About five years ago, our company -- a full-service remodeler with design/build, handyman, and kitchen/ bath divisions -- considered offering pre-designed, or package, remodels. We put together good/better/best product selection options and mock-ups for bathrooms, as well as package options for basements and porticos.
Then we sat back and asked ourselves whether these packages offered more value for our customers and our company.
The answer was they didn't. Package projects are touted as having a big future in the remodeling industry. Certainly there's a market there, at least for packaged bathrooms, basements, additions, and kitchens. But we decided at Case that package projects are not the business we're in. We're in one-of-a-kind remodels. We pride ourselves on quality service and products. For Case to offer package remodels would be like a French restaurant offering value meals. It's not what we're about.
Fast food vs. fine dining
So can you make money on packages?
Clients buy a particular remodeling project for one of three reasons: price, time, or quality of work. Packaged projects imply savings -- either in cost or in time -- to the client. As a result, packaged projects will typically be attractive to those clients primarily focused on price or time.
We asked ourselves where the cost reduction for the remodeler came in. However we marketed the idea, at the end of the day, we'd be building those package remodels with the same guys, using the same materials. We'd have to do the same amount of work and incur the same overhead.
Some might argue that by standardizing project design and components, a cost savings will result. Moreover, some might say that standardization will result in greater efficiency, and the ability to produce more work, hence more volume, which, combined with adroit marketing, will lead to greater market share. It is true that you could offer package remodels, at reduced prices, and sell more work and take more share of market. But unless you change your operations -- hire a crew to do only those projects, and a high volume of those projects, so you can take advantage of economies of scale -- all that's happening is that you're giving up margin to do so. Clients win and you don't.
The cost of that burger, fries, and large Coke remains the same to whoever makes them. Fast food operators can offer packages because they buy in sufficient quantity to earn discounts from suppliers. Not many remodelers can.
An opposite approach
Few remodelers position themselves as the cheapest game in town. The way to sell more projects is to train salespeople to offer consumers appropriate product options, including standardized components at full markup. You make more profit that way, because when you present the consumer with options, you position yourself as a differentiator rather than as a cost leader. This translates into higher margins. We don't have a bath remodel package, but 80% of the time we sell the same faucet. Yet we also offer other faucet options. If we standardized our bathroom remodel into a package, the consumer would expect to get the faucet at reduced cost, because a package implies that you're getting a deal. And there goes our markup.
My guess, based on anecdotal evidence, is that somewhere between 5% and 15% of remodeling companies offer some kind of package project. As an industry, do we want to become a commodity business, where competitive advantages and differentiation are difficult to come by? Or do we want to provide unique, service-oriented solutions to our clients? Remodelers should reflect on this and structure their business accordingly. --Bruce Case is vice president of Case Design/Remodeling, Bethesda, Md., and director of the company's handyman and kitchen/bath divisions.