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Fourth Quarter Prices Released

Friday, October 2nd, 2009

On 10/2/2009 we uploaded the most recent pricing data. All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

• Drywall costs have slipped lower during the 3rd quarter hitting all time lows.
• Roofing costs have declined after the stabilization of oil costs.
• Plywood costs have risen as much as 20% in some areas.
• Dimensional lumber cost have incresed 10-15% during the 3rd quarter.
• Fiberglass insulation costs have returned to early 2009 costs after sharp mid-year increases.

Here are some other relevant articles:

Remodeling Market Down, But Remodelers Expect Recovery

By Jonathan Sweet, Senior Editor
August 1, 2009
Professional Remodeler

Two-thirds of remodelers say their market is worse than it was a year ago, but at the same time they’re seeing some relief on the horizon, according to the latest Professional Remodeler survey.

Sixty-seven percent of remodelers said their local market conditions have gotten worse over the last 12 months, compared with 19 percent who said the market was unchanged and 14 percent who have seen an improvement. And that’s coming off of 2008, when 50 percent of remodelers had a decrease in revenue from 2007, according to our annual Business results Survey. (Visit www.HousingZone.com/bizresults for more information.)

Remodelers tend to be an optimistic lot, though, and most are expecting things to get better next year, with 57 percent predicting an improvement in the market and only 11 percent saying things will worsen in 2010.

The lone exception to this optimism is the Midwest. Only 46 percent of remodelers there are expecting a better 2010, and 20 percent say the downturn will continue over the next year. It’s the only region of the country where more than 10 percent expect the market to worsen.

Although 67 percent of remodelers say the market is worse now than a year ago, only 11 percent expect it to continue to worsen over the next 12 months. Fifty-nine percent of remodelers in the Northeast and West and 66 percent of Southern remodelers think conditions will improve over the next year.

The results are not that surprising when considering the local economic conditions. The Midwest has a 10.2 percent unemployment rate, tied with the West for the highest in the country, and the Midwest has seen the biggest increase in unemployment over the last year, according to the U.S. Bureau of Labor Statistics. The region also includes several states hit hard by the recession, including Michigan, with it’s national-high 15 percent unemployment rate, and three other states with unemployment of more than 10 percent (Illinois, Indiana and Ohio).

Consumer confidence is key

The biggest factor in improving the remodeling market will be increasing confidence, remodelers say.

We asked remodelers to rank several factors on the importance in driving a recovery in their local market. Consumer confidence topped the list, with nearly 90 percent of remodelers ranking it in the top three. Coming in second was “Consumers’ inclination to spend rather than save,” followed by availability of financing, increased housing values, higher employment and fewer foreclosures. Not surprisingly, these are all factors that drive consumer confidence.

We also separately asked remodelers what was needed to turn their market around, allowing them to provide any answer. More than a third listed some variation of consumer confidence. The only other answer that was close was the more than 10 percent who responded with some sort of complaint about the government.

Smaller jobs, fewer leads drive downturn

Anecdotally, it’s not hard to understand why so many companies are struggling this year. Take fewer leads, a lower close rate and smaller job sizes, then toss in increased competition in many markets and you’ve got a recipe for disaster.

The numbers back the stories. Most remodelers are seeing significant drops in average job size. Nearly half of remodelers reported a “substantial” drop in average price tags from a year ago, and 77 percent saw at least some decrease. Only 11 percent of firms had an increase in average job size over the last year.

Leads are down for 72 percent of companies, compared with the 15 percent of companies that are getting more leads. And once they get those leads, remodelers are finding it harder to close the deal, with 64 percent saying their close ratio has dropped over the last 12 months (although 13 percent did report higher close ratios).

Many remodelers are also seeing more competition. More than 40 percent of companies reported an increase in competitors. The recession also seems to be knocking some companies out of the market, though, as 36 percent of firms said the number of their competitors has decreased.

Of those companies that are facing increased competition, 68 percent are dealing with new home builders; 57 percent, former trade contractors; and 53 percent, former employees of new construction and remodeling firms. Ten percent said they are seeing increased competition from other sources, such as unemployed DIYers and college students.

What will it take to change your market?

378 remodelers with 2008 revenues of more than $500,000 completed the survey online. Data were collected June 8 to June 27, and participants were chosen from a random sample of subscribers to Professional Remodeler magazine and eNewsletters.

We asked remodelers, “What’s the most important thing that needs to happen to turn your market around?” Here’s a sampling of their write-in responses:

“Get the government out of our business.”

“The media and Wall Street need to instill consumer confidence to American people. There is way too much doom and gloom out there, and people are very nervous.”

“The national economy must stabilize and turn around and start growing.”

“Consumers need to feel good about their current and immediate future financial condition and employment outlook. Until confidence improves, even those with the cash aren’t going to spend on anything but the necessities.”

“The government needs to have leaders who do what is good for the country instead of political gain.”

“Our market is not bad.”

“[We] need to have more large companies to employ more people.”

“The builders need to go back to building houses. They don’t know how to manage remodeling clients and therefore price their jobs way too low.”

“Consumer confidence seems to be the key. People appear to be interested in renovations; however, they are waiting to see if more bad news awaits us. Most of our work is done through discretionary spending. On a political note, I think it would help if the minority in Congress would try to work with the majority and vice versa, showing a united approach to the problems.”

“No turnaround [necessary]; it has never been that bad.”

“Everyone should get busy doing and stop waiting for others, i.e. the government, to do it for them!”

“The financial sector has to improve a lot. People have to get their investments back closer to what they have lost in order to start spending on their homes.”

“Unemployment needs to stop increasing, and home values need to stabilize. Also, home builders, tradespeople and unemployed professionals need to stop ‘trying their hand’ at remodeling.”‘

——————————-

Survival of the Fittest, Revisited

Survival is more than just hanging on. It requires a team effort, a return to sound business fundamentals, and an ability to respond to a changing market.

By Mark Richardson
September 2009
Remodeling Magazine

Since last year’s “perfect storm” of banking crisis, stock market crash, and housing foreclosures, I have traveled across the country speaking to thousands in the remodeling industry about “The Remodeling Outlook,” which looks both at the fundamental demographic of our industry and at changes that have taken place over the last few years.

Everywhere I go, I get questions that reflect the pain remodelers are feeling as well as their thirst for certainty. Many ask, “When will the market improve?” “How do I get the phone to ring?” “Will my business survive?”

A few years ago, the word “survival” was not in most remodelers’ business vocabulary. Most had experienced double-digit growth for so many years that they lost sight of the ingredients needed for a business to be healthy.

These basic ingredients are the same today as they were when I wrote about them more than a year ago, but this time the perspective is that of someone who has seen the scars and bruises that many have suffered in the past year.

Mindset

All businesses today need the right mindset. Given what we have experienced over the past 12 months, this mindset needs to begin with the notion that survival will be a team effort, not something carried on the back of the owner or leader. Business owners who are working their way through this muck are not acting shepherds leading sheep, but instead have made survival a team priority.

Another critical element of right mindset is maintaining a positive attitude. In times like these, a negative attitude is like a cancer that will eat away at a business. Work ethic is also essential. The status quo isn’t enough anymore, and success may require working longer hours and some weekends.

Finally, the right mindset depends on being more creative and flexible and less dogmatic. Processes and systems are important, but don’t let them be a ball and chain that pulls the business under.

Basic Business Fitness

To survive this economic hurricane, businesses need to not only bail water when the boat is sinking but steer the boat to calmer waters. Many businesses today are so focused on getting through the week and meeting payroll that they are getting further and further off-course. Their goal is short-term survival, but without a vision for medium- and long-term health.

Finding a balance can be difficult, but as with your personal health, if you don’t invest some energy into staying fit, you will move further away from being in shape. Take time out for a business fitness check up, and then invest 10% of your week into those areas that need attention.

Change

Although change is critical to survival, most businesses are reluctant to change and must be dragged into it against their will. This is a sorry state of affairs, because, as a friend of mine once said, “If businesses are not changing, they will become irrelevant.” Wow, who wants to become irrelevant?

In the remodeling business, change begins with understanding how your client has changed, how marketing strategies need to adjust, and how fundamental business priorities and structure are being transformed. The common denominator among the businesses I have touched during the last year is that they think they are changing, but they are not changing enough.

Change also needs to be managed. The faster and more dramatically you change, the more difficult it will be to get everyone onboard. That means you need a plan not just for the change itself, but for how you will communicate the change and handle the fallout it creates.

Survival requires looking for specific solutions in the context of your clients, your market, your product, and your team. With the right approach, you can do more than just survive in this market you can thrive.

Mark Richardson, co-chairman of Case Design/Remodel, recently accepted a one-year appointment to Affiliate in Housing Studies at Harvard’s Joint Center for Housing Studies.

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Second Quarter Prices Released

Tuesday, April 7th, 2009

On 4/1/2009 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

ROOFING PRICES CONTINUE TO RISE AND LUMBER PRICES CONTINUE TO FALL

• Roofing prices continue to rise having increased by 5-10% in most areas.
• Gypsum wallboard prices remain low and stable.
• Dimensional lumber prices have declined by 5-10% nationally.
• Plywood prices have stabilized falling only 5% during the past quarter.

Surviving the Downturn

Case Design/Remodeling is changing strategies to survive the current market

Jonathan Sweet, Senior Editor
February 1, 2009
Professional Remodeler

Companies big and small are facing unprecedented challenges in 2009. Professional Remodeler talked to Mark Richardson author, frequent industry speaker and president of Case Design/Remodeling, one of the largest remodeling firms in the country. To read the complete interview, go to www.ProRemodeler.com. Some highlights:

You’re expecting a drop in business in 2009. How is the economy affecting your business going into this year?

The best way I can describe the environment this year is that it’s tough. It’s an environment in terms of marketing, in terms of sales, that is tough. Tough does not mean bad. Tough means tough.

What are you doing to deal with this new reality?

We very much have had to adjust our course. We went into the beginning of our fiscal year, which started in October, expecting a 7 or 8 percent growth for the year. After the perfect storm of October … the bottom fell out and we just had to go ahead and come up with a Plan B.

That [plan] looked at every aspect of our financial model, including sales and revenue on the production side and all the way through with overhead expenses. We had to scale the company back to act like we were roughly 10 percent, 15 percent smaller. We had budgeted for projects and initiatives for the future that we had to just say, well, let’s wait until the storm passes before we make those investments. Then we had to just trim the fat, trim things that don’t necessarily affect people on a day-to-day basis to come up with a plan that was essentially much more sensible. Moving forward I’m hoping that we don’t have to go much deeper.

Have you made any changes to your marketing?

In the past, direct marketing would work. Now we’re doing a lot more indirect marketing, meaning seminars. We’re doing a lot more networking groups. We’re focused more heavily on smaller-scale projects. We’re pushing people more to the Web now than in the past. We’re changing some of our messaging to focus more on low risk and trying to reduce fear more so than “follow the fantasy.”

Any changes in the day-to-day operations of the company?

We’ve actually scaled up our handyman group even more and our groups that do larger scale projects we’ve sort of pushed them back a little bit. We’re presenting more lower cost options to folks.

What are some of the unique challenges Case has as a larger company?

It’s sort of a double-edged sword. If you’re a small company, you can be very light of foot. It’s almost like a boat. If you’re a speedboat you can turn on a dime. If you’re a freighter, it might take you two or three miles to make a turn.

The good news if you’re a small boat is you can turn on a dime. The bad news is that the guy driving the boat is the also the guy filling the gas and cleaning the boat. You don’t have the luxury of being focused or specialized on a certain thing.

Given the fact that it’s tough out there, you can’t be operating in the same way as when it’s easy. Got to be putting your ear to the ground and listening to the market and putting the right amount of time into other elements of the business. You have to be more focused on monitoring the numbers, on watching the cash flow. All of those factors are really important.

What are some of the key indicators you track?

We certainly watch the inquiries, the leads coming in. We watch the close rate of the sales. We watch the gross profits on the projects. We watch the lead time, the time between sale and beginning of the construction. That’s a variable that we watch. We watch the percentage of completion numbers as we project out because it affects profitability quite a bit. We watch certainly the overhead, the 75 individual line items in overhead. We track that on a regular basis. It’s like what’s most important, your blood pressure or your cholesterol level? They’re all important and you’ve got to watch all of them so they’re in concert with each other.

We’ve talked a lot about the economy. Any other major challenges you see coming?
The economy affects consumer confidence. 2008 was unprecedented. We’re talking about stock market issues that go back to the ’20s. Are there other issues that will affect us moving forward? Sure, but if the economy’s better the phone will be ringing and marketing will be easier. If the economy’s better, consumer confidence is going to be there. If the economy’s better, homes will appreciate and people will feel better about the investments they’re making.

One of the great things about a market like this is that if you need to hire great people, you shouldn’t have a problem. If you need to negotiate with your subs, you shouldn’t have a problem. If you need to get suppliers or manufacturers to stand up and salute and get you something right away you shouldn’t have a problem.

What are some of the words of advice you’re sharing with other remodelers as you speak around the country?

A theme that I’ve been out talking about is it’s survival of the fittest. Three themes within that are really critical.

First you’ve got to have the right mindset. Henry Ford said, “If you believe you can or can’t, you’re right,” and I really, really live and breathe that notion. I cannot tolerate a mindset or an attitude with people who believe they can’t achieve it. The mindset also includes work ethic. You’ve got to work harder than ever. We’re meeting more clients on weekends than ever. That’s a different mindset, that that’s OK.

The second is that the fundamental business needs to be fit. (Richardson’s book, “How Fit is your Business”) is all about being fit and it draws the parallel between personal health and fitness and financial health and business.

It’s no different than if you want to climb Mount Everest you’ve got to be in great shape. I don’t whether or not I’m overstating the environment being Mount Everest, but what I am saying is that it’s tough out there. You and your business have got to be fit.

Third is you’ve got to change. There’s many out there that are fit and have the right mindset, but they’re just stubborn and they won’t change and I think they’ll crash and burn and fail as a result.

When are you expecting a turnaround to start?

I had a management meeting today and that was one of the questions I asked them. When do you see the curve start to curve up, that we can start to predict sales a little bit better. Not necessarily good, but when do you see it curve up. The overall feeling of the group was that they expect to see the curve going up sometime April to June-ish. Sometime in that time frame. They could very much see it slipping, slipping for the next few months, then start to see the curve going up.

When do we see it being good again? I think we’re looking at probably a year later.

The rationale for the spring is historically spring we see an uptick. We believe with the new president in place, there will be a more positive spirit of hope in there. We believe Americans are impatient and they’ll say enough already, we’ve got to do stuff.

There are lots of rational reasons why we think spring/summer should be some positive uptick on the curve. The overall feeling is that we probably won’t really see what we’d call sunny day conditions until probably 2010.

What are some of the things that need to happen before we’ll see a turnaround?

I’d like to think that we see some uptick in the stock market. I’d like to think that would be something out there that would cause some positive feeling. I’d like to think that the new president getting in place. Whether it’s real or Memorex, at least it’s a feeling of hope. It’d be nice if Obama was doing something or announced he was doing something. Part of it’s getting him in place and part of it’s doing something.

Consumer confidence is probably the biggest indicator of home remodeling. All the things that affect consumer confidence will affect remodeling. I think watching unemployment and the job situation is a factor as well.

Click here to see the original article in Professional Remodeler

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First Quarter Prices Released

Monday, January 5th, 2009

On 1/2/2009 we uploaded the most recent pricing data. All subscribers should have received an email from RemodelMAX notifying them of this. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

WOOD PRICES FALL BUT ROOFING PRICES GO THROUGH THE ROOF!

• Roofing prices have gone through the roof, increasing 25%-30% in many areas.
• Gypsum wallboard prices remain low and stable.
• Dimensional lumber prices have declined slighty.
• Plywood prices have dropped as much as 15%-20% in some areas.

Here are some other relevant articles:

PRICING ADJUSTMENT

Q+A: Do you raise or lower prices or bids based on economic conditions?

Remodeling magazine December 2008
By: Nina Patel

Traci Knapp
Nobile Construction
Branford, Conn.
Big50 2005

We have not done any across-the-board cuts or raises. We base any changes on supply and demand and make adjustments on a case-by-case basis. Right now we are busy overall, and this time of year is busy for us, so we are not backing off our prices.

However, to secure a project to fill our schedule for February or March, we might provide a lower number. I think part of it is mental. If your pipeline is full and you have a solid schedule, you feel more secure in asking for more money.

If you are not busy, it’s a whole other mindset. If we weren’t busy, we might consider going lower. However, you have to remember that if you sell one job at a lower markup, you may fill a slot for a project where you could have gotten the full markup.

Randy Ruzanski
Distinctive Home Renovations
Elk Grove Village, Ill.
Big50 2000

We never had to change our margins or pricing. We either got the jobs or we didn’t. However, if I have to negotiate, I will. But I will work to protect our margin during the negotiations. The purpose of being in business is to make money. It does not make sense to do a job where you are not making money.

John Newmyer
Newmyer Distinctive Remodeling
Walled Lake, Mich.
Big50 1992

I will not change my margins. If you do that, you end up not being able to pay your bills or your vendors. You must maintain your margin. Especially in today’s market where you can’t make it up in volume.

However, we have noticed that our bids are lower because they reflect the fact that material and labor prices are coming down by about 30%. Subcontractors are working for less and we sub practically everything.

I recently worked on a bid that a year ago would have cost $165 to $180 per square foot, but now costs $120 per square foot.

Anthony Cucciniello
4V Corp.
Bronx, N.Y.
Big50 2006

I’m getting more small jobs in this economy. My prices are up on these under-$100,000 jobs because, though they are smaller, I have the same overhead. I have lowered my prices on larger jobs, those $250,000 and up, because there is more competition for these jobs. But I will only lower my price by a maximum of 3% because the company still has to survive and sustain itself.

I find a lot of new-home builders trying to get into the remodeling business. Their prices are so low, I’m not sure how they can do the job. Some are pricing 30% below my bids there is going to be a problem with that job.

Gary Naugle Sr.
Gary Naugle Co.
Columbia, Mo.
Big50 1990

We recently raised prices across the board. We knew our prices were too low because our margin dropped. I have a new price book now. I expect that, with the adjustment, margins will be back to what they should be. However, I believe you can’t raise or lower prices based on the economy or you’ll go out of business.

Surviving the Fall

Remodeling magazine December 2008
By: Leah Thayer

In the short time between August, when this survey was in the field, and early November, when we conducted phone interviews, many remodelers have had little choice but to scale back on pay, if only (they hope) temporarily.

“Until 60 days ago, everything was OK,” said a Connecticut remodeler who works primarily on second homes. “But when Wall Street crashes, our clients crawl under a rock.”

This remodeler hasn’t cut staff yet. “But they’ve been forewarned,” he said. He anticipates layoffs if he doesn’t sign contracts soon.

A few strategies being used to avoid those painful cuts:

Pay freezes and/or cuts, with the biggest paychecks bearing the brunt. One owner slashed his pay by 80%; another cut all executive pay by 30%. Others are asking trade contractors to accept small rate cuts (e.g., $5 less per hour) and to guarantee estimates.

Spot bonuses. To soften the economic blows, one company gives occasional “kickers” of $100 to $500 for exceptional performance. Another doubled some employees’ vacation time, unofficially.

Shifting health insurance. Bulwarks against rising premiums include paring back from family plans to employee-only plans, and changing from “Cadillac” PPO plans to cheaper HMOs and health savings accounts.

Some employers have suspended matching employees’ 401(k) contributions.

Other strategies: repackaging pay to be more incentive-based, longer hours, and broader work responsibilities. “Your job descriptions are over,” one remodeler told his staff.

Can’t avoid layoffs? Cut the “C-players” first those who produce less and/or need more supervision. It’s not all nickel-and-diming. “I’m keeping my highest-paid employees who … don’t need to be babysat,” said one remodeler.

And when there’s nothing else to cut, there’s the cushion. Or there should be. “Banked money is going to be key for a lot of people,” one remodeler noted.

Make Change a Priority Now

Today’s economic climate demands new ways of going to market.

Remodeling magazine December 2008
By: Mark Richardson

No one will argue that the country is experiencing an economic crisis. But the bad news itself is less important than how you react to it.

Try this exercise: Write down a few words or phrases that describe today’s business environment, your company’s positioning, and how you feel about both. Now ask others on your team to do the same, then

compare lists. You will discover that some people are fearful and reluctant to stray too far outside their comfort zone, while others (maybe most) want to do something but are confused about what to do and who should do it.

A third response comes from those who are more energized than ever. I include myself in this group because I believe that opportunities are on the rise at the same time that the risks are greater than ever.

REMEMBERING WHEN

I haven’t seen this dichotomy for many years, but it is by no means unfamiliar. Those with some gray hair will remember the “stagflation” of the early ’80s, when interest rates climbed to 15% or more, and remodeling was just beginning to gain respectability as a professional activity. At Case in 1981, our annual business was about $500,000, but we saw the opportunity in design/build, which was still an untested way to take remodeling services to market. It took some time, but as a direct result of our acting on that opportunity, by 1988 total revenue had grown to $8 million.

Similarly, the early ’90s were a time when home values in many areas of the country went from double-digit appreciation to double-digit depreciation. During this period at Case, our design/build business dropped from $8 million in 1988 to $4 million in 1991. But again, we saw an opportunity to diversify. We launched the handyman division, which ultimately gave us the engine to grow to nearly $100 million today.

HOMEOWNERS STILL NEED HELP

The economic circumstances are different today, but times of great crisis also present great opportunities. Homeowners need you more than ever. They are stressed out, lacking the time or skills to tackle projects themselves. Product proliferation, regulatory issues, and fast-changing design trends have made remodeling a complex and confusing proposition. But remodeling is still attractive even to homeowners who are trying to break the spending habit they developed in boom times.

For one thing, the simple house of the past is now very complex, both in design and in required maintenance (compare a modern home with those from developments built in the 1960s and you’ll see the difference).

Plus, although the recent stock market fluctuation has affected the ability to borrow money, it has also created a huge lack of confidence among homeowners about planting their money in the stock market.

A home is still the biggest investment most people ever make, and they want to protect it, position it, and enjoy it. If you embrace the changing business environment with a sense of urgency, you can see positive results today and prepare for explosive growth and increased market share in the future.

CHANGE NOW

The flip side to this story is the risky nature of this environment. If you cannot change, you will probably not make it. Many remodeling experts and industry gurus are singing the same song today that they did five years ago, but the old recipes don’t work now. Change is incompatible with dogmatic and rigid thinking. Change requires new ways of marketing and selling. One of the best times to institute change and get a healthy buy-in from your team is in markets like the one we are in today.

It’s time to make change a priority and give it a sense of urgency. I believe that now is an ideal time to embrace new opportunities, see unprecedented growth, and position your company for the future. The risks of standing still and not changing are greater than ever.

Mark Richardson is president of Case Design/Remodel and author of the book How Fit Is Your Business? A Complete Checkup and Prescription for Better Business Health.

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