Rethinking What Your Remodeling Business Sells
authors Shawn McCadden | October 10, 2019
I had a conversation recently with a young remodeler. I asked which type of work he targets. His answer, like so many others new to owning their own business, was that he is after any kind of work he could sell to make money. From his experience, he no longer wanted pressure-treated decking jobs. His concern was how they might look five or 10 years from now due to poor maintenance. He was afraid people might judge him and his work by what it looked like after the weather got to it.
This indicates to me three things. First, he’s a quick learner. Second, how much more he needed to learn. This is particularly true regarding the types of work that would be best for him and his business. Third, I thought, Here goes another remodeler taking the never-ending path of learning from his mistakes, rather than learning from the people before him who already made the same ones. In essence, he’s trying to reinvent the wheel of how to maximize profits.
How Much Time Do You Have to Waste?
Some remodelers claim to have, for example, 10 years of experience. Consider, however, how much they learn on their own by making mistakes versus how much they learn if they seek and receive the right help to speed up their learning. The former may really only have one year of the same experiences 10 times, while the later will likely have a full 10 years of accumulated knowledge. The later will also likely have more money in the bank.
Accumulating the money that you need, whether to grow your business, increase your earnings or to retire someday, will take time. But how much time do you really have? If you only learn from making mistakes, you may never accumulate enough of the money you want or need. On the other hand, if you seek and find the information and the help you need to bypass the school of hard knocks, you might actually be able to grow your business and retire much sooner than you thought was possible.
Will you and your business be saving money by not paying for or getting the help need to learn how to make more money? If you are waiting to finally accumulate enough profit before you will be willing to spend some on how to make more profit, you are losing out on the theory of compound interest. Growing your business and profits this way is kind of like saying, “It’s cold in here, we will add some more wood to the fire, but only after it warms up.”
Decide What You Should Really Be Selling
Rather than sell anything a customer may want, decide what you want to and/or should be selling. For example, if we assume you mark up everything you sell with the same markup percentage, why would you sell all pressure-treated decks when you could be selling all composite decks? The labor might be close to the same for both, but the gross profit earned on marking up the required materials will be dramatically different.
Of course, to help make this happen you will also need to proactively generate leads for the kind of work you want, rather than just sit and wait for the phone to ring to find out which work callers want. At the end of the job, the margin percentage may be the same for both decking types, but the earned gross profit on the composite deck will be much higher due to the increased material costs.
This will be the same for other products and project types too. For example, two good carpenters might install $10,000 worth of kitchen cabinets in a day. Those same two carpenters might also be able to install $2,500 of composite decking in a day. At a 40 percent gross profit margin (requiring a 1.67 markup on estimated costs) the business would earn $6,700 of gross profit on the cabinets those carpenters installed, but only $1,675 on the decking.
If you had your choice, would you send your guys to the deck job or the kitchen job? Also consider if you don’t do the marketing, you may not have a choice of where to send them.
Think of the time it takes you and your sales staff to sell the work your company offers. One of my clients, using what I refer to as my COGS Worksheet Tool, was able to compare the gross profit he would potentially earn for his business when selling different types of projects and how many hours those different types of projects would typically take to sell. In his example, it took just as many hours (10) for him to sell a $53,000 kitchen as it did to sell a $6,300 closet system.
At a 40 percent margin, the kitchen sale had the potential for $21,200 of gross profit, but the closet system would only produce $2,520 of potential gross profit. With both taking 10 hours to sell, the kitchen would produce $2,120 of potential gross profit per hour, but the closet would only potentially produce $252 per hour of sales efforts.
I Hope You Have Been Enlightened
I hope you have come to see and understand that you and your remodeling business can make a heck of a lot more money in profit if you are strategic about what you and your business sells. Imagine making more money but working less—and not as hard to do so.
The good news is there are so many more considerations that can help you earn more money than I have room for in this article. If you are interested in hearing more and would like to get and learn how you can use my COGS Worksheet Tool, you are in luck. Join me on Monday, Nov. 18 for a Qualified Remodeler webinar on this topic. To register, go to QualifiedRemodeler.com. QR
McCadden is a speaker, business trainer, columnist and award-winning remodeler with more than 35 years of experience. He can be reached at shawnmccadden.com.