At a recent dinner with friends — all owners of mature, successful remodeling companies in California — the conversation centered on the remaining value of their company’s “war chest.”

Each of them admitted that the stash of money they had set aside for a rainy day had suffered a great reduction in value, but they also insisted that their companies would not have survived the past few years without it.

Of greater interest to me was how they spent the money. After making large and difficult cuts in many areas of overhead, they focused their attention on spending designed to do two things: further differentiate their company from others and maintain high gross profit margins.

Spending Plan

A sizeable part of one war chest went to marketing. The company hired a research firm to dig deeply into the image of the company in the community and to define what made it different from its competitors. Armed with that information, the company hired a brilliant new marketing team to devise an array of methods to more deeply entrench the company name in the community. Additionally, it targeted younger markets through increased investment in social media and an updated website, both tied to a humorous blog that appears consistently.

Another company focused on its people. Not only did it protect the benefits and working hours of the people who remained after the cost-cutting measures, but it increased its investment in training, including customer service. This both boosted employee morale and paid for itself in increased client satisfaction which, of course, usually turns into great marketing.

Replenish your war chest as soon as you can — you never know when you'll need it

That’s not to say that they didn’t bid competitively, sharpen the estimating pencil, and periodically negotiate a lower price to win a plum contract. As one owner told me, “I’d hate to have a long-time client walk into the kitchen of one of our newer remodels to find that the new kitchen built last year cost significantly less than her kitchen, built during the boom times. That alone jeopardizes our reputation as much as our gross profit.”

But, in general, each understood the necessity to resist shaving more than a few percentage points from historic gross profit margins.

Like most companies I know, you probably have little remaining in your war chest. But, if you’ve made it this far, if your customer satisfaction remains high, if slippage is minimal, and your overhead is finally under control, think about raising your gross profit margin one or two percentage points over the next few months. And then, with those increased profits, replenish your war chest for the next campaign.

—Judith Miller is a Seattle–based remodeling business consultant and trainer.