Also, new recommended Hourly Labor Rates (HLRs) have been posted.

Most Material Costs Stable Except Roofing

• Dimensional lumber costs the same or increase less than 3% in some areas.
• Plywood costs stay the same or go up 5% or less.
• Roofing costs increase again by as much as 10% in some areas.
• Drywall costs continue to stay low with little or no change.
• Insulation costs stay virtually unchanged.

Here are some particularly relevant articles:

Mixed remodeling forecast for 2012
Remodelers hopeful for 2012, but not banking on big recovery

By Jonathan Sweet, Editor in Chief
Professional Remodeler

December 7, 2011

After a 2011 that failed to live up to expectations, remodelers are not as optimistic as they were a year ago that business is going to improve.

Just less than half of remodelers expect revenue to increase in 2012, according to the latest Professional Remodeler research. Twenty-nine percent of remodelers expect no change next year, while 23 percent expect revenue to decrease.

“I see some cautious optimism, but things seem on the edge and could fall again really easily,” says a design/build remodeler from the Northeast.

Says a Texas full-service remodeler: “The news is so bad consumers are going to go back to ‘wait and see’ before they buy.”

That pessimism is a marked contrast from the end of 2010, when remodelers were very hopeful about 2011. At that time, 64 percent said they expected their revenue to increase and only 15 percent expected business to slow.

Unfortunately, a stubbornly weak economy and continuing pressure on the housing market combined to make reality a lot less attractive, with only 29 percent of remodelers reporting their business picked up this year compared to 2010 and 42 percent saying that revenue was down.

“We need a bit of a burst to generate some demand out there,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. “Folks are just nervous about getting into home improvement projects with the economy as weak as it is.”

A Cloudy Outlook for 2012?
LIRA data indicate a less-than-stellar short term

Mark A. Newman

November 16, 2011

Home improvement spending will remain tepid through the first half of 2012, 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.

According to LIRA estimates, the first quarter of 2012 is on track to be the worst for home improvement spending. The second quarter may see a slight uptick that could reverse the trend but only if consumer confidence booms with jobs and the housing market.

“There’s a lot of volatility in the market with a bit of random, non-seasonal bouncing around,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center, adding that the “bouncing around” is due to replacement projects that are typically weather-related, and those numbers are getting mixed into the data. “It’s weak enough that the noise sort of dominates from what the trend is. Our indicators tell us that the trend is flat when we were hoping there would be a more clear sense of a recovery.”

As for how long this lackluster market will continue, Baker says to count on a fairly bleak outlook at least until the middle of 2012. “After that it’s a little too early to tell,” he says. “We’re not seeing anything that would indicate a dramatic turnaround. Quite frankly, it depends on what the economy does over that period.” Key indicators will not only include consumer confidence but also any periods of sustained job growth or a more stable housing market.

For remodeling to see a significant uptick, it’s really going to take a sharp increase in consumer confidence in the economy and housing market. “If you live in a market where prices are trailing down, it’s a more difficult decision to pull the trigger on that upscale remodeling investment,” Baker says. “You’re going to do the roofing and siding stuff that you need to do but the discretionary stuff is a harder sell in this market. It’s going to take some sense that things are getting better. And there’s enough uncertainty that people don’t feel that way at present.”

ROOFING AND LUMBER COSTS GO UP ACROSS THE COUNTRY

• Dimensional lumber costs go up 5-10% around the country.
• Plywood costs go up 5-10% in most areas.
• Roofing costs increase again by 5-10%.
• Drywall costs continue to stay low with minor increases in some areas.
• Insulation costs fall 2-5% in most areas with minor increases in some areas.

Here are a couple of insightful articles:
Kitchens, bathrooms top projects as homeowners look for more bang for their buck

By Jonathan Sweet, Editor in Chief
Professional Remodeler

August 26, 2011

Even as many remodelers continue to see a move toward smaller, need-based projects, some are starting to see prices increase again.

That’s according to the latest Professional Remodeler research, which found the shift to smaller projects that started a few years ago continues. Still, some remodelers are experiencing a nascent recovery.

“A year ago it was all price shoppers. Currently, people are looking more for people that they trust,” said a Wisconsin design/build remodeler. “If you do a good job and are reliable it works in your favor.”

It may not be 2005, but it’s also not 2009. For the first time since 2007, less than half of remodelers said their average job price has declined from a year ago, with only 45 percent reporting project size is down. That compares to 75 percent last year who reported a drop in the previous 12 months. Only 13 percent said prices had dropped more than 25 percent, compared to 32 percent who said that last year.

Still, there are challenges, many remodelers said.

“Projects are much smaller, budgets are tight, most jobs are no-frills,” said a New York design/build remodeler.

Clients are “looking at smaller projects for fear that the value of the home might decrease further so they are holding off slightly,” said a full-service remodeler in Pennsylvania.

While only 22 percent of remodelers said their average project price was increasing, that’s far better than the 8 percent that said the same last year. A third of remodelers reported no significant change in their average project price in this year’s survey.

Almost 40 percent of remodelers said their average project falls under $25,000, with about 55 percent reporting an average price of less than $50,000. Big jobs haven’t disappeared, though: 32 percent said their average remodeling project was more than $100,000 and 16 percent said it was more than $200,000.

There’s no better example of the change in the market than the shift in project type. Kitchens continue to be the top project for many remodelers as they have been in the past, even as the scale of those kitchen re-dos declines.

However, from 2004 to 2008, whole-house remodels and additions were the next most popular projects as homeowners took advantage of skyrocketing home prices and easy money to undertake massive projects. For the last three years, though, those projects have been passed up by handyman work and exterior remodeling.

“People are much more apprehensive about investing in their homes because they’re not seeing a return,” said a California design/build remodeler. “Remodeling has shifted to home maintenance and repairs.”

Consumer confidence still biggest obstacle
A general lack of consumer confidence continues to be the most important reason homeowners are choosing not to remodel or to reduce their project scope.

“Everyone is very hesitant and unsure,” said a New York full-service remodeler.

Sixty-eight percent of respondents cited consumer confidence as a challenge (see chart below), and 52 percent said it was the top cause of a decrease in project size. Declining home values was a distant second, with 36 percent of remodelers saying it was one of the reasons behind declining prices and 18 percent picking it as the top cause.

“There’s a lack of confidence in maintained value,” said one remodeler and custom builder. “High-end clients are not willing to invest with diminished returns.”

Financing challenges was picked as one cause by 33 percent, with 10 percent saying it was the No. 1 reason.

“Most clients are working with cash now since most homes are underwater and cannot be borrowed against,” said a Florida remodeler.

Financing challenges were the only obstacle to see a marked decline from 2010, when 51 percent cited it as a major cause of smaller projects.

For those remodelers who have seen their average project increase in price, the top reasons were increasing consumer confidence and marketing to higher-end clients.

Finally, many remodelers reported a decrease in business because of the expiration of the energy-retrofit tax credits included in the stimulus package in 2009. The $1,500 credits on windows and other upgrades helped many remodelers sell projects the last two years. (64 percent of remodelers said it was impacting clients’ remodeling decisions in a previous Professional Remodeler survey.)

While 60 percent of those we surveyed said there was no impact, 34 percent said the expiration has hurt business.

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Homeowners Shelve Remodeling Plans Over Economic Fears

By Sheryl Nance-Nash, Daily Finance

Too scared to spend amid so much economic uncertainty, homeowners are just saying no — to remodeling. According to Remodelormove.com, the number of homeowners who say that the economy has them shying away from renovations jumped from 69% in the spring to 80% now.

Financial analysis company Sageworks has found remodeling contractors reporting their business is down 3.81% over the last 12 months, a greater pace of decrease than was seen in 2009, when we were in the throes of the recession, says spokeswoman Melinda Crump.

“The fall 2011 U.S. Remodeling Sentiment Report shows that after a year of stabilization in 2010, the unrelenting bad news about the economy this summer is driving many homeowners to reconsider and either delay or scale back their remodeling plans,” said Dan Fritschen, founder of Remodelormove.com, in a prepared statement.

The strong pullback was unexpected, Fritschen told DailyFinance. “A year ago, I wouldn’t have thought that this is where we would be today. I was surprised by the strong reaction.”

Cynthia Ponce of Ponce Construction has seen firsthand homeowners cringing at the thought of ponying up cash right now. “We’re a pool and landscape contractor in Southern California, and have been in business for over 24 years,” she says. “Lately, we’ve been given the excuse of ‘Your pricing is great, and your work is awesome, but we just want to wait a few months and see what the economy is going to do. We will give you a call, or you give us a call in about three or four months.’ ”

“There are quite a few people who still have money, but they’re scared to spend it right now and just want to wait and see what happens,” says Ponce.

But the continued high unemployment and stock market woes fuel fear.

Another clue as to how leery folks are — those who are going ahead plan to go cheap. Nearly 80% of those who will remodel say they plan to use “economy” materials, compared to 68% who said that at the beginning of this year. And with DIY a perennial money-saving technique, 62% said they planned to do some of the work themselves.

John Boyd of Ridgefield, Conn., had planned to remodel his kitchen and master bath, and then move, but decided not to
because of the recession. “I’ve done some repainting and other improvements that I can handle without a lot of money,” says Boyd. “It’s a nice house and a lovely area, but we’d like to shorten the commute to New York. We still want to move but who knows when the house will sell, so we might rent the house.”

Robert Donaldson, on the other hand, couldn’t wait for the economy to improve because his renovations were more urgent. “As our family grew, our house had to be renovated. I would estimate that the renovations for the rooms was around $7,000; my wife and I saved up money to afford the renovations,” says Donaldson, of Lakewood, Ohio.

“We felt comfortable with the amount we spent on the renovations for a couple of reasons. First, we know that the money spent on renovating the house would improve the performance, aesthetics and resale value of the house. Secondly, we knew that this would be our only window of opportunity to undertake these renovations until our kids were grown and off to college. There are no regrets whatsoever in undertaking and spending money on the renovations to our home. Having finished and comfortable living spaces for our children to enjoy outweighs any regrets.” says Donaldson.

There is an upside for renovating now, says Remodelormove.com’s Fritschen: “Materials are less expensive, some 20% to 30% less, without sacrificing quality.”

Just because the wider economy is uncertain doesn’t mean waiting is necessarily your best move, he suggests. “Look at your situation. If you’re confident about your income stream and you want to make changes that will improve your home, its value and your lifestyle, then remodeling is a good investment, especially compared to what you can get in a savings account right now.”

LUMBER COSTS GO DOWN DURING THE SECOND QUARTER OF 2011, ROOFING AND INSULATION GO UP

• Dimensional lumber costs decrease 3-5% around the country.
• Plywood costs decrease 3-7% in most areas.
• Shingle costs increase again by 5-10%.
• Drywall costs continue to stay low.
• Fiberglass insulation costs up 5-10% in most areas.

Here is a helpful article:
Remodeling activity in April hit the highest level for the month since BuildFax started tracking the market in 2004

By Jonathan Sweet, Editor in Chief
Professional Remodeler

June 15, 2011

The remodeling industry continues to show strength, with record levels of activity for the month of April. The BuildFax Remodeling Index for April 2011 shows that remodeling activity for the month was higher than any April since BuildFax started tracking the market in 2004. The latest BFRI index indicates that residential remodeling activity registered the eighteenth-straight month of year-over-year gains, demonstrating that many Americans are continuing to remodel their current homes, rather than purchasing new homes.

The BFRI is the only source directly reporting residential remodeling activity across the nation with monthly information derived through related building permit activity filed with local building departments across the country. The April 2011 index rose 15 percent year-over-year and for the eighteenth straight month in April to 109.7, the highest April number in the index to date. That follows year-over-year gains of 17 percent in March, 20 percent in February and 22 percent in January.

“April traditionally sets a baseline for the rest of the year in residential remodeling activity, and April 2011 is the best we’ve seen since the beginning of the index in April 2004,” said Joe Emison, vice president of research and development at BuildFax. “The BFRI is indexed to start at 100 in April 2004 and here we are seven years later, after significant drops in housing value, and the index is almost 110. That means there were almost 10 percent more residential remodels in April 2011 than in April 2004. Given the relatively pessimistic economic news that we heard about April, including a slowing recovery, this is a nice surprise for the industry.”

In April, all regions posted month-over-month gains, and only the Midwest posted a year-over-year loss. The West was up 16.8 points (18 percent) year-over-year and up 5.3 points (5 percent) month-over-month. The Midwest was down 16.9 points (19 percent) year-over-year and up 10.7 points (17 percent) month-over-month, recovering slightly from a lower-than-average March. The Northeast was up 3.2 points (5 percent) year-over-year and 9.1 points (14 percent) month-over-month, and the South was up 9.6 points (11 percent) year-over-year and 10 points (12 percent) month-over-month.

MOST MATERIAL COSTS STAY LEVEL IN FIRST QUARTER OF 2011

• Dimensional lumber prices increased 5% in most areas, returning costs to 4th quarter 2010 levels.
• Plywood costs stayed stable increasing only 5% or less in some areas.
• Shingle costs increased by 5% or more in many areas.
• Drywall costs continue to stay at historic lows.
• Fiberglass insulation costs remained level, increasing 3% or less in a few areas.

Here is an enlightening article:

 Harvard Report: Bright Future for Remodeling

By Jonathan Sweet, Editor in Chief
Professional Remodeler

February 8, 2011

(Read the complete report at Joint Center for Housing Studies, http://www.jchs.harvard.edu)

Remodeling may have been hit hard by the recession, but demographics, an aging housing stock and a recovering economy give us plenty of reason to believe the industry is poised for recovery, according to the Harvard University Joint Center for Housing Studies’ biennial report on the industry.

A New Decade of Growth for Remodeling,” released in January, tells us a lot about where we’ve been, but also where the market is headed. We’ve included some highlights of the report, along with explanation from Kermit Baker, director of the Joint Center’s Remodeling Futures program. The complete report is available for download at www.jchs.harvard.edu.
Discretionary projects, improvements take hit

Harvard estimates that remodeling was a $286 billion industry in 2009 – down 12 percent from the $326 billion peak in 2007, but still above 2005 levels and nearly twice the size of the market in 1995. The biggest hit came in the owner-occupied improvement category, though – the sweet spot for many remodelers.

“Maintenance expenditures and rental expenditures didn’t really drop at all,” Baker says. “In fact, it increased to some extent. If you look only at owner improvements, that was actually down somewhere between 20 to 25 percent from peak to trough. That’s what many remodelers are seeing.”

The share of spending on discretionary projects such as kitchens and additions also dropped – from 49 percent of the market to 46 percent, while expenditures for exterior replacement projects gained market share. Work on rental units was also up from $52 billion in 2007 to $54 billion in 2009, compared with a $42 billion drop in spending on owner-occupied homes.

The relative strength in remodeling compared to new construction has also helped the industry become a much more important part of residential spending.

Census Bureau figures put remodeling spending at nearly 70 percent of all residential construction, up from less than 40 percent in 2005. While that level is unrealistic in the long term as new construction recovers, a 50/50 split between remodeling and new construction is realistic, Baker says.

“If you look at it historically, it’s stayed in the 40 to 45 percent range,” he says. “As population growth in the U.S. begins to slow and homebuilding stabilizes … if that was 50 percent on a consistent basis, that wouldn’t be surprising.”
More diverse market means steady growth

While we won’t return to the over-the-top spending of the last decade, the first half of this decade should see steady growth of 3.5 percent a year in the remodeling market, the Joint Center predicts. That’s on par with the market growth in the late 1990s, but well below the 12 percent average annual growth from 2003 to 2007.

“It’s kind of back to business as usual, but not overly accelerating,” Baker says. “I don’t think there were many people who were living through the 2003 to 2007 period that thought this was going to be a normal level of remodeling activity.”

The unsustainable growth of the remodeling boom was driven by a relatively small portion of the population undertaking large discretionary projects. The top 5 percent of homeowners were responsible for about 60 percent of remodeling spending from 2002 to 2007, compared to about 50 percent in the late 1990s and 52 percent in 2009.

“When the market was growing, it was growing because there was a fairly thin slice spending a lot more on home improvements,” Baker says. “Just getting that back to normal implies a different mix of projects.”

That means remodelers probably shouldn’t expect as many of the big-ticket projects as they saw during the boom. Instead, the market will be driven by smaller projects that are aimed at maintaining and improving homes for the way clients live rather than with an eye toward resale. While that may be painful for those remodelers that cater to the high-end client, it’s key to a more stable industry, Baker says.

“It’s better in the sense that you just can’t expect that to sustain itself,” he says. “It was this high-end part that materialized early in the decade and disappeared later in the decade that caused as much cyclicality as we saw.”

Homeowners with household income of more than $120,000 cut their spending 24 percent from 2007 to 2009, compared to a 17.6 percent cut by those with incomes from $80,000 to $119,000 and 20.4 percent of those with incomes between $40,000 and $79,000. Homeowners with incomes under $40,000 – whose spending would presumably be mostly on maintenance projects – only decreased their spending by about 6 percent.

There were also significant differences in spending by age, with older homeowners cutting their budgets much less than younger ones. Homeowners 65 and over reduced spending by only 0.7 percent and those 55-64 cut expenditures 13.8 percent from 2007 to 2009, while those under 55 spent at least 23 percent less.

“I don’t think remodelers are likely to see the volatility they’ve seen over the last five years,” Baker says. “There should be a broader base of households getting involved in this and I
think they’re getting involved in this for more of the right reasons, the right reasons being that’s what I want my house to look like as opposed to I bet I can get a nice return from that project.”
Small companies continue to dominate

The ease of entry into the remodeling market continues to make it a market made up mostly of smaller firms.

Using the latest numbers available, from the 2007 economic census, Harvard estimates there were 650,000 firms that reported receiving the majority of their revenue from remodeling. Two-thirds of those companies reported no employees. Half of those with employees reported less than $250,000 in annual revenue.

That continued fragmentation of the industry makes it difficult to encourage professionalism and adherence to the rules and regulations of the industry, such as the Lead Renovation, Repair and Painting Rule.

Even during the boom years, the industry saw incredible turnover. More than a third of remodeling companies in business in 2003 were out of business by 2007, including more than half of companies that started in 2003, according to Joint Center estimates. It’s likely those failure rates have only increased during the downturn, Baker says.
Foreclosures: Threat and opportunity

The increase in foreclosures and other distressed properties has played a major role in the decline in remodeling. Delinquent homeowners are unlikely to take on any major spending on their homes. The high rate of foreclosures has also played a significant role in depressing home prices. With declining home prices, homeowners are much less likely to invest in their homes or may be unable to because of the lack of home equity financing.

However, as more foreclosures work their way through the system and are purchased, the new homeowners will likely find there is substantial work to be done, especially with the average home spending 500 days in the foreclosure process, Baker says.

“No. 1, you could assume almost no investment in that property from the time that the household decided it really couldn’t afford that anymore and No. 2, there’s a lot more time for vandalism or anything to occur if it’s just sitting empty with no one really caring about it,” he says.

Harvard cites a spring 2010 study from the Home Improvement Research Institute that found that buyers of distressed homes spent, on average, 15 percent more on home improvements in the first year of ownership compared to other buyers. Most of the homes in that study were short sales, Baker says. As more foreclosures go on the market, that difference is almost certain to increase. “The level of distress for those properties is not nearly what we’re going to see when this wave of foreclosures comes through,” he says.
(Read the complete report at Joint Center for Housing Studies, http://www.jchs.harvard.edu)

SOME COSTS GO DOWN, SOME GO UP

• Dimensional lumber slipped a little lower during the past quarter, falling about 5% in most areas.
• Plywood costs continued to decline by 8% to 15% during the past 3 months.
• Shingle costs are down 10% to 15% in many areas.
• Drywall costs continue to stay at historic lows.
• Fiberglass insulation cost up almost 20% across the country.

Below are articles by two of our favorite experts in the remodeling industry.
Employee Expectations: During the recovery, smart employees will gauge your performance and the performance of your competitors.

Shawn McCadden
Remodeling magazine December 2010
This recession has taught remodeling business owners many lessons. But business owners are not the only ones who have learned from this experience. Employees have also kept their eyes open during these challenging times. The recession has helped them see what works and what doesn’t work in a remodeling business. But more importantly, they have learned what does and does not work for them. If owners want to retain and attract smart employees during the economic recovery, they need to prepare now.

Smart employees have a long-term perspective regarding their careers. They don’t just take any job; they look for jobs with the potential to improve their future.

What distinguishes smart employees from average employees is that they not only watch your business, they have been watching other businesses as well. As long-term thinkers, many of them are planning where they want to be when the market recovers.

As businesses pull out of the recession, these employees will be watching to see if the business and the business owner will be able to get back into growth and profitability mode. They want to see if their employer can provide them with new and better opportunities. If they don’t like what they see, or they see greener grass elsewhere, for the sake of their future they will most likely move on.

Evaluation Points

Some things smart employees are watching for at your company and with your competitors’ businesses:

Direction: Smart employees want the leader of the business to be confident, and they want to have confidence in that leader. They want to work at a business that has strong ethics and is moving in the right direction. They want a place where they can grow and earn more money as the company grows and profits. If these employees don’t see profits on the horizon, they know there is little hope for improved compensation.

Career path: Smart employees want a company that offers career growth and the educational support required to get there. They want more than a promise they want to see a business plan that explains how the company will implement processes that will ensure the promised growth and when that will happen. They want to see where they fit into that plan and they want a way to measure results. Smart employees think “career,” average or desperate employees think “job.”

Job conditions: Smart employees want to work in an environment free from hostilities and one that is sensitive to work/life balance. They work to live, not the other way around. They also want to be appreciated and recognized for their contributions and accomplishments. This is one way for them to measure the success of that business plan.

Pay and benefits: Average employees assume, or have faith or hope, that their compensation will increase. Average business owners have this same mentality. Smart employees never rely solely on faith or hope. Smart employees, like smart business owners, work toward future goals. They set up what they want to have happen rather than relying on hope or simply settling for what they get.

Smart employees also understand the value of their total employment package, including benefits. They take the entire package into consideration, not just wages, when they are thinking about switching to another business that offers a pay increase.

If you have survived the recession, don’t assume that you can take a break. Now is the time to start planning for how you will embrace the eventual recovery. Create your business plan for 2011, assemble a budget to anticipate and validate the financial realities of your plan, and share your plan with your employees.

As you do business in 2011, measure against your plan and budget and share that progress with your team. Your company’s and your employees’ future will depend on what they see.

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.

Stormy Waters: To avoid being swamped or sunk by the “rough seas” of the current market, remodeling companies need to adjust to a new course and navigate carefully.

Mark Richardson
Remodeling magazine December 2010
The most common question I am asked when I speak about the future of remodeling is, “When is it going to get better?” or “When do you think things will be back to the way they were in the past?” These questions come from working contractors who have seen dramatic changes in their market and have experienced extraordinary challenges to their success. Most are among the majority of the industry I would say about 80% who are still waiting and hoping for the conditions of five years ago.

To me, this is wishful thinking. Those days are probably gone forever, and no amount of wishful thinking or hopeful “waiting it out” will bring them back. I believe that the smart business mindset is to see the present market conditions as the new normal. Once you resolve yourself to this mindset, you can get back to being proactive and can really evaluate whether or not you have the right team to accomplish what it takes to be successful. I estimate that only about 20% of the remodeling community understands this, but those who do are seeing positive growth and profitability.

I find it helpful to think of our industry’s current predicament as a ship at sea in stormy waters. Becoming resolved to the “rough sailing” that lies ahead is a real eye-opener. Once you accept that future, your confidence builds and you can begin to plot a course that will ensure that your ship and its cargo arrive safely in the next port. This “ship at sea” metaphor reveals some important lessons:

Keep a “lookout.” Stormy waters are more treacherous than calm waters. Every decision you make can make the difference between reaching your intended destination and capsizing and sinking before you get there. As captain of the ship, you need to be alert to changing conditions while at the same time guarding against being swamped with extraneous information that could push you off course. Every decision counts, so make sure you know not only the “what” but also the “why” behind everything you do.

Batten down the hatches. You are sailing in uncharted ocean waters, not anchored in a familiar cove. Your business “ship” will take a pounding that can cause permanent damage and compromise long-term seaworthiness. For a voyage like this, you need to make sure your processes, your product, and your people are in tip-top condition.

Navigate. It’s easy to drift on a swift current, but you need to control your direction by setting a course and making whatever adjustments are necessary to stay with it. You need to be on the offensive, not the defensive, which means your business plan is more important than ever. And because you are constantly struggling against forces that can push and pull you in different directions, you need to monitor progress weekly, not quarterly, to stay on course.

Train the crew. Stormy waters challenge even the best sailing skills, so you need to ensure that everyone on your team has the knowledge and tools necessary to handle any situation. That means investing more time and energy in training, as well as committing to and communicating a vision in which failure is not an option. Strong remodeling businesses are investing three to five hours per week training salespeople, production crews, and future leaders.

Instill a work ethic. Navigating stormy waters is hard work. There’s no let-up and very little time for rest. If today’s conditions are 30% to 50% harder, it should take many more hours to accomplish the same results as it did in the past. Your employees and your trade partners need to roll up their sleeves to assist, even in areas of the business that they never addressed before. That is what hard work is all about.

Many remodeling company owners are unprepared to meet the challenges that lead to success in this environment. Commitment to the reality of the current business climate is the first step. Adjusting to stormy waters will make you and your business better, and in a few years when the waters are calmer, just imagine what you can accomplish.

Mark Richardson is co-chairman of The Case Institute of Remodeling, which provides business educational tools and events for the remodeling industry. mrichardson@casedesign.com; 301.229.4600.

PLYWOOD PRICES SETTLE DOWN

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

Here are some timely articles you may find useful.

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

By: Lauren Hunter

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lauren Hunter, associate editor, REMODELING.

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

By: Nina Patel Related Articles

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Nina Patel, senior editor, REMODELING

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.

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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.”

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

• Dimensional lumber prices increased 15% in the last 3 months.
• Plywood pricing up 15% in most areas.
• Wood stud pricing up as much as 15%.
• Fiberglass insulation on the rise by almost 10%.
• Fiberglass shingle prices dropped by 5% during last quarter.

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.

Also, new recommended Hourly Labor Rates (HLRs) have been posted. Click here to view them!

All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

Most Building Materials Subject to Minor Price Corrections

• Dimensional lumber prices increased 4%.
• Fiberglass shingle prices down 2%. Plywood pricing up 2%.
• Fiberglass insulation decreased 2%.
• Wood stud pricing stayed constant.

Here are some other relevant articles:

Not for the Fainthearted

By Patrick O’Toole
Qualified Remodeler
November 2009

The list of motivations for striking out onto one’s own and starting a remodeling business is long, but here is a good start. There is a desire to make more money. There is a strong desire to not let your ideas make someone else rich. There is a desire to chart one’s own course in life, not to be controlled by a course or business path that other people choose. There is a strong sense that you have hit upon a unique value proposition, perhaps a niche in the market that is underserved. These, among other motivations, lead many to start a remodeling business.

Onetime Qualified Remodeler columnist Michael Gerber famously called this moment an entrepreneurial seizure. The humor and the dark underbelly of Gerber’s phrase “entrepreneurial seizure” is that starting a business is not usually based on sound reasoning or even business sense. It represents a leap of faith that you will hit the ground running and never stop. This industry is filled with great carpenters who dropped their tool belts to market and sell jobs, to price them and build them. The hard reality of being in business means having to spend time doing things you may not enjoy or even be good at.

This leap-of-faith is often rooted in an overestimation of one’s own abilities. A lot of very talented designers and trim carpenters create businesses that are craft based. Among many of these, there is a sense that the excellence of their core skills will carry the business forward, and money will follow naturally. This does happen for a lucky few who are well connected to a network of paying customers. But today’s remodeling market is not as frothy on the demand side anymore. And the scope of jobs has shifted dramatically. More people are looking for house doctors and fewer are looking for a modern-day Michelangelo.

Successfully running a business requires a combination of skills that is not often found in one person. In 2010, the remodelers who will thrive will be the ones who see the challenges of the road ahead clearly and prepare to address those challenges ahead of time. Sales and marketing will be the No. 1 challenge for most remodeling firms. Take a day or two days this fall/winter to put a plan together that you feel will work. Then seek out expert opinions to tweak that plan. Lead costs are growing. You need to be sure that your plan is an efficient one.

Challenge No. 2 is really a group of challenges posed by a changing regulatory environment that have been in the offing for many years. How prepared are you to perform lead clearance testing on homes built before 1978 where children are present? Do you have a plan for communicating with your customers about lead-based paint given the April 10th implementation of the new lead-based paint rule? Have you identified a place to get the training you need? The new year will also bring with it new options and requirements with regard to providing health insurance to your employees. Some of you, who do not now offer it, may be required to do so. Is there someone on your team who is prepared to handle the issue of health insurance? Do you have a good insurance professional that you can rely on?

The new year will bring an improving market for remodeling activity, but it will also bring with it a set of challenges that will test your full range of business capabilities. Unfortunately, the fun and rewarding part of the business creating great solutions for customers will not be your sole focus for 2010. The one indispensible trait for successful remodelers will be overall business resourcefulness. The winners will listen to others. They will cast a wide net for business ideas and for people to help them navigate this challenging business environment.
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Indicator Points to Cyclical Bottom for Remodeling, Start of Recovery in 2010

The Joint Center for Housing Studies
October 15, 2009

CAMBRIDGE, MA – The declines in owner spending on home improvements will moderate through the end of 2009 and first half of 2010 according to the Leading Indicator of Remodeling Activity (LIRA), released today by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University. The indicator suggests the remodeling industry is turning a corner. Annual spending levels should start to rise in the beginning of next year causing year over year declines to shrink to 8.9 percent by the second quarter of 2010.

“Remodeling spending by homeowners shows early signs of stabilization,” says Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “While the housing recovery has been erratic, a strengthening economy could produce spending increases on home improvement projects by the second quarter of next year.”

Some positive signs for the industry are emerging. “Favorable financing costs – for those households with access to credit – and a pickup in homes sales are producing more opportunities for home improvement projects,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies. Several factors, however, still impede remodeling growth. “A generally weak housing market with unstable prices, near record levels of foreclosures, and other distressed sales are discouraging households from undertaking nonessential remodeling projects.”
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Radical discounting is business suicide
Remodelers won’t survive long slashing prices

By Wendy A. Jordan, Contributing Editor
Professional Remodeler
October 1, 2009

Can remodeling contractors survive a strategy of radical discounting?

- Kitchen and bath designer, California

The short answer is no. If you slash prices deeply to generate business, you may see success in the short-term, winning contracts from bargain-hunting homeowners. In the long run, though, you are setting yourself up for failure.

Radical discounting is a topic that stirs strong emotions among established remodelers. I contacted several around the country, and they said it is business suicide for all but extremely large companies, and eventually those giants, too. As design/build remodeler Iris Harrell of Harrell Remodeling in Mountain View, Calif., put it, the only way to survive radical discounting is to stop doing it. Now.

Say you cut prices by 20 percent or more, which is one general definition of radical discounting. You’ve fried your profit and probably a good share of your overhead coverage. Even if the low prices draw new business, your company has only so much sales and production capacity. You’ll never be able to make up the lost revenue through increased volume.

Radical discounting carries another danger as well. It devalues your company. And once you start down that road, it’s hard to turn back. Jesse Morado is a remodeling pro who now runs a residential remodeling consulting firm, Renovation Coach, in Atlanta. He warns that repositioning yourself as a low-price company moves you into the market niche of bottom-dollar companies. It’s a whole different world where buyers fixate on price negotiation and don’t think about the workmanship, customer service and reliability. You will have to cut corners to save money perhaps reducing the number of workers on the job, providing less frequent production oversight, scheduling fewer dumpster pickups, doing less painstaking site protection, and so on. All this raises the risk that you will make more errors, fall behind, disappoint your clients and sow the seeds of negative PR. That’s a deadly price to pay.

Moderate price reduction is a different matter. Many remodelers are tightening their operations to lower their estimates a few percentage points. The difference is that they are calculating the price cuts around careful cost cutting that protects the quality of their remodeling product and safeguards their profit margin.

Morado says that by doing a line-by-line analysis of projects completed in the last year you may be able to identify a 25 percent savings without altering your margin. Look at the schedule: Is there waste? Can you shave off some labor hours? Could you save money, without hurting quality and control, by subbing out some aspects of production? And so on.

Over the past five years, Dave Bryan has systematically cut costs within Blackdog Builders in Salem, N.H. Today it costs $1 million less to run the $5 million-volume operation.

At Atlanta’s Small Carpenters at Large, Danny Feig-Sandoval is doing a company-wide cost analysis now. He’s looking not only for savings within the company; he’s asking suppliers and subcontractors to pass along savings. He’s also shopping other high-quality trades, which he figures may uncover better prices and keep him more attuned to competitive rates.

Belt-tightening may enable you to reduce your bids somewhat, but they are likely to be higher than the prices quoted by low-ball companies. So be it. You also can offer multiple options, including modest, economical designs, along with more full-bodied plans. For example, says Harrell, you could base estimates on grade A or good-quality-but-less-expensive grade B cabinets, depending on the homeowners’ priorities and budget.

• 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.”‘

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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.