Monday, October 4th, 2010
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
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
Posted in Pricing Trends | No Comments »
Thursday, July 8th, 2010
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 …
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.
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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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Friday, April 2nd, 2010
On 4/2/2010 we uploaded the most recent pricing data.
Also, new recommended Hourly Labor Rates (HLRs) have been posted.
All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:
Lumber Products Rise Steeply
Here’s an article that says it all.
Remodeling market should start to come back this year
By Jonathan Sweet, Editor in Chief
February 1, 2010
Professional Remodeler
The good news: the recession appears to be over. The bad news: the recovery isn’t going to be great.
That seems to be the consensus of most economists as we head into 2010 the worst is over, and we’ll start seeing modest recoveries in the housing and remodeling markets this year.
“It was the worst downturn since the Great Depression, but it does appear to be over,” says David Crowe, NAHB’s chief economist. “It won’t be a strong recovery, but there are some positives for housing.”
The fourth-quarter ended up being better than many economists expected, with gross domestic product growing at a 5.7 percent clip in the last three months of 2009. Still, a sluggish job market has many pessimistic about a long-term recovery, especially in housing. (Residential investment did slow from 18.9 percent growth in the third quarter to 5.7 percent in the fourth, probably due to the impact of the new home buyer tax credit.)
“A recovery in the employment market is the key,” Crowe says. “We need to see continued employment growth, and it’s going to be at least several months before we see that happen.”
NAHB is forecasting unemployment to go below 10 percent in the second quarter of this year and below 9 percent in 2011. Those high rates will continue to put pressure on the housing market, says David Berson, chief economist of mortgage insurer The PMI Group.
“The job market is going to look a lot like it did last time a jobless recovery,” Berson says. “That will hold down the strength we see in housing.”
Remodeling recovery
The Joint Center for Housing Studies of Harvard University estimates that the overall residential remodeling market was $246 billion in 2009 down almost 25 percent from the 2007 market peak of $320 billion. That’s still better than the new construction downturn and has lead to the long-predicted surpassing of that market sector by remodeling.
“At this point, remodeling is larger than new construction,” says Kermit Baker, director of the Remodeling Futures Program at the JCHS.
Both NAHB and Harvard are predicting remodeling will start a nascent recovery in the second quarter. The overall remodeling market can be difficult to measure and forecast now because of the Census Bureau’s elimination of the C-50 survey and other indices that tracked remodeling activity. Only improvements to owner-occupied homes can be tracked with any accuracy, but that measure leaves out maintenance and repair, as well as work on rental properties.
That portion of the market fell to an estimated $110 billion for 2009, down from its 2007 peak of nearly $150 billion. Harvard’s quarterly Leading Indicator of Remodeling Activity measures remodeling on a rolling four-quarter basis (see graph). The LIRA is predicting a drop to a $103 billion rate this quarter before starting to rise next quarter, although it would still be below the 2009 second quarter rate. If that plays out, it’d be the first quarter-to-quarter improvement since the second quarter of 2007.
“We’re seeing more interest in discretionary spending,” Baker says. “This quarter will be the cyclical low, and if you project ahead we could be in positive year-over-year territory by the fourth quarter.”
NAHB is estimating improvements in owner-occupied homes to reach $115 billion by the end of 2012, says Paul Emrath, NAHB’s vice president of survey and housing policy research.
Opportunities and challenges
There are several positive signs that point toward an upswing in remodeling and housing, including tax credits for home buyers and energy-efficient remodels.
“Sales of existing homes are on the rise, and home price declines are moderating in most markets across the country,” Baker says.
Analysis of Census Bureau numbers show clear patterns of higher spending on remodeling by recent buyers. The average homeowner spends $2,413 a year on remodeling, compared with $4,275 for buyers of new homes and $4,642 for buyers of existing homes, Emrath says.
“When you have a government policy that stimulates selling homes, you get some extra remodeling activity,” he says.
NAHB estimates that the new home buyer tax credit resulted in $123.8 million in remodeling last year.
While mortgage rates will probably rise this year, the historically low levels combined with low home prices and the extension of the home buyer tax credit should continue to drive sales, Crowe says.
Increased demand for energy efficiency retrofits and other green remodeling is also putting positive pressure on the market. The existing tax credits have already helped and proposed increases in those credits or the approval of Home Star or a similar program could have an even larger impact, Emrath says.
According to NAHB research, 30 percent of remodelers have seen increased demand for energy efficiency remodels, and 5 percent of remodeling jobs last year were driven by the tax credits.
There are also some significant challenges to the recovery. Financing still remains difficult for many home buyers and homeowners to obtain. “The lack of financing will be a significant retardant on a housing recovery,” Crowe says.
High unemployment combined with lower home prices also mean foreclosures are likely to increase leading to lower prices and even more foreclosures.
Many bank-owned homes are still being kept off the market by servicers, and what those owners decided to do with them will play a key role in the direction of the market and recovery, Berson says.
“We don’t think they’ll dump new foreclosures on the market, which means it will be longer before we see a recovery in home prices,” he says. “We expect it to be three years before we get back to normal growth, but that’s probably better than getting everything dumped on the market right now.”
PMI is predicting more declines in home prices in the short term, as the government extracts itself from the mortgage market, Berson says.
Those lower home prices will probably continue to make many homeowners reluctant to remodel, Emrath says.
“Home prices are now back in line with income,” he says. “Now we’re facing a psychological problem. If you think the prices of homes are going down in general, you’re going to be reluctant to remodel.”
The new lead paint regulations on pre-1978 homes could also throw a wrench into any remodeling recovery. According to NAHB, 69 percent of remodeling is done on homes built before 1980, and many have questioned whether owners of those homes will be willing to pay the additional costs required to follow the new rules.
“The cost of compliance could discourage homeowners from hiring professional homeowners,” Emrath says. “Our surveys show this is a major concern.”
Finally, remodelers are facing even more competition for the smaller market that is out there. In a recent Professional Remodeler survey, 40 percent of remodelers reported an increase in competitors, with former home builders being the largest group coming into the market. And late last year, when NAHB surveyed its builder members, 66 percent of them reported they either had added residential remodeling to their business in 2009 or planned to in 2010 and more than 20 percent said the same of commercial remodeling.
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Wednesday, January 13th, 2010
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
Here are some other relevant articles:
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.
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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.”
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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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