The column I wrote last month, The World As You Know It, generated some pushback from contractors who thought it focused on the negative; that it seemed to endorse the bankrupt idea of competing on price; that the opinions weren’t valid because they didn’t cite empirical research. Here are a few comments from Remodeling's website and from other forums:
“We all know business is a little tougher than it was, but hardly need anyone to point out more reasons to sit on the pity pot. If you think it's bad out there, it will be. Banks are making loans, people do have cash. Don't believe all the gloom and doom. The other option is to read depressing articles. Which one makes more sense?”
“As long as there are homes, there will be remodeling. Yes, things change, and remodelers must change along with them. What does he think--that people are just going to let their houses...collapse in a pile of rubble?”
“Think it’s odd that the so called voices of the industry have such a bleak outlook on the future of remodeling. They can keep that doom and gloom to themselves.. I am out to set records this year.”
“Perhaps it's a certain approach and business model that's "dead". Just remember, "When everyone is thinking alike, no one is thinking."
“Few of us want to sell on price and most of us don't. Realize though, that the people who read these blogs for the most part have moved on from being low bidders. This article touches on the one thing that some of us have forgotten, that is although we may specialize in an area we must also be open to fulfilling the needs of our customers in other ways, such as replacing that storm door or replacing the porch steps.”
So I asked Les Cunningham to expand on his thoughts:
“Having been an airline pilot, I know humans can’t fly–I’m a realist. Positive affirmations are good, but they need to be salted liberally with realism,” Cunningham says. Thirty-nine years in the industry, and working with thousands of remodelers over those years has given Cunningham a deep reservoir of realism. He suggests that remodelers ask themselves “What’s my company worth today? Is it worth more than it was a year ago?”
“Yes, there’s work out there, but at reduced volume. One good operator I’m working with told me recently that he’s working ten times as hard; it takes two to three proposals to get a contract.” And price? It’s hardball negotiations. The client analyzes whether or not there’s sufficient value in doing the project, and then how much he can afford. Even though he likes you as a professional, can he get the same quality done at a lower price? Cunningham continues, “When someone’s checking your price, they can check the cost of materials and labor and calculate what percent over the cheapest alternative price you are. They make a value judgment for the money spent and quality received. There are more competitors than ever out there that are giving customers a cheaper price.”
Was Cunningham advocating that remodelers drop their prices at the first customer objection? No, he stresses. “Let me tell you a story. Two clients of mine were going after the same job. The [25%] higher-priced contractor was convinced that he was doing the right thing. The one with the lower bid actually had changed the specs and was able to charge a higher margin than he would’ve had he priced the project based on the original specs.” The difference was in understanding the customer’s wishes and his costs well enough to engineer a win-win solution for him and his customer.
But not all remodelers have command of their numbers, especially with complex design/build work. In a more competitive environment, they might find it increasingly difficult to differentiate themselves based on workmanship and service alone. Therefore, those contractors should avoid design-based variables that erode margins, and might benefit from selling products that minimize slippage–what Cunningham refers to as “bolt-on” products.
Cunningham’s company, Business Networks, collects financial statements and marketing and advertising data from its members around the country, who represent a good cross-section of the remodeling industry. The data they track is placed on a common comparison form with standardized definitions. This enables Business Networks to rank its members and generate averages based on real sales and margin targets. The peer format allows members to review and analyze the data eyeball-to-eyeball. Empirically, volumes and margins are down as much as 90%. Seventy percent of projects are now being financed from savings. Customers are increasingly concentrated among those who have the most stable employment–doctors and other health professionals, lawyers, entrepreneurs, and government employees.
There are successes, but not nearly on the scale as before. Certainly, there are pockets of stability–think Washington, DC and Austin, Texas–but in general, Cunningham says “if there’s a lot less success there must be a lot more failure. To continue in the same direction is the wrong answer. This is the first downturn where everyone’s been affected–nobody’s been untouched. But the market will return sometime…when it has disposable money available.”
Cunningham goes on to say that “until then, what a [struggling] remodeler needs to do is become a general contractor – not a specialist. You take whatever you can to break even or make money. Right now, what people seem to be buying are exterior products: windows, doors, siding, decks, and green-related items. In the boom years, the mantra was ‘if you do quality work, you’ll make a profit.’ Now, that’s a lie.”
Rick Provost has over 20 years experience helping to build the country’s largest design/build franchise network specializing in exterior home improvement. Formerly the President and CEO of Archadeck®, Rick is now a principal in SMI Safety, a safety consulting and staffing business that specializes in industrial construction. Rick also consults with emerging franchise companies to help them develop growth strategies and business systems. He can be reached at email@example.com.