Single-Line Success

Homeowners remodel for a variety of reasons. They might need more room for an addition to the family. They might see something they like at a neighbor's home, or on television, or in a magazine, and decide they want it, too. They might just want a change of scenery. And parts of the house — roofing, windows, and siding, for example — simply wear out and need replacing. Taken together, all of the reasons homeowners choose to remodel make for steady demand for a wide variety of remodeling services.

The fact is, however, that most remodelers don't take full advantage of that situation. They limit themselves to larger jobs, such as additions, bathrooms, kitchens, and whole-house remodels, leaving the small replacement projects to specialty contractors. In many cases, it makes sense to stick to what you know. But for some companies, specialty work represents a lost opportunity that could well be worth considering.

“If you've already done a [project] for a homeowner, you have their trust,” says Rick Grosso, a consultant to the home improvement industry who specializes in selling and marketing. “To not be able to go back and re-market to those people is shooting yourself in the foot and admiring your aim.”

Jason Larson, president of Lars Construction, in La Mesa, Calif., started Jacor Door & Window after receiving a number of calls about replacement windows. “We did it to diversify a little bit, to expand,” he says. “If I'm going to buy windows and give profits to a window distributor, I might as well give that profit to myself.”

Indeed, adding a window or siding division can be a real income generator. “If you look at the 100 [biggest] remodelers in the country, many of those folks are single-line,” says Jimmy Waller, vice president of development at Waller Group, a Lakeland, Fla., company that has branched out from full-service remodeling to roofing, emergency services, and commercial real estate, all in the last decade. “There's money to be made.”

Waller started its first specialty division — Waller Roofing — for a different reason. “If Waller Construction got 10 complaints, eight of them would be about roofing,” Waller says. Dissatisfied with most of the outside vendors available, they wanted to do their roofing in-house. Waller recommends taking a hard look at your company and identifying which trades you tend to have problems with, and investigating those as possible divisions within your company.

Be forewarned, however, that it's not something you can just do. “Before you get into it, ask yourself if it's really for you,” says Sal Ferro, president of Alure Home Improvement, in East Meadow, N.Y. “It can be quite a culture change.” Alure has lived by the theory that the best way to grow is to “add products and services and leverage your existing customer base,” according to Ferro. The company, which started as a painting company, has followed an aggressive growth strategy, rapidly adding a kitchen and bath division, an Owens Corning Basement Finishing System franchise, a sunroom division, and a division for roofing, siding, and window replacement. That type of growth isn't for everyone, of course, and a company looking to grow slowly or maintain a steady volume may not want to take on a single line.

There are several ways to add a division to your business, each with its own pros and cons. One is through the purchase of a franchise. The advantages of this method are obvious: the systems are proven and have been established for you, and you are trained in how to use them. The downside is that there are royalty fees you must pay, and there is less wiggle room to adapt the franchise to your existing processes. Additionally, you or your geographic area simply might not be a desirable candidate for the franchisor, or there may already be a franchise in your territory.

A second option is to purchase an existing business. Waller Construction bought what would become its roofing division from a roofer in a nearby county who had grown weary of the business side of things. This method can bring with it an established clientele as well as years of industry knowledge, but it also means a fair bit of undoing or revamping systems that have been in place in the new company for years. Plus, it may be tough to find a company worth buying, or one that is willing to sell.

You can also start a single-line business from scratch, as Larson did. The major advantage here is that everything is under your control. The downside is that all that control brings with it a significant of amount of work, some of it unfamiliar, and none of it will have been done for you ahead of time.

Regardless of how they got started, there is one constant among full-service remodelers who have successfully launched a single-line business or incorporated one into their company: They all have employees in key positions who are experienced in single-line remodeling.

Steve Taylor, owner of Taylor Made Construction, in Edgewood, Md., is reluctant to advise remodelers with no single-line background to jump into it now. However, if they are going to, it's vital to “dedicate an individual with experience in in-home sales with a single-line product” to run it, he says. Taylor, who spun off his full-service company from a waterproofing business and now also has an Owens Corning franchise, adds that it's important to compensate that person appropriately and give them the freedom to run the single-line side as they see fit.

In fact, most remodelers with successful single-line launches recommend keeping the two businesses almost completely separate. They don't necessarily need to be officially different corporations, but you should consider making the name distinguishable from your full-line company. One benefit is the ability to cross-market among your divisions. “We have a pretty solid name in remodeling in San Diego,” Larson says, noting that Jacor's business would often turn into leads for Lars Construction, and vice versa (Larson sold Jacor after four years in business). Since the two types of potential customers require different sales processes and different salespeople (more on this later), the companies would essentially drum up business for each other.

Waller points out that certain types of single-line businesses end up doing a large amount of work for other general contractors. Those companies — your competition — will be reluctant to hire you, for appearance's sake, if you use the same name as your full-line company for your single line. “They won't hire Waller Construction,” he says, “but they will hire Goff-Waller Roofing.”

Another reason to keep the divisions separate is so that you can have an accurate picture of how each is performing. “If we can't measure each business on an individual basis, we don't know how to keep score,” Ferro says, explaining why each of Alure's divisions has its own P&L statement. If everything is rolled together, you'll know what your overall numbers are, but you won't be able to tell if one business is dragging the others down.

This is particularly crucial, because one side effect of launching a new business is that it tends to cannibalize the existing one. The company owner focuses more of his attention on getting the new company off the ground, key personnel shift from one division to the other, and leads get funneled to the young business to help it survive. You can counteract this — hiring good, experienced people to run the single-line company is one way — but you won't know if you are succeeding unless you know how each company is performing apart from the others.

That said, certain overhead expenses can be shared. “There's no reason to pay separate rent and electricity when you can do all your business in one place,” Grosso says. Most administrative personnel and costs can be shared as well; Alure has the same marketing staff across the board, and Taylor Made uses a management company for bookkeeping and other professional services for all of its divisions.

When it comes to sales personnel, however, separation between full-line and single-line is essential because of the inherent differences in how the two types of projects are sold. “We put a hanger on someone's door who isn't even thinking about their basement,” Taylor says. “The next day, they're calling to set an appointment, and the day after that, they're buying a $30,000 basement.” He contrasts that with a full-line remodel, which might take 12 months or more to complete from the first contact. Selling a single-line product is generally done in one sitting, rather than over a series of appointments. “The [single-line] salesman has to be a stronger closer,” Grosso says. “Going back and forth doesn't pay in an eight-window replacement job.”

Very few salespeople can switch between full-service and specialty projects, so it's a smart idea to keep your salesforces separate. Additionally, because single-line salespeople do not play the same role as full-line sellers, you must manage them differently. “It takes a unique individual to work only on commission,” Taylor says, “and you have to compensate him for that.”

Compensation for the two types of salespeople will be markedly different —probably in both structure and amount — so to avoid internal conflict, it's best to keep the two separate.

Taylor is in a peer group with a number of remodelers from various parts of the country, all but one of whom are strictly full-line remodelers. When he told them that his marketing budget is about 10% of volume, “they looked at me like I had three heads,” he says. “They think it's ridiculous.”

Of course, it is absurd for a full-line company to allocate that much for marketing; one that did would have to so inflate its prices to keep a healthy margin that it would never land any work. But most full-service remodelers spend too few resources trying to bring in new business, if they spend any at all. And apart from everything else, this may be the biggest difference between the two types of home improvement companies: Single-line remodelers are marketing machines.

Doing the actual marketing may even be the easy part. There are all sorts of tried-and-true methods, and any number of resources available to help you. That's not to say that marketing effectively is easy; it's not. But the highest hurdle a full-line remodeler may have to clear is the psychological one that makes him shudder at the thought of spending all of that money.

“You have to overcome your fear of spending that much,” Taylor says. There's no easy way to do it, but a good first step is to understand that single-line remodelers operate on much larger profit margins than full-line remodelers.

“You can't live off less than a 45% gross profit,” Ferro says, and note that that's a minimum; many specialty companies have higher GP. Of course, you'll need to bump your prices up to reflect your overhead. “At the end of the day, your clients pay for your marketing,” Taylor says. The numbers don't lie, so try not to worry that substantially higher marketing costs will put you in the red. Do, however, keep a close eye on what you spend, and what the return on that money is. “You need to manage your marketing dollars closely, because it's such a great expense,” Taylor says. Most single-line contractors use lead-tracking software that is impractical for most full-service remodelers because they have comparatively few leads. If you do start a speciality company, it would be wise to invest in one of these programs. At the very least, you'll want to keep tabs on how much you spend on each marketing medium, and how many leads your money buys.

The good news is that if you can get past all of these challenges, you're in a strong position to succeed, and make good money in the process. Remodelers used to the headaches that come with long, drawn-out design/build projects full of change orders and other inconveniences will be pleasantly surprised at the relative ease of fulfillment in the single-line industry. Product options are limited, installation techniques are uniform, and the length and scope of the job leave less to go wrong. “You can perfect it,” Waller says. “You can become a dominant force.”