Fourth Quarter Prices Released

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On 10/4/2010 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:  

PLYWOOD PRICES SETTLE DOWN

  • With the end of hurricane season at hand, plywood costs have gone down 10-15%.
  • Dimensional lumber costs have decreased by 5-8%.
  • Roofing shingles have gone up 8-12% during the last quarter.
  • With winter approaching, fiberglass insulation has risen as much as 20% in some areas.

Here are some timely articles you may find useful.

Get Back to Work: Many remodeling businesses closed during the housing crisis. Here’s how your shop can capitalize on those former owners’ skills and experience.

By: Lauren Hunter

The oldest Catch-22 in the business world can make an owner wonder why adding staff ever seemed like a good idea. “What if you train a new employee well and they leave?” a remodeler asks. To which a friend responds, “what if you don’t train them and they stay?”

The thought of training your competition is unnerving, but in times of high unemployment some remodelers are finding the tables turned in their favor. A dearth of business has forced many small remodeling companies to close up shop. In some cases, trained competitors are becoming assets that bring ownership knowledge and construction skill to other remodeling companies: their new employers.

Rumors abound that entrepreneurs in non-ownership positions are prone to head-butting with superiors. Not true, say seasoned remodelers who have hired many former owners to their companies. As with any hiring situation, they say the key is to interview thoroughly and put former owners’ skills and experience to work where they’ll be most beneficial.

Solid Experience
Ray Wiese says that hiring former remodeling business owners has paid dividends. “When someone mentions to me that they had their own business, that’s a good thing,” says the president of The Wiese Co., in Sherborn, Mass. “They understand not to waste lumber, that the amount of time they have to put in on a job is critical, that there’s not a million dollars left over at the end of a job. Those are terrific tools they bring with them.”

Chris Wright agrees. “Many of us who like to build things don’t have the skill set to really run a business well,” says the president of Indianapolis–based WrightWorks. “If ownership isn’t for them, the goal becomes fitting into a company where they have a skill set that’s valuable. But when they’ve also got some business experience, to me, that is really valuable.”

Even if a remodeler doesn’t want to, or isn’t able to, sustain a business of their own, experience dealing with vendors, sales, estimating, invoicing, and other issues makes hiring a former owner an attractive proposition. Wright says that one former owner now on his staff as a lead carpenter brings his expertise to bear as a liaison between Wright and the rest of the staff. “When you have someone on the team who’s also pulling for you and understands what the end goal is, it really adds to the company culture,” he says.

Truly motivated former owners will do more than offer a sympathetic ear to their new employers: they’ll keep tabs on their own performance. “One owner I brought on as a salesperson comes into my office all the time and asks, ‘Are you making money on me?”‘ says Phil Isaacs, president of California Energy Consultant Service, in Rancho Cordova, Calif. “He wants to know that he’s doing a good job and that the company is benefitting from the work he’s bringing in. It’s that kind of insight into how a business prospers that makes someone with ownership experience valuable.”

What’s My Motivation?
Of course, not all remodelers retain their ownership instincts after closing their doors. Some shrug it off entirely and focus solely on finding a job.

“There are a lot of owners looking for employment right now, and you have to be cautious about their motivation,” Wiese says. “All of our people have families, I have a family, and I’ve been through some desperate times. There are people looking just to make a paycheck right now because they need to.” While that may become a hiring factor, he says, understanding why an employer wants to become an employee is critical.

Wright agrees. “You can get a sense that their heart is in the right place and that they just didn’t have the business skills to make their own company work or that they’re just not interested in pursuing the business end of remodeling,” he says. “If their personality will function in your organization and you can make sure they have a job to do, they’ll be able to do what they really excel at. Those are the best kinds of people to hire.”

That said, if a business-skills issue held back the former owner from being successful, Bill Connor, president of Indianapolis–based Connor & Co., says it’s equally important to learn that right away. A former owner who Connor hired 10 years ago turned out to be a good salesperson but a lousy estimator. “He shut down his company to come work for us, and we found out later that he really needed some remedial training on estimating systems,” Connor says. “After a year-and-a-half he went back on his own and he’s still in business.”

Connor and Wiese also have had to deal with concerns of client poaching when entrepreneurial types go back out on their own. In a separate incident, a former business owner and 14-year Connor & Co. employee was laid off when the company downsized in January 2009. The individual tried to access the company’s database to contact clients, which Connor calls “disconcerting.” Thankfully, Connor spoke to the employee and nothing came of the deceitful activity. For Wiese, a laid-off employee did take advantage of the company’s available database.

“During his employment, he had built relationships with some of our clients who asked him about doing some work on the side. We have a policy that doesn’t allow that,” Wiese explains. “When [this employee’s] name came up in a round of layoffs, he took it personally. He called the client who had been interested in working with him, as well as several other clients, asking him what work he could do for them. I can’t blame a guy who’s just trying to put food on the table for his family, but it was disappointing that someone would take him up on it.”

While Wiese says that there were no indications in his former employee’s career that such activity was possible, some remodelers do look for red flags when hiring former owners. Wright looks carefully at job-seekers’ motivations during the hiring process. “A number of guys have come to me over the years, and their approach is almost comical,” he says. “They’ll call me out of the blue, say they’ve seen my work and tell me they’re looking for a job by the hour.” Wright regards these inquiries with skepticism. Someone who just wants a 9-to-5 job may lack initiative or interest. “I know on some level they’re tired of the rat race and want to find an organization where they don’t have to worry about the other things,” he says, “but I’m not going to provide an environment for them to sail through.”

Field vs. Office
For instances where the motivation is healthy, placing former owners in the right positions is needed for good performance. Former head honchos will be looking for a certain level of autonomy and leadership opportunity. Their experience should be acknowledged during new-employee training.

“Anyone who’s been doing something for a long time will have their own way to do it,” Wiese says. “But they’ll still need to get a feel for our processes and paperwork and what we expect from them as far as materials ordering and project management.”

All three of the former owners on Wiese’s team were hired as lead carpenters and all spent time shadowing another lead. Head-butting hasn’t been a problem. “The former owners we bring on love the industry and may have great skills and ideas, but we don’t see a lot of process issues,” he says. “When we’re hiring someone whose business didn’t work out, process was usually part of the failure, so we illustrate a more effective way to work.”

Don’t Be a Hero
Chris Wright, president of WrightWorks, in Indianapolis, says that he has made every mistake in the book over the years, poor hiring decisions not the least among them. While he generally sees former owners as great prospects for hiring, he says the reasons for hiring someone shouldn’t change just because they have owned a business.

“In an economy like this where there are a lot of people looking for work, it’s tempting to want to be the hero,” Wright says. “It’s especially hard if you have a family member or a friend who needs a job. It’s seductive.”

On his first major job, Wright says he hired a former business owner with a lot of experience and know-how but he came with some baggage. “He was a dream employee, but he had a son and son-in-law that both needed jobs,” Wright recalls. “I was looking at this big job that needed to be framed and had all this other work, so I hired all three of them.”

Ultimately, Wright says the company went bankrupt on that job, due to a number of factors including overzealous hiring. “I had this big job, but I didn’t think past it,” he says. “When someone has great experience, especially as an owner, it’s going to be tempting to snap them up, but will you have work for them and be able to sustain them as employees after that job is done?” If you’re not planning on hiring in the first place, he suggests, don’t bring someone on for the sole reason that they’ve been an owner.

Connor agrees, noting that any personality issues should be easily identified during the interview process. “If hiring a former owner or any potential employee can bolster us in areas that we’re weak, we need to listen to those ideas and fold them in,” he says. “Especially if we’re talking about a salesperson, a designer, or even a project manager with tons of experience, there’s probably a place for us to accommodate their experience. But in the case of a field position, I’m more inclined to say, ‘no, here are our systems.”‘

Isaacs also has had great success blending former owners into his sales staff. “We do have policies to follow, but we ride that fine line by giving them enough freedom to where they feel like they’re the boss,” he says. “These guys were owners and salespeople, so they have connections. Not only do they understand where I’m coming from, but they don’t come to me looking for handouts for leads. They go out, they generate their own leads, and it’s just wonderful.”

Isaacs has expanded his business by purchasing companies that are folding, and bringing those former owners on as new salespeople. He says that keeping those individuals’ leads safe is key. “It’s not in my interest to waste the work that these guys put into their own businesses,” he says. “We’ll pick up their contact lists and they’ll still have all the leads that come into our office, and they’ll have confidence that our system tracks each lead so it won’t end up on someone else’s desk. We track the lineage of leads as well, so if a referral comes in from one of his past customers, the lead goes to him.”

This kind of sensitivity to a former owner’s hard work helps keep the new relationship strong and lets the employee thrive. “Like any other employee, you have to think of retention and be in tune with why these guys will want to stay with you,” Isaacs says. “It goes beyond money. They have to feel that they’re adding value to the new company, that they’re developing relationships beyond the work aspect, and that they’re finally able to capitalize on what they really wanted to get out of the industry in the first place.”

Lauren Hunter, associate editor, REMODELING.

 

High-Stakes Bidding: Even upscale clients are asking for bids during the recession, and high-end remodelers have had to adjust.

By: Nina Patel Related Articles

Upscale clients, usually more uninhibited about spending money, are pulling in the reins. “The marketplace has changed as result of the recession, and it has changed in complex ways,” says Keith Alward. “Everyone is more nervous about money and more focused on how to control it.”

Alward, the owner of Berkeley, Calif., company Alward Construction, says that one consequence of this attitude shift has been high-end clients seeking three to five bids for a project. This differs from just a few years ago when Alward’s high-end clients readily accepted the project price from his reputable company. The remodeler used to tell potential clients that “[at Alward Construction] we don’t use pricing as a way of getting business.”

In Boston, one of remodeler Paul Sullivan’s three-time repeat clients came to him with a $100,000 remodel. He mentioned to Sullivan that he was considering getting another bid on the project. “People hear things that make them question everything,” says the owner of The Sullivan Co. On a recent $1.3 million project, although Sullivan was told that he was being hired, the homeowners chose a contractor who bid 3% less. These clients, like most high-end customers, Sullivan says, pay cash for projects and can afford the work, but are nervous about the economy and their jobs. “I think plenty of people are not affected other than psychologically by this recession,” he says.

Eric Borden of ESB Contracting, in Toms River, N.J., says that his wealthy clients are also reluctant to spend. “There is retraction, naturally, in all phases of the market,” he says. In 2005, ESB’s volume was $3 million. This year it will probably be $500,000. Part of the reason for the reduced volume is that more remodelers are competing for the work.

Borden says that new companies are moving into his area. He works on multimillion dollar oceanfront vacation homes in Bay Head and Mantoloking on the New Jersey coast and says that clients are asking the remodelers of their primary inland residences to come to the shore to work on their vacation homes. In the past, Borden says, these contractors would have turned down the job because they had enough work in their own area. “Now, they’re willing to travel farther for less money,” he says.

Borden also points out that although the industry has been preaching a “get out of bidding” strategy, in this market the reality is that remodelers have to compete with a range of bidders. That salesmanship “goes out the window” he says, when the client wants to know what you can you do for them today. He is still trying to differentiate his company. “We don’t like the term ‘bid,”‘ he says. “We call it ‘setting the budget,’ and it has always been an education process.”

Bid and Bid Again
“Today, like everyone else, I will take every opportunity I can possibly take,” Alward says. An architect he had worked with years ago asked Alward to bid on a job, but informed the remodeler that he had a strong relationship with one of the other two bidders and that the other bidder had worked on the client’s house several years ago. Also, the clients just wanted a bottom-line number they did not want to see how that number was arrived at. Though Alward ultimately questioned the effectiveness of providing a bid in this way, he did submit one and he won the job. But he worries that in multiple-bidder scenarios, architects might convince homeowners that there is no difference between three reputable contractors, so they should just look at price.

Three years ago, Sullivan did not provide bids. His most common scenario: The homeowner already has a set of plans and is ready to hire Sullivan. He calls Sullivan for a general budget proposal, which Sullivan provides with both a low and a high range.

Almost all of these jobs were billed cost-plus, and since The Sullivan Co. is open book with its clients, the clients knew the company’s labor rates and profit. However, three years ago, most of Sullivan’s clients began asking for fixed-price contracts.

Sullivan recently completed his third bid for a client who does not have finished plans or specifications for their project. “It was supposedly our job, but it quickly turned into a bidding process with another contractor,” Sullivan says. “I know they will try to have me bid it a fourth time with the plans, but I’m unlikely to bid a fourth time. It may seem foolish, but [it’s] for the long-term good of my company and the long-term good of the industry. People have to start putting their foot down,” he says. “If we keep getting bullied by clients over a few dollars, we are only hurting ourselves and each other, and the clients are not being served by that.”

Sullivan says that most $1 million-plus projects are not put out for a competitive bid, but if they are, he knows most of the other bidders. “Most of them are involved in the builder’s association,” he says. Due to his association involvement, Sullivan used to recognize the job signs in his area. But now he says there are a lot more players in the game. Many are former employees of large remodeling companies who know what their previous employer charged for projects and feel confident they can under-bid due to low overhead. “They are working out of their basement with no office staff and minimal insurance,” Sullivan says. “They can go in for a 10% profit. A lot of these new companies will ultimately fail, but they are out there now.”

Jackson & LeRoy Remodeling works on architect-designed projects in gated communities in Salt Lake City, with pre-recession jobs in the $750,00 range. “With the upscale market, our No.1 rule is to under-promise and over-deliver,” says co-owner Brandon LeRoy. “The bid scenario is completely counterproductive to that. You have to overpromise to get the job, which does not set the right expectation for clients. It completely contradicts great customer service.” Less than 20% of the company’s work comes from bids. “To win a bid you must compete with bids that are either unrealistic and/or incomplete. I have yet to know anyone, including myself, who can completely equalize apples to apples bids on an upscale project.”

Taking Control
LeRoy’s goal is to eliminate bidding and to “completely operate from referrals.” Until that happens, the company is trying to control and manage the bidding process. “If we don’t get face time with a client, if they do not visit past jobs or do not call our referrals, we do not proceed on the bid. If they do not show interest in us and our quality, they are just looking for a number,” he says.

In most cases the company charges for a bid. LeRoy explains to clients that the company’s thorough bid includes a detailed packet with a preliminary project schedule, a budget forecast with 250 line items, references, copies of the company’s license, photos of past projects, and a certificate of liability insurance. “This approach trumps the standard one- or two-page estimate turned in by competitors. It filters out a lot of [clients] if they are not willing to pay $500 for an estimate,” LeRoy says. “It has reduced the amount of times we get involved with the bid process, and when we do, the potential client is invested.” He says that creating that estimate consumes an enormous amount of time, talent, and resources.

Alward says the paradox is that small jobs do not bring in enough to support an office staff for a large company but they take a lot of time to process. He used to have just one person on staff who was responsible for estimating. Now, he has two people who work only on estimating and are not responsible for any active jobs. However, he is committed to maintaining office staff. “For the amount of business we are doing, we are top-heavy,” Alward says. “I am grasping for opportunities and to make a sale. I’m still revenue-driven.”

Devil in the Details
Alward needs support staff to help respond to potential clients. “Seventeen job estimates spread among a staff of five people is not insignificant. To turn these into work, you need to get them out quickly,” he says. Though he tried to cut back on the details in the estimate, he was unsuccessful because of the company’s ingrained culture of providing comprehensive information.

Even with a set of schematics, Sullivan says, there are so many unknown specifications that it’s difficult to prepare a detailed bid. “Do you assume they want $2 per square foot tile from Home Depot or $30 per square foot tile from a luxury tile store? You don’t know. And there are 20 items like that on a job, so you keep putting in allowances. But even though clients know there are allowances, they will say, Smith Contracting has lower allowances than Paul’s company so we should go with them. Then they choose $30 per square foot tile and end up being the same price,” he says.

Borden says that with his company’s typical 45 to 50 line-item bids, half of the line items are allowances. “Exactly what is a bath fixture? Does it include a shower door or not? Do I include bath glazing as a separate line item?” he asks. When he’s meeting with clients for just an hour, Borden can’t get a sense of their desires or choices for products. “The ‘swag’ part of the bid is where you get into trouble. My specifications are based on a median of what my previous clients have used,” Borden says.

Sullivan says that his company is perceived as one of the more expensive remodelers in the market. “I prefer to leave it that way. We are not the most expensive, but we are up there. We have to be in order to provide the type of service we do and to have the staff and vendors that clients in our market expect.”

To present the bid in person is a “high-pressure tactic,” Sullivan says. Instead, he tries hard at the initial client meeting to present himself and his company in the best light, explaining what his company provides that the competition does not and offering to take the homeowner to see a past project.

Associating with Architects
Most architects LeRoy works with have been educated to follow a bid process. “The natural tendency is to think that in a down economy the bid process becomes more prevalent, but among certain architects we have seen the opposite,” LeRoy says. Many architects surviving the downturn are having a paradigm shift from a bid process approach to a more relationship- and loyalty-based approach.

Architects view remodelers as a potential lead source, so they don’t take the relationship for granted. Jackson & LeRoy Remodeling’s marketing plan brings the company a steady stream of design/build leads that they take to architects. “[Architects] have turned to us in these slow times, bringing their work to us in an effort to get some of our work back to them,” LeRoy says.

The company focuses on two or three architects who best fit its niche and work well with its clients. “The three we work with educate clients and care about process all the way through,” LeRoy says. “Those architects are good about telling clients that low bids are the most incomplete.”

For most projects, Borden says that home­owners approach the architect first, and the relationship between them grows during the year they spend on design. The architect introduces the client to builders they feel will be the best fit for the project. To help bring in more projects, Borden is visiting the architects he knows in his area for some “face-to-face marketing.” “We’re trying to get more plans from more architects,” he says.

Nina Patel, senior editor, REMODELING

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