First Quarter Prices Released, New Labor Rates

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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.

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