Many struggling remodelers see diversification as a cure for what ails them. The theory is that if one revenue source falters, others can sustain sufficient volume to allow the company to survive until it can adjust to long-term changes.

These days, home-performance auditing and remediation might look appealing. After all, as the rest of this issue shows, the economic stimulus package provides incentives for a variety of energy-related improvements.

Researching the hard costs of equipment, such as blower doors and infrared cameras, is easy compared with predicting potential market size and finding someone to champion the cause in your organization. Here are some of the variables to consider:

  • Sales. Energy efficiency is invisible, so it might be more difficult to sell.
  • Production. The audit portion of the work is relatively clean, but remediation is often dirty work done in tight spaces. Field employees accustomed to high-end custom projects might not be willing to do the work.
  • Cash flow. The best-case scenario — sufficient market interest, high audit-to-remediation conversion rate, and good client satisfaction — predicts positive cash flow in year three (see table below).
  • Culture. Flexibility is a must when introducing this kind of small-job model.
  • Timing. Ramp-up time can vary widely, from a matter of months to a year or more.
Assumptions for changes to pricing, salaries, number of audits, and overhead (yellow boxes) will change over the startup period. Startup costs are recouped at year 3, but note that the audit business is still in the red in year 4; gross profit is positive only because of remediation work, which assumes 10% conversion at an average job price of $5,000.
Assumptions for changes to pricing, salaries, number of audits, and overhead (yellow boxes) will change over the startup period. Startup costs are recouped at year 3, but note that the audit business is still in the red in year 4; gross profit is positive only because of remediation work, which assumes 10% conversion at an average job price of $5,000.

Other models are possible. Paul Eldrenkamp, one of several practitioners with whom I consulted, believes that both the energy audit and remediation work can command a much higher price if they target “informed homeowners who are worried about the future and who are interested in long-term plans to bring their houses as close to carbon-neutrality as they reasonably can.” In this case, he explains, marketing might involve conducting workshops or taking a leadership role in environmental organizations. The audit becomes an easy sell because it is the first step in a comprehensive program that addresses the whole house and leads to broad-scope remediation with much larger budgets.

The two approaches, Eldrenkamp points out, are very different: the one charted here is more like competitively bid work; the other is better suited to a design/build approach. While the holistic model probably leads to a better-performing house, there is a market for both approaches. Just make sure you understand the risks before you get started.

Download the full start-up spreadsheet.

 —Judith Miller is a Seattle–based remodeling business consultant and trainer. Read her blogs on the Remodeling website or at http://remodelservices.wordpress.com.