There’s a school of thought that believes we’re silly to compile the Remodeling 550, our annual list of the top remodeling firms based on sales revenue. Remodeling pros don’t care about size, proponents of this argument say, because: a) They don’t have big egos and; b) They believe the only metric that matters isn’t how much you take in but rather how much revenue you keep.
I must admit that I bought into this argument for years. Then Abbe Will helped set me straight.
Will is a longtime research analyst at the Joint Center for Housing Studies of Harvard University. That means very few people have dug as deep into our industry’s statistics as she has. She’s practically alone in her research into how many firms are born and die annually.
This past spring, Will presented fresh data on what happened to remodeling companies between the market’s previous peak in 2007 and when housing took the first baby steps to recovery in 2012. She looked in particular at how remodeling firms with payroll fared over that five-year period.
Her big conclusion: 51% of all residential remodeling firms with payroll in existence in 2007 no longer operated that way in 2012. We can’t say how many of these shut down entirely and how many companies shrank into one-worker businesses. But either way, you can safely say that the housing crash caused half of all remodeling businesses to abandon the way they were operating.
Will’s next numbers led to my revelation. She found that 71% of all remodeling firms with payroll and annual revenues under $100,000 no longer were operating as such by 2012. For firms with $100,000 to $249,000 in revenue in 2007, the dropout rate was 53.9%. Of firms that had made between a quarter and a half million dollars, 45.2% were gone by 2012. Meanwhile, only 32% of the remodeling firms with $1 million to $5 million in revenue and 25.2% of the firms with $5 million-plus suffered the same fate.
To be sure, these big companies suffered through the starving times as much or more as their smaller cousins. But for the most part, they also were much more likely to survive. Why? Probably because they were big enough, and thus strong enough, to weather the storm.
I still believe that amassing lots of sales may not prove quality or even profitability. On the other hand, in a business in which up to one out of five remodeling firms with payrolls tanks every year, being big probably is a sign that you’re doing something right and that you have the means to continue doing good things in the future. These are qualities that can turn customers’ heads. They did mine.
You may think size doesn’t matter in the remodeling business. Actually, it does.