Third Quarter Prices Released

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On 7/7/2010 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 GO THROUGH THE ROOF!
It must be hurricane season already …

  • During the past 3 months plywood prices have gone up 25% to 35% nationwide.
  • Wood stud prices have increased over 10% during the past quarter.
  • Minor adjustments in dimensional lumber have occurred, adjusting prices up and down by under 5% in most places.
  • Roofing shingle prices have gone down slightly in many areas.
  • Fiberglass insulation prices have increased by 10% in most areas of the country.

Below are 3 articles by our favorite experts in the remodeling industry.

 

Four Reasons, Three Steps
Rethink your marketing and learn (the new ways) to sell.
By: Shawn McCadden
From: Remodeling magazine June 2010

Looking for that magic bullet that will make your phones ring with qualified leads? Sorry, it doesn’t exist. Here are four reasons why new marketing is essential to turning your business around.

The marketplace has changed. Financing projects is out. Homeowners’ own money drives remodeling decisions now.

Traditional marketing methods no longer work. Simply repeating those methods is an expense, not an investment.

Formal sales training has become essential, including for remodelers who sold well in the past.

Continuing to do no marketing will put you out of business.

And here are some specific steps to help you make that turnaround.

A Serious Plan

A list of marketing tactics is not a marketing plan. Creating a good marketing plan requires reading a lot, doing research, gathering data, and verifying strategies. Be practical and pragmatic; you’ll need to commit to the money and resources to make your plan happen. Keep in mind the consequences of not planning and following through. Recommended reading: “Goals vs. Strategies,”January 2006.

Step 1. Rethink Your Target Market

Remember when there was so much work going on that homeowners were happy just to get a phone call and a visit from a good contractor? The power has long since shifted, and homeowners know they can negotiate with contractors who specialize in the work they desire. So, who’s in your target market, where do they live, and how do they buy? This clear picture will give you a basis for deciding how to market to them.

Recommended reading: “Niche by Niche,”July 2008.

Step 2. Articulate Your Differences

Tired of homeowners who only want to buy on price? This is your wake-up call. If homeowners don’t see (and you don’t define and communicate) your business as different, you will be forever stuck selling on price.

After all, what besides price distinguishes one bland commodity from another? As you articulate your business’s distinct differences, align them with whom you want to sell to, why these homeowners value those differences, and how your differences will satisfy their needs.

Important:You don’t buy from you, so never assume what prospects want or why. Do the research to confirm the strength of your strategy and your ability to communicate it. Recommended reading: “The Only Game in Town,”February 2008.

Step 3. Learn How to Sell

Many remodelers used to do just fine by selling on the numbers: That is, the more people you got in front of, the more projects you sold. Given how long the typical buying cycle has become and how many visits it now takes to close a deal, who has the time to continue selling on the numbers?

Commit to an ongoing sales training program and individualized coaching time. The training doesn’t have to be specific to remodelers, but your coach should be able to help you work on sales strategies that are specific to your defined target market and differences. Mantra: Learn, practice, debrief, adjust, repeat. The best-performing salespeople practice and continuously learn; their sales systems become part of them.

Took sales training in the past, know it all already? Chances are, your previous sales training helped you memorize responses to typical objections. Typical objections have changed. Recommended reading:

“Confidence Game,” September 2009.

Many remodelers started their businesses because they enjoyed the hands-on work. That era may be gone altogether. If your want to stay in business, it’s time to work on your business, not in it.

Shawn McCadden founded, operated, and sold a successful design/build company. A co-founder of the Residential Design/Build Institute and former director of education for a national K&B remodeling franchise, Shawn speaks at industry events and consults with remodeling companies. shawnm@charter.net.


Mixing Up Markup
Does the tighter market call for tighter prices and thus lower markup?
By: Linda Case
From: Remodeling magazine June 2010

Nowadays, setting markup is like sailing, says Joanne Hall, of Villa Builders, in Arnold, Md. “You have to trim, jibe, tack, reef the main, and sometimes just turn the damn engine on. I don’t think you should ever believe you can just set your sail and forget it. Not anymore.”

The first step in establishing a markup is to pinpoint your overhead costs and net profit goals. In better times, I pushed remodelers to aim for a net of 8% to 10%, above the owner’s salary, to allow for cost overruns.

These days, I advise shooting for a 5% to 7% net, but I applaud anyone who strives to go higher.

Say you realistically anticipate $1.2 million in volume for the year. You know that your overhead (including pay) will be $324,000, or 27%. You want a net of $72,000, or 6%. Add the two to get the gross profit you need:

$396,000 (33%).

To convert that gross profit into the markup you need, subtract your gross profit percentage from 1 and then divide 1 by the answer (1 – 0.33 = 0.67; 1 ÷ 0.67 = 1.49). Thus, your markup should be 0.49. If the plumber charges you $1,000, in other words, you charge the client $1,490.

Gross Profit Variables

Gross profits of between 30% and 40% tend to be industry benchmarks for remodeling. Yours may need to be higher or lower. The larger your average job size, the lower your overhead per volume dollar, and vice versa.

I’ve seen overhead ranging from 12% (for companies with extremely big jobs) to 40% for companies with smaller jobs or very high marketing and sales expenses.

Your average job size shouldn’t affect your net profit goals, however. Remember that no matter how lean you get, others in your marketplace will undercut you. Why? Because they don’t know their costs and overhead.

To try to match them on price is a sure road to ruin.

Many Roads to Marking Up

It doesn’t matter how you mark up as long as you bring home the bacon. The simplest and most common method is to apply the same markup across the board. But also consider these two alternatives:

Gross profit per hour, based on carpentry hours. This method works only if your carpenters are employees rather than subcontractors.

Multiply your number of field personnel by their actual working time. Assuming you run the $1.2 million company above, let’s say you have six field personnel who work 1,700 hours a year, or 10,200 hours. Divide your gross profit dollars ($396,000) by those hours, and you will get $38.82. Price jobs by adding this amount your gross profit per hour to your burdened average hourly cost of a field person.

By marking up only labor, this method may make you less expensive for jobs that are light on carpentry, and more expensive for jobs that are heavy on carpentry. It also commits you to actually use all 10,200 hours to reach your annual goal. Underestimate labor, and you are in trouble.

Gross profit per week. This method works whether you use employee crews or you use subcontractors, but it requires accurate scheduling.

Divide your needed annual gross profit by the number of weeks your crews work. As you price jobs, calculate the gross profit they will produce by the week. The difference will indicate if you should raise or lower prices.

You’ll definitely get a new perspective. I know one remodeler who realized he couldn’t make any money doing bathrooms.

The relative complexity of these two methods is a key reason for the popularity of across-the-board markups. I recommend that you price at least two ways. Use your best judgment for the job and always always watch your profit-and-loss and work-in-progress reports like a hawk.

Linda Case is founder of Remodelers Advantage, a national company that gives remodelers the tools to achieve consistent profitability and success through one-on-one consulting, the Roundtables peer program, and an online learning community, Advantage Associates. 301.490.5620; linda@remodelersadvantage.com; www.remodelersadvantage.com.
Student of Success
A positive mindset reinforces behavior that leads to success under any market conditions.
By: Mark Richardson
From: Remodeling magazine June 2010

Over the last couple of years, many businesses (and some industries) have shrunk or even failed. Most observers attribute this outcome to market conditions or the overall economy, and as a result many business leaders have dramatically adjusted their goals and direction. While it would be naive to think that market conditions do not have a major influence on the difficulty or ease of achieving goals and results, it is important not to hand over your business and destiny to an environment that you cannot control.

As I have watched businesses both inside and outside the remodeling industry over the last few years, I have found a common denominator among those that have seen positive growth and profitability while navigating these stormy waters. That common denominator is what I call “being a student of success.” It is a mindset, it is a behavior, and it is an investment. And while it may sound a little too evangelical for some, I believe it directly affects the behaviors of success and a positive outcome.

Positive Attitude

When you adopt the student-of-success mindset, you believe that “failure is not an option,” that an extra 1% is the difference between winning and losing. You begin to make positive attitude and team morale a priority in your business decisions. Henry Ford said, “I refuse to recognize that there are impossibilities”; Napoleon Hill’s book is titled, Think and Grow Rich. They both believed that attitude is important to create success.

In addition to positive attitude, a success-focused mindset is also about work ethic. In tough times, each individual needs to step up so that work ethic becomes a cultural dynamic and is not carried by just a select few individuals.

Take inventory of both individual and collective attitudes within your company, and grade your “success mindset.” Then talk with the owners of businesses that have seen positive growth over the last couple of years and compare notes. I think you’ll find that a positive mindset is a key ingredient to success, particularly in difficult times.

Changing Behavior

In addition to adopting a success mindset, you also need to translate it into behavior. Paraphrasing Ken Blanchard, author of The One Minute Manager, intentions without actions aren’t worth squat. Giving motivational speeches and singing company theme songs may help to build a positive attitude, but positive business effects are not sustainable without developing specific habits and actions. Companies and leaders who are students of success reward creative thinking and improvement even in tough times.

Watch your colleagues and employees and ask yourself if they are “students of success.” If not, you may need to devote some time and energy to training, marketing strategies, or even new processes or systems that embody the “student of success” concept.

As much as many people would like their business to “hit the lottery” and achieve overnight success, that is not a strategy you can count on. Being a student of success requires an investment both in hard cash and time; it also involves some risks. But without risk and investment, gains will be minimal.

Try to quantify how much money you want to invest annually into being a student of success. One successful friend of mine spends two weeks each year away from his business in an entrepreneurial program at a major university during that time he is literally a student of success. Investments like this push you out of your comfort zone and stretch your business “muscles” in new ways. As you know from your experience with physical health, you achieve better results when you vary the exercise routines you use.

I truly believe that what will separate the successful leaders and businesses moving forward may be less about the market conditions and more about becoming real “students of success.”

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