportunity to explain how they work and the clients a chance to talk about their positive experience. In honor of St. Patrick’s Day, the company also invited past clients to find the hidden pot of gold on its Web site. That helped increase site traffic as clients searched across multiple pages on the site. Everyone who found it was entered into a drawing for a glass vessel bowl.
Those actions, along with newsletters and other outreach efforts, have helped the company draw 75 percent of its business from repeats so far in 2009, says President Ed Cholfin.
13. Party Time
Talmadge Construction owners Jeff and Adele Talmadge throw a barbecue every summer at their home for their clients, trade contractors and employees. It’s a chance to reward everyone for their business and good work during the year and for the clients to get back in touch with project managers they have bonded with during their remodel, says Adele Talmadge. The clients like to brag to each other about their project; how much they loved working with the company’s architects and field staff, and how well it went, she says.
Second Quarter Prices Released
April 7, 2009 by nolan · Leave a Comment
On 4/1/2009 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:
ROOFING PRICES CONTINUE TO RISE AND LUMBER PRICES CONTINUE TO FALL
- Roofing prices continue to rise having increased by 5-10% in most areas.
- Gypsum wallboard prices remain low and stable.
- Dimensional lumber prices have declined by 5-10% nationally.
- Plywood prices have stabilized falling only 5% during the past quarter.
Surviving the Downturn
Case Design/Remodeling is changing strategies to survive the current market
Jonathan Sweet, Senior Editor
February 1, 2009
Professional Remodeler
Companies big and small are facing unprecedented challenges in 2009. Professional Remodeler talked to Mark Richardson author, frequent industry speaker and president of Case Design/Remodeling, one of the largest remodeling firms in the country. To read the complete interview, go to www.ProRemodeler.com. Some highlights:
You’re expecting a drop in business in 2009. How is the economy affecting your business going into this year?
The best way I can describe the environment this year is that it’s tough. It’s an environment in terms of marketing, in terms of sales, that is tough. Tough does not mean bad. Tough means tough.
What are you doing to deal with this new reality?
We very much have had to adjust our course. We went into the beginning of our fiscal year, which started in October, expecting a 7 or 8 percent growth for the year. After the perfect storm of October … the bottom fell out and we just had to go ahead and come up with a Plan B.
That [plan] looked at every aspect of our financial model, including sales and revenue on the production side and all the way through with overhead expenses. We had to scale the company back to act like we were roughly 10 percent, 15 percent smaller. We had budgeted for projects and initiatives for the future that we had to just say, well, let’s wait until the storm passes before we make those investments. Then we had to just trim the fat, trim things that don’t necessarily affect people on a day-to-day basis to come up with a plan that was essentially much more sensible. Moving forward I’m hoping that we don’t have to go much deeper.
Have you made any changes to your marketing?
In the past, direct marketing would work. Now we’re doing a lot more indirect marketing, meaning seminars. We’re doing a lot more networking groups. We’re focused more heavily on smaller-scale projects. We’re pushing people more to the Web now than in the past. We’re changing some of our messaging to focus more on low risk and trying to reduce fear more so than “follow the fantasy.”
Any changes in the day-to-day operations of the company?
We’ve actually scaled up our handyman group even more and our groups that do larger scale projects we’ve sort of pushed them back a little bit. We’re presenting more lower cost options to folks.
What are some of the unique challenges Case has as a larger company?
It’s sort of a double-edged sword. If you’re a small company, you can be very light of foot. It’s almost like a boat. If you’re a speedboat you can turn on a dime. If you’re a freighter, it might take you two or three miles to make a turn.
The good news if you’re a small boat is you can turn on a dime. The bad news is that the guy driving the boat is the also the guy filling the gas and cleaning the boat. You don’t have the luxury of being focused or specialized on a certain thing.
Given the fact that it’s tough out there, you can’t be operating in the same way as when it’s easy. Got to be putting your ear to the ground and listening to the market and putting the right amount of time into other elements of the business. You have to be more focused on monitoring the numbers, on watching the cash flow. All of those factors are really important.
What are some of the key indicators you track?
We certainly watch the inquiries, the leads coming in. We watch the close rate of the sales. We watch the gross profits on the projects. We watch the lead time, the time between sale and beginning of the construction. That’s a variable that we watch. We watch the percentage of completion numbers as we project out because it affects profitability quite a bit. We watch certainly the overhead, the 75 individual line items in overhead. We track that on a regular basis. It’s like what’s most important, your blood pressure or your cholesterol level? They’re all important and you’ve got to watch all of them so they’re in concert with each other.
We’ve talked a lot about the economy. Any other major challenges you see coming?
The economy affects consumer confidence. 2008 was unprecedented. We’re talking about stock market issues that go back to the ’20s. Are there other issues that will affect us moving forward? Sure, but if the economy’s better the phone will be ringing and marketing will be easier. If the economy’s better, consumer confidence is going to be there. If the economy’s better, homes will appreciate and people will feel better about the investments they’re making.One of the great things about a market like this is that if you need to hire great people, you shouldn’t have a problem. If you need to negotiate with your subs, you shouldn’t have a problem. If you need to get suppliers or manufacturers to stand up and salute and get you something right away you shouldn’t have a problem.
What are some of the words of advice you’re sharing with other remodelers as you speak around the country?
A theme that I’ve been out talking about is it’s survival of the fittest. Three themes within that are really critical.
First you’ve got to have the right mindset. Henry Ford said, “If you believe you can or can’t, you’re right,” and I really, really live and breathe that notion. I cannot tolerate a mindset or an attitude with people who believe they can’t achieve it. The mindset also includes work ethic. You’ve got to work harder than ever. We’re meeting more clients on weekends than ever. That’s a different mindset, that that’s OK.
The second is that the fundamental business needs to be fit. (Richardson’s book, “How Fit is your Business”) is all about being fit and it draws the parallel between personal health and fitness and financial health and business.
It’s no different than if you want to climb Mount Everest you’ve got to be in great shape. I don’t whether or not I’m overstating the environment being Mount Everest, but what I am saying is that it’s tough out there. You and your business have got to be fit.
Third is you’ve got to change. There’s many out there that are fit and have the right mindset, but they’re just stubborn and they won’t change and I think they’ll crash and burn and fail as a result.
When are you expecting a turnaround to start?
I had a management meeting today and that was one of the questions I asked them. When do you see the curve start to curve up, that we can start to predict sales a little bit better. Not necessarily good, but when do you see it curve up. The overall feeling of the group was that they expect to see the curve going up sometime April to June-ish. Sometime in that time frame. They could very much see it slipping, slipping for the next few months, then start to see the curve going up.
When do we see it being good again? I think we’re looking at probably a year later.
The rationale for the spring is historically spring we see an uptick. We believe with the new president in place, there will be a more positive spirit of hope in there. We believe Americans are impatient and they’ll say enough already, we’ve got to do stuff.
There are lots of rational reasons why we think spring/summer should be some positive uptick on the curve. The overall feeling is that we probably won’t really see what we’d call sunny day conditions until probably 2010.
What are some of the things that need to happen before we’ll see a turnaround?
I’d like to think that we see some uptick in the stock market. I’d like to think that would be something out there that would cause some positive feeling. I’d like to think that the new president getting in place. Whether it’s real or Memorex, at least it’s a feeling of hope. It’d be nice if Obama was doing something or announced he was doing something. Part of it’s getting him in place and part of it’s doing something.
Consumer confidence is probably the biggest indicator of home remodeling. All the things that affect consumer confidence will affect remodeling. I think watching unemployment and the job situation is a factor as well.
Click here to see the original article in Professional Remodeler
First Quarter Prices Released
January 5, 2009 by nolan · 1 Comment
On 1/2/2009 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:
WOOD PRICES FALL BUT ROOFING PRICES GO THROUGH THE ROOF!
- Roofing prices have gone through the roof, increasing 25%-30% in many areas.
- Gypsum wallboard prices remain low and stable.
- Dimensional lumber prices have declined slighty.
- Plywood prices have dropped as much as 15%-20% in some areas.
Here are some other relevant articles:
PRICING ADJUSTMENT
Q+A: Do you raise or lower prices or bids based on economic conditions?
Remodeling magazine December 2008
By: Nina Patel
Traci Knapp
Nobile Construction
Branford, Conn.
Big50 2005
We have not done any across-the-board cuts or raises. We base any changes on supply and demand and make adjustments on a case-by-case basis. Right now we are busy overall, and this time of year is busy for us, so we are not backing off our prices.
However, to secure a project to fill our schedule for February or March, we might provide a lower number. I think part of it is mental. If your pipeline is full and you have a solid schedule, you feel more secure in asking for more money.
If you are not busy, it’s a whole other mindset. If we weren’t busy, we might consider going lower. However, you have to remember that if you sell one job at a lower markup, you may fill a slot for a project where you could have gotten the full markup.
Randy Ruzanski
Distinctive Home Renovations
Elk Grove Village, Ill.
Big50 2000
We never had to change our margins or pricing. We either got the jobs or we didn’t. However, if I have to negotiate, I will. But I will work to protect our margin during the negotiations. The purpose of being in business is to make money. It does not make sense to do a job where you are not making money.
John Newmyer
Newmyer Distinctive Remodeling
Walled Lake, Mich.
Big50 1992
I will not change my margins. If you do that, you end up not being able to pay your bills or your vendors. You must maintain your margin. Especially in today’s market where you can’t make it up in volume.
However, we have noticed that our bids are lower because they reflect the fact that material and labor prices are coming down by about 30%. Subcontractors are working for less and we sub practically everything.
I recently worked on a bid that a year ago would have cost $165 to $180 per square foot, but now costs $120 per square foot.
Anthony Cucciniello
4V Corp.
Bronx, N.Y.
Big50 2006
I’m getting more small jobs in this economy. My prices are up on these under-$100,000 jobs because, though they are smaller, I have the same overhead. I have lowered my prices on larger jobs, those $250,000 and up, because there is more competition for these jobs. But I will only lower my price by a maximum of 3% because the company still has to survive and sustain itself.
I find a lot of new-home builders trying to get into the remodeling business. Their prices are so low, I’m not sure how they can do the job. Some are pricing 30% below my bids there is going to be a problem with that job.
Gary Naugle Sr.
Gary Naugle Co.
Columbia, Mo.
Big50 1990
We recently raised prices across the board. We knew our prices were too low because our margin dropped. I have a new price book now. I expect that, with the adjustment, margins will be back to what they should be. However, I believe you can’t raise or lower prices based on the economy or you’ll go out of business.
Surviving the Fall
Remodeling magazine December 2008
By: Leah Thayer
In the short time between August, when this survey was in the field, and early November, when we conducted phone interviews, many remodelers have had little choice but to scale back on pay, if only (they hope) temporarily.
“Until 60 days ago, everything was OK,” said a Connecticut remodeler who works primarily on second homes. “But when Wall Street crashes, our clients crawl under a rock.”
This remodeler hasn’t cut staff yet. “But they’ve been forewarned,” he said. He anticipates layoffs if he doesn’t sign contracts soon.
A few strategies being used to avoid those painful cuts:
Pay freezes and/or cuts, with the biggest paychecks bearing the brunt. One owner slashed his pay by 80%; another cut all executive pay by 30%. Others are asking trade contractors to accept small rate cuts (e.g., $5 less per hour) and to guarantee estimates.
Spot bonuses. To soften the economic blows, one company gives occasional “kickers” of $100 to $500 for exceptional performance. Another doubled some employees’ vacation time, unofficially.
Shifting health insurance. Bulwarks against rising premiums include paring back from family plans to employee-only plans, and changing from “Cadillac” PPO plans to cheaper HMOs and health savings accounts.
Some employers have suspended matching employees’ 401(k) contributions.
Other strategies: repackaging pay to be more incentive-based, longer hours, and broader work responsibilities. “Your job descriptions are over,” one remodeler told his staff.
Can’t avoid layoffs? Cut the “C-players” first those who produce less and/or need more supervision. It’s not all nickel-and-diming. “I’m keeping my highest-paid employees who … don’t need to be babysat,” said one remodeler.
And when there’s nothing else to cut, there’s the cushion. Or there should be. “Banked money is going to be key for a lot of people,” one remodeler noted.
Make Change a Priority Now
Today’s economic climate demands new ways of going to market.
Remodeling magazine December 2008
By: Mark Richardson
No one will argue that the country is experiencing an economic crisis. But the bad news itself is less important than how you react to it.
Try this exercise: Write down a few words or phrases that describe today’s business environment, your company’s positioning, and how you feel about both. Now ask others on your team to do the same, then
compare lists. You will discover that some people are fearful and reluctant to stray too far outside their comfort zone, while others (maybe most) want to do something but are confused about what to do and who should do it.
A third response comes from those who are more energized than ever. I include myself in this group because I believe that opportunities are on the rise at the same time that the risks are greater than ever.
REMEMBERING WHEN
I haven’t seen this dichotomy for many years, but it is by no means unfamiliar. Those with some gray hair will remember the “stagflation” of the early ’80s, when interest rates climbed to 15% or more, and remodeling was just beginning to gain respectability as a professional activity. At Case in 1981, our annual business was about $500,000, but we saw the opportunity in design/build, which was still an untested way to take remodeling services to market. It took some time, but as a direct result of our acting on that opportunity, by 1988 total revenue had grown to $8 million.
Similarly, the early ’90s were a time when home values in many areas of the country went from double-digit appreciation to double-digit depreciation. During this period at Case, our design/build business dropped from $8 million in 1988 to $4 million in 1991. But again, we saw an opportunity to diversify. We launched the handyman division, which ultimately gave us the engine to grow to nearly $100 million today.
HOMEOWNERS STILL NEED HELP
The economic circumstances are different today, but times of great crisis also present great opportunities. Homeowners need you more than ever. They are stressed out, lacking the time or skills to tackle projects themselves. Product proliferation, regulatory issues, and fast-changing design trends have made remodeling a complex and confusing proposition. But remodeling is still attractive even to homeowners who are trying to break the spending habit they developed in boom times.
For one thing, the simple house of the past is now very complex, both in design and in required maintenance (compare a modern home with those from developments built in the 1960s and you’ll see the difference).
Plus, although the recent stock market fluctuation has affected the ability to borrow money, it has also created a huge lack of confidence among homeowners about planting their money in the stock market.
A home is still the biggest investment most people ever make, and they want to protect it, position it, and enjoy it. If you embrace the changing business environment with a sense of urgency, you can see positive results today and prepare for explosive growth and increased market share in the future.
CHANGE NOW
The flip side to this story is the risky nature of this environment. If you cannot change, you will probably not make it. Many remodeling experts and industry gurus are singing the same song today that they did five years ago, but the old recipes don’t work now. Change is incompatible with dogmatic and rigid thinking. Change requires new ways of marketing and selling. One of the best times to institute change and get a healthy buy-in from your team is in markets like the one we are in today.
It’s time to make change a priority and give it a sense of urgency. I believe that now is an ideal time to embrace new opportunities, see unprecedented growth, and position your company for the future. The risks of standing still and not changing are greater than ever.
Mark Richardson is president of Case Design/Remodel and author of the book How Fit Is Your Business? A Complete Checkup and Prescription for Better Business Health.
Fourth Quarter Prices Released
October 3, 2008 by admin · Leave a Comment
On 10/2/2008 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:
OIL PRICES MAKING THE BIGGEST IMPACT
- Roofing prices continue to rise fueled by oil increases.
- Gypsum wallboard price declines have stopped but prices remain low.
- Steel costs continue to climb as scrap metal prices continue to rise.
- Concrete prices are beginning to rise in many areas perhaps based on higher delivery costs.
- Lumber prices continue to stay steady with a small dip in plywood prices in some areas.
Here are some other relevant articles:
Solutions: Tightening It Up
Q+A: Construction costs are rising; homeowners are becoming more conscious of the money they’re spending. How is this affecting your business?
by Hayden Alfano
July 21, 2008 - From Remodeling Magazine
James Madsen
James Barton Design-Build
Apple Valley, Minn.
Big50 2008
It’s made us look at our company a lot harder. As part of that, we’ve had to take a long look at our trade partners. We’ve changed some vendors who aren’t priced competitively in this new market. We basically told them, “If we have to tighten things up, you have to, too.” Many trades have brought down their prices a bit because they just don’t have as much work.
We’ve also been helping our clients to prioritize their projects if they feel that the price tag for the full job is too high. Let’s say we’ve designed a $150,000 project for them. If they’re worried about doing a job that large, we’ll break it into two phases. We’ll do the biggest chunk now, then plan to do the remaining $40,000 when the market comes back.
Duke York
York Enterprises
Tacoma, Wash.
Big50 2007
We’re doing a lot more bidding this year. Our sales department is going gangbusters; it seems like two or three bids come across my desk per day. Homeowners seem hesitant to commit, however. They are initially curious about what a remodel might cost, but are slow to pull the trigger because of the economy.
That initial interest is a good thing; it indicates that there is still a market for remodeling. But because fewer homeowners than usual are actually signing contracts, it’s important that we get in front of as many of them as we can.
Historically, we’ve been almost exclusively residential remodeling. Now, we’re diversifying a little bit and adding to things we offer customers. We’ve recently started a service department aimed at retired homeowners who want or need assistance doing things like cleaning gutters. We also offer preventative maintenance to previous clients at a discounted fee.
Ken Kumph
Premier Builders
Georgetown, Mass.
Big50 2004
Two things have really helped our business during these difficult times: Sharpening our processes and procedures, and strengthening our relationships and company image.
We’ve reduced our staff over the past year. We now have a dedicated group who really “gets it,” and I would not want to lose a single one of them.
We all get together monthly for a “big picture” meeting to review policies, define job descriptions, and work on the business. We’ve also taken the time to modify and tighten our estimating, sales, and job costing processes.
Showing clients and associates the value we provide for them has been crucial to our continued success. Performing quality work with a high level of customer service is a given, but it’s important to take everything up a notch. Our presentations are more professional and personal. We are staying in contact with past clients, and we’ve become more heavily involved with industry organizations and events.
Jack McGrath
Jonathan McGrath Construction
Longwood, Fla.
Big50 2003
Some of our potential clients have asked if they can get a better deal given that business is slower. We explain to them that our backlog and that of our trade partners is much smaller, which works in their favor in that their project gets done faster.
We also tell them that in some cases we may be able to negotiate a better price during the building phase, but not while we’re in the midst of design. People love to think that they can get a deal, so this has helped get them off of the fence and into a contract.
We’ve renewed our focus on cutting down on waste, reducing mistakes, and eliminating slippage. Doing so has saved us and our clients valuable dollars, as we consistently come in under budget.
We prefer this approach to price-shopping our trade partners and other vendors. We need loyalty now more than ever, and we need to be loyal to them in return. When they submit a price, we know it’s complete, and we know the job will be done to our high expectations. If we need a trade to lower their price, they know we are asking so we can get the job and we’ll all have work. Mutual respect goes a long way.
Stormy Forecast
Outlook is cloudy, but prepared remodelers can weather the storm
Jonathan Sweet, Senior Editor
August 1, 2008 - Professional Remodeler
While 2007 had its rough moments, 2008 seems to be the year that the housing downturn really hit remodeling.
Fundamentally, the remodeling industry follows the trends of homebuilding. While the troughs are not as deep and the peaks not as high, new construction is a good predictor of remodeling activity.
Not surprisingly, that means it’s been a tough year, and 2009 expects to be even worse, at least in the early going. Even many of those markets such as Seattle, Portland and Texas that had been relatively strong as the rest of the country suffered have had struggles this year.
“We’re really getting caught in the housing downturn,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard.
Existing home sales and home prices are the two best statistical predictors of remodeling activity, Baker says. With the precipitous decline in both categories, it’s no surprise that remodeling activity has fallen.
“It’s unlikely we’re going to see much of a turnaround until we begin to see a turnaround in the broader housing market, or at least those key features of it begin to turnaround,” Baker says.
Growth by 2010?
The National Association of Realtors predicts that existing home sales will increase to 5.7 million next year. That’s a 6.6 percent increase from the nearly 5.4 million the group projects for this year and a slight increase over 2007, but still well below the 7 million recorded in 2005. It’s also worth noting that a year ago, NAR projected 6.1 million in sales for 2006 and 6.3 million for 2008. As for home prices, NAR forecasts a 3.7 percent increase for existing homes in 2009.
Harvard is predicting a continued decline in the market in 2009. The Leading Indicator for Remodeling Activity released in July projects an 11.1 percent decline for the first quarter of 2009 compared to first quarter 2008. (The LIRA uses a four-quarter moving rate of change, so the 2009-1 number, for example, is based on activity in the second, third and fourth quarters of 2008 and the first quarter of 2009.)
2009 could see a turning point, Baker says. That is the point when the rate of decline slows, but the market still isn’t producing positive growth. Sometime in 2010, we could expect to see a return to a positive market, he says. That would be the first growth in the LIRA since the second quarter of 2007.
“We should be back into the growth range in 2010, but it’s too early to say when,” Baker says.
The LIRA only measures improvement activity in owner-occupied homes, not maintenance and repairs, which typically remain fairly stable.
“If you have a repair project, you’re unlikely to defer that even if the economy is bad,” Baker says. “In most cases, those projects go ahead as they would independent of the economy.”
The LIRA also doesn’t track improvements to rental housing, an area that has been underinvested for years. While increased investment isn’t showing up yet on a large scale, there is great potential for the next decade, Baker says.
Harvard’s LIRA, which uses four-quarter moving totals to track remodeling volume, is predicting a drop to $122 billion for the year ending in the first quarter of 2009 down 11 percent from a year earlier and a drop of more than 17 percent from the market peak.
Tighter credit standards and increase in foreclosures are putting pressure on the rental stock, as people who were homeowners rent again and people who a couple of years ago would have bought homes stay in the rental market.
“What’s muddying that trend now is that just as these households are coming back to the rental market, a lot of these housing units are, too,” Baker says. “We’ve got houses that were built for owners turning into rentals, condos turning into apartments, so we’re seeing an increase in both the supply and the demand side.”
In the long term, though, the trend still looks positive for remodeling growth in the rental market because of increasing demand and more than a decade of underinvestment in upkeep.
Staying Strong
If companies want to survive the downturn, it’s necessary to change things. Owners should look at every aspect of the company, from sales and marketing to production and staffing. Being willing to make changes is the difference between success and failure.
Sun Design Remodeling Specialists in Burke, Va., is one of the few companies that can point to a healthy increase in business this year. The design/build firm expects to hit its goal of a 14 percent increase in revenue over last year, says vice president Bob Gallagher.
Even so, the company has had to adapt its sales and marketing efforts to focus more on building relationships with potential clients.
“The sales process has become a courting process,” Gallagher says. “We got very accustomed to signing design agreements at the first meeting. Now, we’ll be meeting with people three to four times before they sign.”
The reluctance to pull the trigger on a project has been a problem for Normandy Builders of Hinsdale, Ill., as well despite leads approaching record levels, says vice president Andy Wells.
“We’re seeing a lot of people still, but closing ratio has gotten worse,” Wells said. “Wait and see is kind of the attitude.”
Sun Design is seeing a reluctance by many clients to make the decision, taking more time before signing anything.
“I think people generally have a sense that it’s a market where they don’t have to rush,” Gallagher says. “We are seeing some apprehension in people getting off the fence.”
The company’s sales team has also rededicated itself to a consultative sales approach, focusing on what made the company successful originally. The process has to be more about the “why” (why they want to remodel) than the “what” (what they want done).
“We have rediscovered it more clearly than two years ago,” Gallagher says. “We need to hear them on an emotional level and prescribe solutions.”
The Sun Design staff is also emphasizing networking and branding in its marketing efforts, to become more personally connected to people. That means attending events the company wouldn’t have in the past such as a local wine festival to get out in front of potential clients.
“The point is when the market changes and the thing you’ve done for years doesn’t work, you can dig in your heels and be stubborn or you can find some alternatives,” Gallagher says.
Job size has also gotten smaller. Normandy Builders is seeing a shift away from large additions toward smaller kitchen projects, which Wells believes has been caused by the drop in home sales. The two types of projects actually represent two different sets of clients, he says.
“Some people would have moved, but now they can’t sell their house, so they’re remodeling their kitchen instead,” Wells says. “The bigger additions came from people who moved into a house and decided they were going to remodel. I think the clients who would have done the addition are now doing nothing instead.”
Earlier this year, the company started making cuts to be more efficient and position the company to succeed when the market comes back. That meant watching every dollar, avoiding big purchases, consolidating some jobs and laying people off.
“We had to lay off some people we really liked, but you just have to do it,” Wells says. “We had to recognize that right away, because if we waited too long to make those decisions it could hurt the company.”
Layoffs have also been a necessary survival tactic for Feinmann Inc., an Arlington, Mass., design/build firm. President Peter Feinmann let 25 percent of his staff go. The company has also been chasing more leads. Typically, Feinmann would visit 40 to 45 percent of the leads that come in. This year, it’s closer to 80 percent.
“We want to be in front of as many people as possible these days,” he says.
The company also cut prices to get some work this year, something Feinmann says was possible because he had reinvested past profits back into the company over the years.
“We didn’t have to make a lot of money this year; we just had to be maintaining what we were doing,” he says.
The company closed three or four jobs this past winter by cutting margins, yet still maintaining profitability. Making those tough decisions allowed Feinmann to avoid more layoffs.
“At that point, it was that job or no job, and I was better off getting the work at low margins than not getting them at all,” Feinmann says. “So we were very aggressive this winter selling jobs with the specs and prices that we could make a decent amount of money to keep the energy of the company flowing. Some people didn’t do that, and they got in trouble.”
The other big change has been focusing on smaller projects and being more efficient in those projects, Feinmann says.
“There are less larger projects, so we need the smaller projects to keep us going,” he says.
Smaller job sizes have also been the theme for Los Angeles-based Custom Design & Construction this year. A couple of years ago, the company had jobs in the $500,000 to $600,000 range. Those projects are now closer to $400,000. The company is taking on the same number of projects this year, but revenues are down about 25 percent.
“It used to be if someone wanted to spend $500,000 and we designed a project for them that was $600,000, and they fell in love with it; they’d do it,” says President Bill Simone. “Today people are holding hard and fast to what their intended budget is. That’s it, and they’re not going to exceed it.”
One significant competitive advantage for the company has been that it can carry the financing for its projects. In today’s lending climate, that has helped close many deals, Simone says. (For more on the company’s financing program, see the Innovators article in the January issue of Professional Remodeler or click here.)
Where Do We Go From Here?
A big part of making it through the downturn will be having realistic expectations for the recovery. It’ll likely be quite a while before the industry reaches its 2005–2006 highs because of fundamental changes in the residential construction industry and that’s probably a good thing.
“I’m not sure the peak is something we should really be looking for, because when the market was at it’s highest level, it was driven by a fairly thin slice of the population, spending a lot on fairly high-end home improvement projects,” Baker says. “That’s not something I consider a very healthy market and probably not something we want to replicate.”
Much of that growth was driven by unsustainable increases in home sales and prices. Instead, we should look for a return to the healthy market of the 1990s, Baker says, when the industry was growing, but not being driven by a very small upper-end clientele.
“It should be a much healthier industry with more broad-based activity and more and more households undertaking home improvement projects,” he says. “We’re looking for a good mix of projects to restore a healthier industry.”
© 2008, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
Read the full article here: Stormy Forecast
