Home Improvement Pro: Ready for Anything

by Kacey Larsen

In today’s economy, everything is humming along. Corporate profits are good. The stock market is higher than ever. Unemployment—4.1 percent—is lower than it was in 2006 (when it was 4.4 percent).

But anyone who’s been in business for a dozen years or more knows the economy moves in cycles and that cycles reverse, which can have a powerful effect on individuals and businesses.

What’s Your Product?

Home improvement is tied to the housing market. When existing homes sell, people typically have work done on them. When they stop buying houses, work slows.

Sometimes it slows a lot—as in the last recession when new home construction fell by two-thirds and existing-home sales dropped 20 percent between 2007 and 2010.

As we move ahead with one of the longest economic recoveries in the post-war period, it’s worth asking yourself: How would your business perform if the economy nose-dived?

Having been through a few recessions, here is what I’d look at:

First, I’d look at product mix. It’s easier to sell something people need, like a new roof, than something they want, like a sunroom.
So if I wanted to make my business secure in a downward economic cycle, I’d build a division organized around products and services that people who own a home will at some point require.

Exterior contractors fared far better in the 2008 to 2010 recession than design/build remodelers because they sold a service people needed. You can postpone that new kitchen, but if your roof’s shot or your windows are an energy sieve, you have to act.

So are you actively looking for new products and services, beyond basic product lines, that will bring in a stable amount of business no matter what happens?

All Systems Go

Besides products, there’s marketing. During the recession, many contractors got a rude surprise when lead flow slowed to a trickle. Their marketing worked when people had money to spare.

That approach faltered when the economy went south. And the real reason is that the owner simply wasn’t managing that marketing. No one was held accountable for the quality, cost or volume of the leads. Salespeople got away with cherry-picking appointments. There was no rehash program, no system for following up on unsold leads.

And when leads dried up, there was no system for generating business from previous customers, no experience in knocking on doors—i.e., canvassing—or working shows and events for leads.

A Well-Managed Mix

Two things make marketing recession- resistant. First, a balanced mix of lead sources, with some inbound, some outbound (i.e., face-to-face). Second, careful managing of every lead that comes in. (The average national cost of which, by the way, is about $325.)

Having a marketing operation that runs efficiently is a lifesaver in a downturn. But it’s also about having a better, more profitable business today. When you maximize the value of the leads you bring in, that lowers per-lead cost and overall marketing expense, which produces a better bottom-line return without having to increase sales.

And then there’s production. You may be getting jobs completed, but is it possible you’re burning money on those jobs because efficiency is not the priority, getting the work out is? The systems and processes you have in place for production bear directly on costs and profitability. Do you hold “total quality meetings” to see if you’re hitting gross profit targets on those jobs? How good are the firewalls you have in place to prevent the company from contracting for bad jobs?

And sales? Do you use a sales process? Is everybody on your sales team onboard with it? It’s tempting to skip steps when customers want to buy.
And how about financing? Financing makes it easier to close at a higher average job size. If your financing source disappeared, is there a backup?

Last but not least are employees—your biggest asset. How are you managing your current employee base? Do you onboard new hires? Assimilate them into the business? What’s your plan for keeping good people? It costs more to go out and find new people than it does to satisfy the good ones you have.

Ready For Anything

Every now and then, it’s smart to put your company under a microscope and look at how you’re managing, one piece of the operation at a time. That will give a clear idea how well you might stand up to an economy that leaves others in the market struggling. Companies that are managed well can manage crisis well. The companies that get hurt worst in a recession are the ones that have no strategy and few systems. They react to what’s happening by letting people go and slashing overhead. At some point those owners stopped paying attention to the basics. When the basics are sound, so is the business. |QR

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