2018 HIP 200: Labor and Leads

The two things home improvement pros need most are harder to get. Meanwhile, demand for services is strong as revenues are facing limits.

authors Patrick O'Toole | November 20, 2018

VIEW THE 2018 HIP 200 LIST

Home improvement professionals are realizing that along with all the benefits of selling jobs in a hot economy, there are challenges as well. This year the 200 largest replacement contractors and home improvement firms billed $3.99 billion on 696,773 jobs. The surprise is that these numbers are down slightly from the year prior, when billings were $4.2 billion on 749,000 jobs. Ys, you read it correctly. After growing at a break-neck pace in 2015 and 2016, the largest 200 home improvement contractors as a group billed less year-over-year.

HIP 200

HIP 200

According to Dave Yoho, a long-time home improvement industry consultant, many firms are reporting an increase in their cycle times due to a number of factors, but primarily a lack of labor. Firms are unable to produce fast enough to meet demand. Higher cycle times also translate to higher overhead and lower profitability.

Numerically, the majority of firms were able to grow, but the labor headwinds are real. Among the HIP 200, “finding and retaining employees” along with “finding and hiring trade contractors” were cited as top challenges by 53.2 percent, which is about the same as last year. There was a big jump, however, in the percentage of companies who reported profit challenges, which goes directly to Yoho’s point. Last year only 1.5 percent of HIP companies reported “reduced profit due to operational inefficiencies” as a top challenge. This year that same figure popped up to 4.5 percent of HIP companies who cite inefficiencies as a challenge. The limitations placed on firms by a shrinking or stagnant labor pool is certainly a culprit.HIP 200

Another culprit is the rising cost of leads. From the outside, one would guess that the flow of leads would be higher and easier to get. But there are signs that increased competition for leads, particularly those generated from the internet, is also placing limits on both revenue and profit. When asked to identify their top lead sources by percentage of revenue associated with those sources, the HIP 200 credited internet leads for nearly 20 percent of their revenue, up from about 15 percent last year—a big increase. Increases were also notched for referrals (15.5 percent of revenue) and repeat customers (14.4 percent of revenue), as well as web-based referral services such as Angie’s List, HomeAdvisor, Houzz and others.

HIP 200

Across the HIP 200, many firms are worried about the high cost of leads, particularly those generated on the internet. Some firms now see good old-fashioned radius marketing and canvassing as a more cost-effective way to generate leads, and they are investing more in those programs. But again, canvassers are hard to find, hire and train.

The primary source of rising costs for leads are those generated by pay-per-click via Google and other search engines. These figures vary from market to market and by keyword, but it simply costs more to be No. 1 in certain categories, reports Todd Bairstow, a founder of Keyword Connects. Bairstow says challenges to the model are coming from many directions but, in particular, they are coming from Google.

Over the last 18 to 24 months, Google has ramped up the number of metro areas where it has introduced its own challenger to home improvement companies—Google Local Services. It has also expanded the number of verticals where it is connecting homeowners with professionals. Initially the service was limited to eight: locksmiths, plumbing, HVAC, electricians, garage doors, painting, house cleaning, and appliance repair. Now 15 additional verticals have been added, Bairstow says, including handyman, home improvement pro, roofer, water damage and window service provider.

In particular, window service provider and roofers are facing the greatest threat. Bairstow is helping several home improvement firms work with Google to become approved local service providers. It’s a lot of work, but it is likely to be necessary in order to maintain lead flows and also help manage lead costs. | QR

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