Line Drive

With half the 120 million homes nationwide having been built before the bicentennial, new-home prices spiking, and built-up equity burning holes in homeowners' pockets, most remodelers have more work than they can handle. Some sit on 18-month-plus backlogs and mentally salivate as they watch their slice of the remodeling market's $199 billion pie fatten.

But are the extra calories that queued-up clients represent worth it? It depends on whom you ask.

“Backlogs are awful,” states Mark Richardson, president of Case Design/Remodeling in Bethesda, Md. “They are inefficient. Any short-term comfort a line of clients offers a remodeler can't compare to actually getting them in the pipeline using smart processes.”

On the other side are remodelers such as Rudy Nino, president of San Antonio, Texas-based SA Building and Remodeling, whose answering machine says, “I'm so busy I can't even answer my phone!” He swears that the frenzy he imparts encourages people to get on his waiting list because they believe that if a remodeler is that busy, he must be good.

A third group of remodelers point out that a backlog at one company mirrors the backlogs of all other comparable remodelers in the market. The trick is to convince time-conscious homeowners that the experience with their company will be far superior to what they'd have with unproved remodelers whose waits may be shorter.

For many in the business, it's not a hard sell. Tim Wallace, owner of Arlington, Va.-based T.W. Wallace Construction, uses the downtime before he can meet with prospects by encouraging them to visit the homes of former clients. By the time they sit down with him, they're sold on his workmanship. His 14- to 16-month backlog is usually not a deal-breaker.

Bay Area consultant Judith Miller, owner of Remodel Services, says backlog lengths are on a sliding scale based on strength of reputation. “As you build your customer satisfaction and reputation, you can increase your margins. Then, increasing your backlog is OK.”

Most remodelers agree that good economic times offer the luxury of turning down clients or jobs that aren't a fit. Chris Ettel, president of VB Contractors, has a simple rule of thumb: “If they are willing to wait, we know they are a good client for us.” His Virginia Beach, Va., company, which does about $2 million a year with 20 jobs, has a four- to six-month backlog.

Whatever the size of your backlog, there are three things you need to manage to make it work to your advantage: your clients, your company, and your partners.

When lines form and jobs get stalled, Tom Swartz, president of JJ Swartz, relies on what he calls the “airplane theory.” He's referring to the way most major airlines have realized that keeping passengers in the dark about delays is not good customer service. “If you keep people informed — even if the news is not what they want to hear — they'll be OK with it,” Swartz says.

Good communication is how most successful remodelers handle backlogs, whether it's being honest about the length of the wait or about the end date of a job that has gone sideways in the process.

Swartz, whose Decatur, Ill., remodeling company does about $4 million a year with 45 jobs, thinks that remodelers and clients get hung up on the wrong half of the schedule. “The natural reaction of a client is to ask when things will start, when what they really care about is when it will be finished,” Swartz says. His company works backward from the end date and uses the fluid design and product selection phase to keep interest high during downtimes in the process.

Many remodelers with long backlogs charge a deposit to ensure that they will be reimbursed if clients jump line. Wallace charges a nonrefundable $5,000 fee before he spends one minute with customers.

“A financial commitment is a good idea,” says Victoria Downing, president of Laurel, Md.-based Remodelers Advantage. “Typically, it's 10% to 20% of the job fee up front.” Swartz asks for an “initial investment” on every job. He bases the down payment on his financial obligation for special orders. “If 50% of the job is special-order; we'll charge 50%,” he says.

Tom Kelly, CEO and owner of Portland, Ore.-based Neil Kelly Contractors, gets a retainer to do the design work. “They are obligated for the design,” he says. “But they haven't signed a construction contract.” He has seen people take the design to a company that can build it faster, but not often.

Michael Tenhulzen, general manager of Redmond, Wash.-based Tenhulzen Inc., notes that his company keeps clients from straying by retaining ownership of the plans.

A tricky point to managing backlogs is prioritizing which projects to take on, especially as remodelers have worked hard to build a “remodeler for life” relationship with former customers. Tenhulzen keeps his past customers in mind as he juggles the new ones. “When we look at the number of repeat calls we get, they take precedence over new clients,” he says. “We want to always be in their professional regard.”

Kelly prioritizes by need. “If a client says he needs to get going right away, and it's just an emotional desire, we have to prioritize him behind the client with a wedding happening Thanksgiving weekend.”

On top of everything else remodelers are grappling with, the customers themselves are changing. “Clients are more fiscally responsible, and it's more of the younger generation,” Tenhulzen says. “They want it fast, cheap, and good. You can get one but not all three, and we don't do fast and cheap … We won't just tear into a job. It has to be completely designed.”

This practical business approach is tough on Gen-X clients who answer Tenhulzen's question, “What is your anticipated start date?” with, “Well, we get our online cabinet order in three weeks.”

Richardson doesn't have a backlog, he has longer “hatching” periods. Swartz doesn't have a backlog, he's in an “organized crunch.” Call it what you will, companies with wait lists have to make tough decisions about how to handle increasing volume.

Many remodelers credit their processes for their ability to grow and shrink with the times. Richardson says that Case is able to control the flow of its projects by the way the company is structured. Its strict adherence to process dictates the timelines. “Is someone disappointed they can't get going with us more quickly? Yes,” he says. “But it's not a backlog, it's the hatching process that determines the time it will take to get going.”

Mark Peterson, president of Minneapolis-based M/A Peterson, says that remodelers need to build in flexibility. “We have seven project managers; four of them are capable of running multiple projects. The carpenters can manage a job under a project manager. The key is having the training where you can stretch capacity with existing staff.” M/A Peterson's $15 million a year in revenue comes mostly from 25 projects (not including its smaller projects, and cabinet and landscaping jobs).

Tenhulzen stretches its supers, putting them on three or four jobs, using carpenters underneath them to stay on task. “We produce more this way, but there is a fine line between productivity and customer satisfaction. We've reached the threshold on what supers can produce, and we still have a backlog,” he says.

Swartz prefers to keep one project manager per job, but when times get busy, he's ready to ramp up. “Sometimes a manager is asked to run more than one job. We tell both customers affected. If you don't, you'll have them calling asking where Don is today.”

Wallace zealously sticks to his one-crew-per-job approach, which he says shaves 40% off the job time, a selling point he uses to dull the disappointment that his 14- to 16-month lead times elicit. “The lead time stretches, but the time of disruption shrinks,” he tells customers. Wallace produces about $3 million a year doing eight projects with three crews.

Many remodelers choose to add people, but that might not always be the right call. Kelly weathered the high-tech bubble of 2001 and is aware of the danger. “Don't grow your business so fast that you can't handle it. If I had [the 1990s] to do over, I would have extended the backlog a little longer, but if you get out over three or four months, you lose customers and previous clients that come back for more work,” he warns.

Most important, he notes, “Don't hire employees during busy times that you would reject in slow times. You have to grow with good employees; we're successful today because of our training.”

“Our backlogs are caused by the phone ringing and having no horses in the field,” summarizes Tenhulzen, who claims that a lack of labor is backing up his production. Other remodelers, too, cite labor shortages and claim manufacturers send orders partially filled or late because they are overwhelmed. But many remodelers actually credit their strategic partners for helping them through thick backlogs.

Ettel says his longevity in the business keeps subs on his jobsites. “We have leverage with a main group of subs, but we have to constantly remind them not to chase new business when we've been around for 17 years,” he says.

Kelly asks his trade contractors to commit to a schedule early in the process. “Before we even start, purchase orders have been sent out and accepted by all the trades. We've been working with our trades for a long time. Payment on a timely basis creates loyalty; if they bill on Tuesday, they get paid on Friday.”

Kelly also feels strongly about educating his subs to help them run their businesses better because it ultimately affects his jobs. Recently, a painting contractor fell off schedule because he was taking on too much work. Kelly's production manager helped him use technology to better schedule projects.

However well you plan with manufacturers and trades, things can still run amok. Swartz notes that remodelers must be ready to solve problems. “Certain things are just out of our control,” he says. “If a manufacturer says he can't get a product in four weeks, and it means sending a van over Super Bowl weekend to New York for a whirlpool tub, that's what we'll do.”

Cati O'Keefe is a freelance writer based in Cincinnati.

Matt Plaskoff, president of Plaskoff Construction, a $10 million company doing about 30 remodels a year in the San Fernando Valley and Los Angeles area, doesn't exactly push the smaller jobs out when the volume gets untenable, but he has raised his average job size. “I tell [clients with small jobs] that if they can be flexible with timing I'll put them on a waiting list.”

Plaskoff works with a subcontractor who has crews and supervision manpower for smaller projects. “I now have business that I'd normally have to turn down,” he says.

Plaskoff also spun off a company, One Week Bath, which only remodels bathrooms. Though the lead time on the bathrooms is a month to six weeks, customers are pleased to have the company quickly in and out of their homes.

Plaskoff expanded the selections list from the initial basic white, and notes that what he thought would be a “basement-bathroom” business has also attracted clients with high-end desires. These people want unique tile patterns and high-end fixtures. To keep up with the detail, Plaskoff added one man to each of his two-man crews and is still able to deliver a bath in a week. The average sale is $15,000, with a lower-end bathroom running about $10,000.

“Customers are not paying a premium to go fast,” he explains. “We're just more efficient with our systems, have lots of crews, warehouse capability, and customized trucks.”

Right now the company has 40 employees, including 10 bathroom designers, which will soon grow once Plaskoff solidifies a pending partnership with The Home Depot and rolls the company nationwide by 2008.