ReNews -- Remodelors Council News - 11/18/2009 (Plain Text Version)Greg Miedema, CGR, CGB, CAPS View Graphical Version | Subscribe to NAHB Publications | Email our Editor... In this issue: For Remodelers, Recovery Won’t Mean Business as Usual
With a recovery in the residential remodeling industry slowly moving into view, speakers at the Remodeling Show in Indianapolis on Oct. 27-30 warned that those who expect a return to business as usual are likely to miss out on the opportunities afforded by a marketplace that has been transformed by one of the most bruising U.S. recessions in generations — advice that is also applicable to many small home builders. “The idea is that we don’t have to think about just surviving,” said columnist and remodeler Shawn McCadden, owner of Custom Contracting Inc. in Arlington, Mass. “There’s a lot of opportunity out there, but things won’t come back to normal.” Marketing is paramount, speakers advised, not just to get telephones ringing again but to establish a customer base that will provide jobs as conditions improve. Remodelers will be battling for clients, and those who succeed will be running their operations according to standard business practices, they said. “You don’t need to reinvent the remodeling business,” McCadden said. “Instead, you should adopt the standard way of doing things. How long am I going to continue doing things as I always have before I realize it’s not working?” In an educational session on getting rid of callers who aren’t likely to become customers and on how to avoid free job estimates, Paul Winans, who ran a successful remodeling business, Winans Construction Inc., in the San Francisco Bay Area for 29 years before selling it in 2007, said that remodelers need to establish systems for running their businesses “that will work even when times are tough.” “A system-oriented process is something that can operate independently of your day-to-day involvement,” Winans said. A key challenge for remodelers, the speakers added, will be differentiating themselves from the competition. Emphasizing the quality and value of workmanship isn’t good enough, but marketing experts provided plenty of information on how remodelers can take simple steps to stand out from the pack. “Why are you different?” Winans asked. “Why should somebody want to buy from your remodeling company? Work on refining your message. If you don’t know it, you can’t expect your customers to know it.” Presentations at the show also stressed the importance of finding ways to increase profits at a time when consumers are reluctant to spend. In a general session at the conference, speaker Robert Langdon showed how remodelers can increase their profits five-fold by increasing their sales, reducing their expenses and increasing their gross margins. Positive Signs Emerging With the remodeling market expected to remain fairly quiet into the first half of next year as it turns the corner on the current downturn, remodelers should be focusing their time and energy on preparing their businesses for what lies further ahead, speakers said. According to the latest findings of the Leading Indicator of Remodeling Activity, which was released late last month by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, spending on home improvements should begin rising early next year. Spending will, however, still have ample ground to recover, remaining 8.9% below its year-over-year level in the second quarter of 2010. “Remodeling spending by home owners shows early signs of stabilization,” said Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “While the housing recovery has been erratic, a strengthening economy could produce spending increases on home improvement projects by the second quarter of next year.” “Favorable financing costs — for those households with access to credit — and a pickup in home sales are producing more opportunities for home improvement projects,” said Kermit Baker, director of the Remodeling Futures Program. Several factors, however, are still impeding remodeling growth, he said. “A generally weak housing market with unstable prices, near record levels of foreclosures and other distressed sales are discouraging households from undertaking nonessential remodeling projects,” Baker said. Businesses Prone to Failure Attendees at the Remodeling Show had the opportunity to hear from several representatives from Case Design/Remodeling on how to change various business practices in order to get the most mileage from the new marketplace emerging from the downturn and target their efforts to the altered mindset of potential clients. Among them was Mark Richardson, co-chairman of the Washington, D.C. area-based company, who observed that remodelers are up against difficult odds even in good times and prone to failure, largely because of the shortcomings inherent in small businesses that haven’t properly positioned themselves to survive. Sixty percent of remodeling businesses never make a profit, said Richardson; 81% of them don’t track their profits by market and 64% don’t track profit by product. Most businesses don’t have a written business plan. Sixty-two percent of remodelers don’t track client retention and 64% don’t know their sales conversion rates. Consequently, roughly two-thirds of remodeling companies fail in their first five years, he said, roughly the same as the 60% failure rate experienced by small businesses overall. However, about 90% of remodelers perish before celebrating their 10th anniversary. History Lessons Leveraging the company’s historic data, as Case has done, is a tool that can boost a company’s sales, he said. “Make history an integral part of your business decisions,” he said. “It doesn’t lie, it happened.” For example, a Harvard study tracing the steady rise of the bathroom from just after World War II, when only half of U.S. homes had an indoor bathroom, to an average of two bathrooms per home in the 1980s, suggested a remodeling opportunity for Case. In the mid 1990s, the company’s gross profits from bathrooms were lagging behind those for other projects, Richardson said. A group of Case employees was assembled to reinvent its approach to bathrooms, and within 10 years the company's bathroom division was ringing up $10 million in annual sales. Client satisfaction rates were higher for bathrooms than other projects and profits on bathrooms climbed 8%. Today, American homes have an average of three bathrooms, and the 20-to-30-year lifecycle of the bathroom has declined to 10-to-20 years “because they have become fashion remodeling, not functional remodeling,” he said. Three years ago, Case was able to devise a significant new sales strategy based on an examination of its repeat business. The company found that after contracting an initial job, largely a smaller project coming in through its handyman division, 18% of its clients went on to a second job within 18 months. Of that 18%, 72% went on to a third project. The value of inducing its customers to retain Case for a second remodeling job became apparent as a result of this study. “Figure out a way to get clients to do project #2,” said Richardson, “even if you have to start giving away some of your services.” Richardson added that historical data can be indispensable in setting sales goals. Looking at the actual historical sales data of specific sales persons can help put projections for the coming year on a sounder footing and yield more realistic expectations for revenue. “By analyzing this historical data, it tells you where to put your spotlight,” he said. “You have to know where your profit comes from in order to know the right client for your business,” Richardson added, “and you have to know the right size of projects. You can target that client and say no to people who don’t meet the criteria.” Historical data are also needed to gauge changes in the market. “You have to have the data to know how things have changed,” he said. Then and Now Five years ago, for instance, Case was seeing a 1.5% to 2% return rate on direct marketing; today, that figure has dwindled to 0.4%. Looking at the sources of closings, 70% have come from previous clients versus 5% from radio advertising. “Drill more deeply,” he said. “Look at the close rate for different kinds of clients. You might want to look at the sales process a little differently, keeping more in touch with previous clients.” It would be a mistake, he added, to presume that clients will remember a remodeler for a job well done. “They forget about you,” he said. “You assume they’re your client because they paid you something, but they have no problem hiring someone else” the next time they need some work done in their home. “Let’s keep in touch with clients; it’s probably what works today.” Another significant statistic for Case derived from historical data: its average sized project this year will be $100,000, down from $200,000 in 2007. “Considering the new world order we’re in, are you looking at strategies differently now?” Richardson asked. “Marketing and sales approaches are cyclical,” he said. For instance, solar and energy, popular items in the 1980s, are making a comeback. “Some things look like they don’t work at certain times,” he said, “but they can come back to life.” To determine what sales and marketing strategies will work currently and in the healthier market that is shaping up, Richardson compared remodeling conditions three to five years ago with those of today:
“History does not lie,” he concluded. “In the times we’re in, it’s not the judge and jury. But if you don’t use it, you’re flying blind.” For information on remodeling resources available from NAHB, e-mail Kelly Mack at NAHB, or call her at 800-368-5242 x8451. For more information or to contact us directly, please visit www.NAHB.org | ©2009, National Association of Home Builders |