Research in our industry is scarce and should be taken seriously — especially when it reveals how super-successful remodelers use certain business practices to achieve dramatic results.
For example, our company recently surveyed the business practices of 172 remodelers in our “Roundtables” program. Granted, this group is too small to represent the industry as a whole. Nor is it random. All companies are biased toward improvement through education, and all are actively seeking changes that will make their businesses more successful.
But there were some huge differences between remodelers ranked in the top 10% of our measure of success and those ranked in the bottom 10%.
The top 10%:
- Are more likely to use percentage-of-completion accounting.
- Price less of their work on a time-and-materials basis.
- Review their job cost reports more frequently.
- Perform “job autopsies” consistently, carefully analyzing the financial outcomes of projects.
- Have a significantly larger average job size .
- Use a larger markup percentage in their estimating and pricing model, even at the expense of poorer closing ratios.
- Have less job-cost “slippage” between what they estimate and what they achieve.
- Sometimes fail to meet their projected gross sales goals — but by a smaller percentage.
- Have their overhead often come in lower than their budgeted amount (or they miss their budgeted amount by less).
- Consistently exceed — or at least come closer to meeting —their overall budget goals.
- Have a larger backlog of work, providing security and allowing them to sell with less pressure.
- Have nearly twice the revenue per employee. This may reflect increased efficiency and/or their decision to subcontract more of their job costs.
- Spend more on marketing, both in gross dollars and as a percentage of sales.
- Negotiate more of their work than they bid competitively.
The reasons for the variances? The top 10% do a better job applying the tools that improve business results, such as faithfully attending company meetings and identifying and achieving “stretch” commitments. They also more fully use “success practices” — including reviewing their financials, having accurate financials in the percentage-of-completion format, producing realistic annual budgets (and updating them quarterly), and combining accurate estimates with the careful and timely review of job cost reports.
Because of their success, our top 10% reap these rewards:
- Higher total compensation (averaging $635,650 per year, including salary, bonuses, and the company's net profit)
- Significantly higher working capital
- Significantly higher current ratio (more current assets than current liabilities)
- Significantly higher net worth
- Generally higher owner satisfaction levels
(Our thanks to Walt Mathieson, CPA, of Mathieson Consulting, for compiling these results.)
Basically, top remodelers plan for success by preparing meaningful and realistic budgets. They then execute their plan, monitoring progress against that plan. They take care to control job costs and overhead costs, and minimize slippage. They're willing to ask for higher markups when pricing work. They spend more for marketing and tend to plan and execute their marketing effectively.
In remodeling, making money — and having greater satisfaction — is all about good business practices. Yes, that means spending time and effort to develop those practices and make them habitual in the company. But the benefits are well worth it.
—Linda Case, CRA, is founder of Remodelers Advantage Inc. in Laurel, Md., which provides business solutions through a network of experts and peers. 301.490.5620; Linda@remodelersadvantage.com;www.remodelersadvantage.com.