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.
1. Manage Your Clients 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.”