Home Improvement: Back to Earth

When home improvement pros whose companies are listed on this year’s TOP 500 were recently polled on their No. 1 business challenge, “hiring” and “finding qualified employees” was it. Second was “generating leads for new business.” That these two challenges have, once again, risen as top concerns will not surprise longtime industry observers. Both labor and leads have been prominent concerns for home improvement pros over many years. If you want to grow, you need both.

“Economic weakness” was also an option given as a possible response. And knowing full well the current environment of rising interest rates and high inflation, one would assume that this would have ranked very high on the radar, but it did not. Among top business challenges it came in a distant third. But that does not mean the economy is not weighing on industry owners and entrepreneurs after two years of record revenue and record job completions.

From numerous interviews with home improvement professionals conducted this spring and summer, the constant theme has been an elevated level of caution and uncertainty due to macroeconomic concerns, including the risk of a recession. But they viewed them not so much as challenges to be addressed as much as they are realities to monitor and to be prepared to contend.

Caution and uncertainty are a reasonable response to real impacts on average homeowners and potential clients. After all, how long will homeowners continue to be in a position to afford discretionary home improvement purchases at a time when interest rates and prices continually rise? The exact level of price increases has not been captured, but the cost of labor and materials are much higher than they were two years ago. Credit is also said to be a growing problem. Declinations of willing buyers by finance companies are on the rise. They are increasingly balking at higher debt-to-income ratios.

All of this being understood, many home improvement pros are keeping their noses to the grindstone and turning in strong results so far in 2023. For companies with solid systems and processes, there have been large backlogs of contracted work to complete, and new business has stayed steady despite a higher cost of leads.

Andy Lindus, CEO of Lindus Construction in Baldwin, Wisconsin, says business in 2022 was excellent, and it is still strong in the Twin Cities service area. Ranked No. 56 this year on $43.1 million in revenue and 3,922 jobs, Lindus cited the top challenge as “keeping up with increased demand.” The company offers gutters, windows, siding, roofing, decking, insulation and other home improvements in the greater Minnesota Twin Cities region. Lindus, who will be a speaker at TOP 500 LIVE this fall, said the company will finish the year somewhere between $53 million and $55 million, which would be approximately 20 percent higher than 2022. In addition, he says the company is 7 percent ahead of where it was one year ago when it comes to generating qualified leads for new business. Job sizes are 6 percent higher, and the company is planning for 15 percent growth next year in 2024.

Data, Analytics and Leads

Because lead generation is a core competency at any home improvement company, and because most pros we interviewed mentioned a slowing flow of leads and higher lead costs, we spoke with Dawn Dewey, chief marketing officer at Dreamstyle Remodeling, a Renovo company based in Albuquerque, New Mexico. Dewey is also a columnist for QR’s Home Improvement Pro newsletter. She said marketers these days need to pay closer attention to reports and analytics about each of their advertising purchases.

“We have a month-to-date, by product, by market, lead-trending report that’s updated three times a week and sent out to management,” Dewey said. “We also have a handful of daily reports by product, by market, so we can keep a finger on the pulse, which is so important for maintaining that cost effectiveness. We need to know within the hour, within the day, if a lead source has gone off course and either isn’t delivering the volume we expect, or costs have gotten out of control. If we are not monitoring in real time, we lose that agility and that ability to shift spend to ensure that we’re delivering on our responsibilities.”

Dewey and her marketing colleagues are responsible for delivering leads to dozens of sales reps in six states. In 2022, Dreamstyle was No. 13 on TOP 500 with $151.9 million in revenue on 10,621 jobs. It is now part of Renovo, which is ranked No. 8 this year with $653.1 million in revene on 44,275 jobs.

The high cost of leads has led to a change in how quickly the Dreamstyle team responds to leads. Speed-to-lead has always been important for leads that come from lead-aggregation firms, where a given lead is a “jump ball” between four or five firms. These days, Dewey said, the company is set up technologically to send all leads, even home-grown website form fills, to a call center for a response within one minute or less.

“So, any lead source we have has API integration, which basically means that when someone’s submitting a form-fill online, whether it’s through Facebook or our website or any digital medium, almost instantaneously it’s being populated in our call center to be dialed. And our goal is to dial that lead within one minute.”

Mergers & Acquisitions Largely on Hold

Many of the firms in this year’s top 10 are home improvement firms who have grown through acquisitions completed in 2020, 2021 and 2022. Most notable are Leaf Home, No. 2; Great Day Improvements, No. 5; Renuity, No. 7; and Renovo Home Partners, No. 8.

West Shore Home declined to submit information for this year’s TOP 500 list for reasons it did not disclose. Firms who have filed for an initial public offering of stock often are prohibited from making public disclosures during a quiet period. It has not been confirmed that West Shore has filed for an IPO, but it has been speculated. It has grown through acquisition. In June the firm opened its Dallas headquarters, which will serve as a western region hub for the company.

Higher interest rates have made it more difficult for continued acquisitions. And the window for public offerings closed for a period of time last fall. A soft economic landing could again spur mergers (and IPOs) in 2024. QR