Five Keys To Getting Contractor Financial Reports That Speak To You

Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the co-author of A Simple Guide to Turning a Profit as a Contractor.  Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

“How can I get meaningful financial reports for my construction business?”

There’s a big difference between a pile of materials and a well-designed building. Yes, everything required to create and use the building is contained within the pile, but until it’s been put together with the intention of producing something useful and well-thought-out, it’s pretty much useless.

The same thing applies to contractor financial reports

I have worked with literally hundreds of contractors’ financial databases, and many of them have got the majority of the information in there, all right. The problem is that, just like the pile of materials, the information isn’t organized in a way to let them easily draw conclusions. Just like the point of having a house is to provide shelter, the point of having financial reports is to make informed management decisions.

My clients, seminar attendees, and reader audience are probably sick of hearing this, but if reports don’t provide useful information at-a-glance­, they aren’t doing you any good. Contractors can’t afford to have their bookkeeper or accountant adjust, explain, and interpret reports. Waiting for this kind of information puts them at the mercy of others. Instead, any contractor should be able to instantly access, review, and draw conclusions from standard reports any time he feels like it!

Begin with the end in mind

The key to getting this right and meaningful is to decide beforehand what questions you want answered. So if you want to know what your gross profit is, for example, then you need to set up your Chart of Accounts to show it to you. If you want to figure out how much your production workers are costing you, then be sure to capture all the burdens along with the wages. If you want to find out which marketing methods are working best, then you’ll need to have two categories of information: (1) you’ll have to have your financials set up so you can see costs by marketing source, and (2) you’ll have to have a lead tracking system that will identify which leads are coming in from which source.

Even software that advertises itself as being set up specifically for contractors doesn’t necessarily classify costs in the most useful way for a particular company; relying on the software to control the content and level of detail of information means you may be giving up answers that are important to you.

Here are five keys to getting the financial reports contractors need:

1. First and foremost, give accounts names that make sense to you. If you want to call your refuse disposal garbage, do it. Don’t be hung up on what your accountant thinks it should be called. Use names that are familiar, descriptive, and have meaning for you.
2. Separate costs related to production from overhead by using different types of accounts; when you run your financial reports, they will be in different regions of the reports and you should be able to get key numbers (such as gross profit) without doing anything more.
3. Use account numbers to control the order of the accounts. Without numbers, your reports may appear in alphabetical order, which may be far less revealing.
4. Organize the accounts in clusters; use sub-accounts to provide detail when required. For example, you can have a main account for marketing, but use sub-accounts for web, home show, print, and other categories.
5. Arrange accounts to show the biggest numbers higher up. For example, if you cluster your production-related accounts together, and 50% of your production costs are for subcontractors, then put the subcontractor account at the top of the production cost list. If you spend only 3% on permits, put that at the bottom.

Take control of your Chart of Accounts so that your financials will speak to you.

You don’t have to have an MBA to derive meaning from reports; the basics are pretty darned easy to understand. However, if your accounts have arcane names, are organized with an inappropriate level of detail, or are in the wrong location, your job will be made more difficult. It’s challenging enough being a contractor without making things harder than they have to be!

Contractors, Were You Being Thankful and Did You Giving Thanks Too?

How did you celebrate Thanksgiving this year?

I hope you did something to thank the world around you for what you have and should be thankful for!

Here's what I did

My wife, daughter and I volunteered for the day helping put together and deliver meals for those less fortunate than us.   I belong to the Hudson Fish and Game Club in Hudson NH.   Every Thanksgiving, the club, its members and lots of volunteers all work together to make this annual event a reality for the surrounding communities.   It sure feels good to be part of the efforts.  In past years we have also helped with the delivery of the meals.   Although some drop-offs are an eye opener about how tough things are for may people, it’s also a great feeling to drop by with a bag chock-full of Thanksgiving dinner, rolls, pie, fruits, gravy and whole bunch more of traditional Thanksgiving treats.  The giant smiles and even sometimes the joyful tears can make your day!

Getting Everything Ready For The Big Day

Volunteers Help Fill Plates For Delivery

 Almost 1200 Meals Were Prepared and Delivered!

Did You Give Thanks To Your Employees Too!

One important way to spread the Thanksgiving spirit is to thank your employees.  My daughter got the message below as a text message from her boss.   She got it Thanksgiving morning while we were on the way to the Fish and Game Club to volunteer for the day.

"Happy Thanks Giving Kate!!  Thank you for all of your hard work and dedication.  You are truly a wonderfully kind person Kate :)   Eat some great food today..  Salute!"

After she read it she let out a big "WOW" and couldn't wait to read it to my wife and I.   She was touched by her boss's message and even more proud to read it out loud to my wife and I.  It put a huge smile on her face and on mine as well!  

Her boss will get paid back in spades for that simple gesture!

I hope you had a great Thanksgiving!

3 Financial Myths That Compromise a Contractor's Long Term Success

Here is my list of the top three myths I see that compromise a contractor's ability to achieve long term financial success.  These areas definitely affect a contractor ability to profitably grow a business, as well as the contractor’s personal financial health, including retirement funding.

I must be competitive with my pricing

In my opinion when any business seeks to be competitive it typically becomes a commodity.  By that I mean the buying public looks at that business and or it’s offering as being the same as their other choices.   When consumers see a product or service as a commodity they ultimately make their choice between available options based on price.   By trying to remain competitive contractors playing in this sandbox become bidders in a reverse auction where the loser is the one who wins. 

To prove my point, ask any contractor who sells their services through a bidding process if they will have the money they need to comfortably retire at 65 without working again.  There will be some exceptions, but I bet the majority will tell you their plan is to work until they die.  What would their significant other say about that plan?

Also, keep in mind that nine out of every ten contractors will eventually fail.   By being competitive contractors are most likely joining the ranks of contractors who will eventually fail.   Rather than compete, why not differentiate your business?   Check out an article I wrote on this subject for Remodeling Magazine

I can't raise my prices; I'm already the most expensive contractor in my market.

I hear this one all the time from contractors.  Most of the time it comes from contractors who have no idea of their true cost of doing business and guess at what markup to use.  This is referred to as the WAG method, or the "Wild Ass Guess" method.  Based on the fact that they are guessing at what price they should charge I would also suggest they are guessing about being the highest price in their market.   Did they do or hire someone else to do market research to back up their claims?  I doubt it. 

When I ask how they know they are the most expensive most contractors tell me their prospects are the source of their assumptions.   For those using their prospects' feedback to determine their price point in the marketplace remember, buyers are liars.   The 11th commandment states that you can lie to a sales person and still go to heaven!

One of my contractor coaching clients told me he was the most expensive in his market and would not be able to sell anything if he raised his prices.    After I helped him do his first business budget and determine the markup he needed to use to cover his true overhead costs and make a profit, he went out that night and closed a deal at his new higher pricing.  Check out this article I wrote for remodeling magazine about the benefits of having confidence in you numbers.

I can only charge what the market will bear

Now, if a contractor has done market research, for his or her local market, this may be true.   Savvy contractors, those who know what price they need to charge, will sell at higher prices up to the point that a majority of protects stop buying.  I would consider this to be true market research.  However, these business not only know how to determine the true costs of doing business, they also typically have professional marketing programs to help them get in front of specific prospects and they employ professionally trained salespeople who know how to sell.

Contractors using the WAG method to price their work also typically do not have a strategic marketing plan.  Without targeting a specific market of customer types, how can a business owner know what price point the market will bear?  Without professional sales skills, how would a contractor know if the reason for not selling at higher prices is due to the market or to his/her selling skills?

Also, what market are they referring to; the one they are proactively pursuing or the one that randomly ends up knocking on their door?  Are they using professionally trained sales people or are they using order takers?   One way to differentiate between sales people and order takers is that sales people present their solutions in person.  Order takers typically hit send.   If you use the hit send method I don’t think that counts as a valid way to test what the market will bear.

Want to be able to charge more for what you do? 

Check out this blog about why some contractors can raise their prices but most can’t.

Looking to target specific customers and work types?

Check out this all day Marketing and Sales Workshop

Current State of the RRP Rule; An EPA performance Report Card

Back in April of 2012 I published a blog where I offered a report card on how I thought the EPA was doing regarding the RRP Rule.  In this blog I offer an update on the RRP Rule as of October 2013.   I had prepared and presented this information at the Lead & Healthy Housing Northeast Regional ConferenceLead & Healthy Housing Northeast Regional Conference on October 9, 2013 in Mystic, CT.  

Overall the performance of the EPA has continued to be dismal.  

As you will see from the information I provide below, due to the lack of accountability and the poor business practices of EPA, the purpose of the rule, to protect children from lead poisoning due to renovations, has definitely been compromised.   Many, including me, are also of the opinion that due to EPA's handling of the rule more children are at risk of lead poisoning. 

I hope by sharing this information, those who are in favor of protecting children from the dangers of lead due to renovations will make it a strategic priority to hold EPA accountable to rethink the practicality of the rule.  Hold them accountable to establishing and using objective metrics that measure EPA and the rule's performance.  And, most importantly, to make sure if performance objectives are not achieved those responsible for those objectives will be identified and removed from their positions.   The health and well-being of our nation's children are too important to tolerate the kind of performance the EPA has demonstrated to date.  If you agree, make sure you speak to your political representatives and get their commitment to hold EPA accountable.

The following is my summary of the state of the RRP Rule and EPA's performance to date, separated by subject categories:

Subject: Outreach about the Rule:

• On April 1, 2012 I gave the EPA a “D”, now I give them an “F”
• EPA has claimed to have done extensive outreach to consumers and the regulated community. 
• They list a variety of methods used and places where ads and announcements were placed.  
• According to a survey done by Professional Remodeler magazine, published in February 2012, 65% of remodelers surveyed estimated that less than 10% of their potential clients were aware of the rule.
• On an early 2012 webinar with EPA Officials Regarding RRP public awareness and enforcement efforts hosted by NCHH, I asked EPA officials if they were doing any tracking to check the actual effectiveness of their outreach efforts.  They were not. 
• Essentially the answer was that EPA is not a professional marketing organization and has no way of tracking results.   But they said they will be doing more outreach…
• If EPA's outreach efforts have not produced adequate results so far, perhaps those assigned to design and implement the outreach tactics need to be held accountable to established desired results.  Spending money on outreach efforts without also measuring results is not a sound strategy for success.

Subject: Getting Firms Certified

• EPA requires all firms doing renovation, repair and painting work on homes built prior to 1978 become EPA Certified Firms before performing or offering to perform such work.
• On April 1, 1012 I gave the EPA an “F”.  It’s still an “F”
• Before the rule came into effect EPA stated it estimated 211,000 firms engaged in renovation, repair and painting needed to become certified firms.  They also recognized there were other businesses that would need to become certified firms.
• In the first two years post-RRP rule (ending in April 2012), the EPA expected 284,000 firm certifications.  Only 100,000 firms were certified, or 35% of those expected.
• As of April 2012 EPA’s EPA web site claimed that EPA had certified 97,746 firms (118,885 firms including those approved by authorized states). 
• I could not find a recent number of certified firms on the EPA web site
• According to a report by the Joint Center for Housing Studies at Harvard University, in 2007 more than 650,000 businesses received a majority of their revenue by providing remodeling services.  The pie chart below is from the report.

 

 

• The Harvard numbers do not include the large number of part-time, semi-retired, and “moonlighting” contractors reporting gross revenues of less than $25,000.   
• I think we also know there are also many illegally operating contractors, operating under the radar, which did not make it into the census count. 
• Also, the count does not appear to consider other related business types such as plumbers, electricians, wood floor refinishers, exterminators (20,000), landlords, property management firms, banks that own foreclosed properties, housing authorities, or cities/towns and municipalities (18,443).

Subject: Enforcement

• There are 13 states that have taken over the rule so far.  That leaves 37 states plus American Samoa, District of Columbia, Guam, US Virgin Islands and Puerto Rico under administration and enforcement by EPA. 
• On April 1, 2012 I gave the EPA an “F”.  It’s still an “F”
• As of April 2012 EPA had only published one enforcement action.  Several have been published since then.
• I could not find a current number of enforcement actions.  I think the state of Massachusetts, which took over the rule in Massachusetts, as one state has done much more enforcement than EPA.
• Without a plan for adequate enforcement and the money to finance adequate enforcement, the rule in its current state is not a practical solution for protecting children.
• Without adequate enforcement, complying business are essentially being punished while non-complying businesses enjoy a financial advantage in the marketplace.  This problem is also facilitated due to the lack of effective public outreach.

Subject: Protecting Children

• On April 1, 1012 I gave the EPA an “Incomplete”.  It’s still incomplete.   So, because they haven’t provided any objective metrics, they now get an “F” from me.
• It is a fact that lead is poisonous and RRP activities can cause lead poisoning.
• EPA does not know how many children were actually poisoned by RRP activities before the rule came into effect.
• If you check any of the data it refers to RRP activities as the “likely source” of lead poisoning, not “the cause”.
• EPA still has no way to know if the RRP rule is making a difference or not. 
• Without knowing where EPA started and where we are now that the rule has been in place, EPA has no idea if what they have been doing is effective enough and or if or where it can improve effectiveness within the rule. 
• Unfortunately, the rule may also be causing more children to be poisoned than before the rule came into effect, because of EPA's inability to adequately enforce it. 
• As warned by the stakeholders before the rule came into place, the RRP Rule has fostered an underground economy of contractors purposely ignoring the rule to keep prices down and improve their ability to sell jobs.

Subject: Costs vs. Benefits

Note: Info below is directly from an EPA Office of Inspector General Report dated 7/25/12 titled: “Review of Hotline Complaint Concerning Cost and Benefit Estimates for EPA’s Lead-Based Paint Rule”

• Although EPA stated that its economic analysis underwent extensive intra-Agency review and was approved by the Office of Management Budget prior to publication, EPA used limited data to develop its cost and benefit estimates for the Lead Rule.
• The estimated cleaning and containment work practice costs to comply with the rule were not based on a statistically valid survey.
• EPA did not quantitatively analyze or include other costs outlined in Agency guidance, such as costs due to increased consumer prices, costs of unemployment, and costs to markets indirectly affected by the rule.
• EPA did not include the cost to renovation businesses of securing additional liability insurance.
• EPA recommended additional work practices in a training program that, while not required by the rule, would likely result in additional cost because the regulated community would view these practices as required.

***From EPA FAQ: “And because EPA’s estimates reflect the cost to contractors, not the price paid by homeowners, the estimates do not include the contractor’s mark-up for profits."

• The report clearly stated:
• “Sound data on the rule’s benefits were not available at the time of the rulemaking, and this limitation was known to EPA and its scientific advisory committee. However, EPA went forward with the rule because its benefit-cost analysis indicated that the rule generated substantial benefits, and because EPA was legally obligated to issue the rule.”
• “In our opinion, the data limitations in EPA’s analyses limit the reliability of the rule’s stated cost and benefits. 
• “We recommend that EPA reexamine the costs and benefits of the 2008 Lead Rule and the 2010 amendment to determine whether the rule should be modified, streamlined, expanded, or repealed.

• In 2011, President Obama’s Executive Order 13563, Improving Regulation and Regulatory Review, directed all federal agencies to develop plans for periodically reviewing existing regulations to determine whether any should be modified, streamlined, expanded, or repealed.
• The 2008 Lead Rule and the 2010 amendment were not included in the scope of EPA’s regulatory review activities as required under Executive Order 13563.

Contractors, Who’s Helping You Grow Your Business and Make More Money?

Back in September I did a blog about how manufacturers and vendors partnered together with the RI Builders Association (RIBA) to offer free education to remodeling contractors and builders.  The program was really a training boot camp offered as a series of five complementary workshop sessions purposely assembled to help the attendees improve their businesses, sales volume and profitability. 

In case you missed it here is the list of boot camp topics offered:

Small Business Finances and Profit Strategies for Non-Accountants

Estimating Workshop: Know What You’re Selling Before You Sell It.

Marketing Boot Camp: Targeting the Right Customers

Sales Workshop-Smart Selling for Tough Times

Production Workshop-You Sold It Now You Need to Build It

The Boot Camp wrapped up with a production workshop

On Thursday night last week we completed the last workshop which was about production. Because of what attendees had learned at the previous workshops they could see that producing their projects could be much more efficient and profitable.  And, because of the systems and paperwork shared at the workshops, their business could now easily assemble a project handoff package that would allow their production employees to build the project on their own.  Basically, because of the help of the sponsors of these events the business owners in attendance could free up more of their time to concentrate on selling more work.   And, what they learned will help them close deals much faster.

Here are a couple of slides from the presentation:

Essentially, offering the boot camp was mutually beneficial for the sponsors and the attendees. 

Both now have the opportunity to enjoy more business!

Credit to RIBA and the sponsors!

I received a nice email message right after the sales workshop from Joe Cracco.  Joe has been the Chair of the RIBA Remodelers Committee and also is the president of Modern Yankee Builders, Inc in Cumberland RI.  Here is what Joe had to say about the boot camp:

“Thank you, Shawn, for coming to RI Builders Association's office yesterday evening to present “Smart Selling for Tough Times”.   And just as importantly, thank you to Douglas Lumber, Andersen Windows and James Hardie for sponsoring the seminar.   It was great to see a packed room...and why not?  ...free education to allow all of us in attendance to work smarter. 

I can't get over how great it is that RIBA and the sponsors are providing this opportunity.   It's evident that RIBA's commitment to education as a benefit of membership is going to be a huge value to our members...and you provide a huge value in the educational arena.  Nicely done.   I'm looking forward to the next workshop on November 14th.”

I’d like to offer a personal thank you to all the sponsors who helped make this happen.   Because of them many more contractors are enjoying better businesses, earning higher profits and their owners are sleeping better at night!

Here are all the logos of the businesses that sponsored these events.  You can click on the logos to go to the web pages for each of these businesses.

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Get Ready, Complying With the RRP Rule Will Get Much More Expensive

EPA to raise RRP fees

Businesses complying with the EPA RRP Rule should plan ahead for increased costs.  Because of EPA's mismanagement and lack of accountability regarding the RRP Rule, the actual costs to administer and enforce the rule have so far dramatically exceeded the fees collected from complying firms.   To address the shortfall of funds EPA plans to raise the fees related to the rule.  This will likely mean that the cost of firm certification and firm re-certifications will dramatically increase.  And, because the RRP rule is required to be self funding, it looks like EPA will need to raise the fees high enough to offset their losses since the program began, as well as their ongoing costs going forward.

The increased costs will definitely add to the advantages non-complying firms have been enjoying so far, further punishing legitimate businesses for complying.  I also predict the increased fees will promote more illegal work, therefore more kid will be needlessly poisoned because many in our our government are incompetent.

The amount of the EPA RRP fee increases is not yet known

Because EPA did not do an accurate estimate of program costs and revenues when they set their original fees, money coming in to support rule administration is not coming anywhere close to the actual costs.   If EPA were a for profit business they would already have gone out of business when it comes to RRP.   But, because the EPA and its leadership are not held to the same standards as for-profit businesses and business leaders, not only will they be allowed to continue operations, those at EPA who are responsible for the RRP rule get to keep their jobs and paychecks, despite such dismal performance.   And, rather than concentrate on fixing their business plan to create financial health, EPA can simply charge their customers more money.   The problem is that their customers, those who must comply with the rule, do not have any other options they can choose from to do business with.  

Here is a summary of information to help you understand what has happened and what to expect going forward

Note: Info below is from an EPA Office of Inspector General Report dated 2/20/13 titled "EPA Is Not Recovering All Its Costs of the Lead-Based Paint Fees Program”

• EPA had not conducted a formal cost study to determine its actual program costs before establishing fees.
• According to the report, EPA is losing money on the RRP program.
• Based on the agency’s estimates since the RRP rule went into effect in 2010, the total loss will amount to around $16.4 million by 2014.
• Fiscal year 2010, the first year of the rule, actually netted a profit of $8.9 million, but costs are exceeding fee collections by $25.3 million for 2011 through 2014.
• The report pointed out three issues contributing to the EPA’s unrecovered costs.

1. The agency has not conducted recommended biennial cost reviews to ensure that fees are in line with costs.  (Think WAG: "Wild Ass Guess")
2. The fee structure also does not take into account all the indirect costs needed to recover the cost of administering the RRP program.
3. RRP firm participation is lower than the EPA projected.

• The report says that by not recovering all of its program costs, “the federal government did not collect funds that otherwise could have been available to offset the federal budget deficit.” (In business speak this means they contributed to the deficit by operating beyond their means.) 
• The OIG recommends that the March 2009 fee schedule for the lead-based paint program be adjusted “to reflect the amount of fees necessary for the program to recover the costs of implementing and enforcing the program.”
• The report indicated that the EPA agrees with the recommendation and "intends" to take “corrective actions".  
• According to the report EPA agreed and plans to conduct a biennial cost review of the RRP program in Fiscal Year 2013.

Wrapping this up!

Here is what the EPA Inspector General had to say:

“The President’s Budget Message for FY 2012 states that reducing the long-term federal deficit must be a priority. The federal government is looking for ways to save money and cut unnecessary costs. We believe that EPA could help the federal government in this endeavor by collecting more lead fees to recover more of its costs"

So to save money and cut unnecessary costs, does your business raise its prices too?

Generic Contractors Are Fading Away, Brand Names Are Shining

Remember the isles of generic vegetables at the grocery stores back in the recession of the 1990's?   Just like the manufacturers of those cans of generic vegetables, during the recent recession many contractors put themselves into a commodity market where the consumer chooses product based on price.

Manufacturers of those generic foods told us what was in the can was the same thing you would get if you bought the name brand products.   They also told us that the reason they could sell at low prices was because they didn't do any advertising and skipped the fancy labels on the can.   Essentially during the recession of the early 90's manufacturers of these products were banking on cash challenged consumers being attracted to their low prices for what they claimed to be the same quality of products they would get if they purchased the more expensive name brands.

Here today, gone tomorrow

My recollection is that those products occupied a few isles at the supermarket during the early years of the recession and consumers did give them a try.  But, by the end of the recession consumers stopped buying them and the isles went away.   My theory is that consumers discovered the products weren't the same quality as the name brands, the quality of the food often varied from purchase to purchase, and even at a lower price buying them just wasn't worth it.   I can tell you from my own experience that my kids wouldn't eat the generic spinach.  For my family saving money on generic foods really didn't save us any money at all because what we bought didn't serve the purpose for buying it.

I would suggest the same thing is currently happening to many contractors who resorted to similar tactics.  To lower their prices they too at the start of the recent recession took on generic labels and stopped doing any marketing and advertising.  They also offered their services with the promise that even at low prices consumers would get the same quality project the well known name brand contractors were offering.  Like the generic food manufacturers of the 90's, now that the economy is improving, these contractors are  finding it hard to sell anything at all.

Here’s my message

This should serve as a wake-up call for contractors who want to stay in business and actually earn enough money to live well, maybe even eventually be able to retire when their body's give out due to old age.   Let's face it, if your selling strategy is to be the lowest price, you need to be the loser to win.   When consumers are short on money they may be willing to give you a try, but if your offering leaves a bad taste in their mouth they will likely go back to buying from the name brands as their income improves.

If you are having a hard time accepting my thoughts in this article just take a look around you.   All over the country I am hearing from name brand contractors who are overwhelmed with work, are raising their prices and desperately need more staff to help them get the work done.  At the same time generic contractors are complaining that they have very little work and consumers inquiring about their services are still aggressively beating them up on price.  Like the generic vegetables, I am pretty confident many contractors with generic labels will soon be gone from the isles where consumers shop for a contractor.

Think about it.  

If you brought a 30 pack of generic beer to a Super Bowl party, would your buddies let you in?

Tips For Reducing And Controlling The Effects Of Construction Allowances

If you are building custom homes or doing high end remodeling it is your responsibility to help prospects and clients understand what their project will really cost. Don’t give or let your customers use inadequate budget allowances.

Isn’t it easier for a customer to accept a credit rather than an additional cost?  

Think about it. If a prospect or client has selected a granite counter, how often will that same client choose a $5.00/ft tile backsplash? Why not set the allowances for items not yet selected to a cost consistent with what other clients have spent in the past on similar projects? Applying this strategy will help protect your margin, and could actually increase your margin, assuming that you only credit back any difference in your direct cost.

One sure way to protect your mark-up is to eliminate allowances. However, depending upon the project or client, eliminating all allowances may not always be possible. But, reducing the number of allowances may be.  

Here are some ways contractors can improve results when working with allowances

• Try to get your clients to make their selections during the design phase.
• Identify what selections must be made and provide the clients with a list. 
• To help them complete the list make showroom and or vendor suggestions. 
• To motivate them to get the list done establish the date(s) by which they must complete the list and advise you of their choices.

To start or not to start, that is the question…

Persuade the client that it is in their best interest that you not schedule the start of their project until you know the availability or lead-time of all required products. You can even blame it on company policy. “Based on past experiences, our own and those reported by other contractors and homeowners, we have made it our company policy not to start any project unless we are sure we can complete the project on time, as agreed, with the least amount of disruption for our customers.”

Make that list and work it!

When you assemble the list of allowance items include the related dollar value included for each item and a total cost allowance value for all of the items to be selected. Make sure you include a column where the client can write in their actual selections.  Then, add one more column to the list where the clients will fill out the actual cost of their individual selections and can tally up the total for comparison to your list and total cost. If you’re comfortable doing so, this is the place to include what mark-up will be added on any additional cost over the allowance total.

Many builders and remodelers report that creating and using a list often times provides the client with a sort of psychological goal of not exceeding the total allowance. Assuming you have established realistic allowances, clients will usually try to avoid any additional costs and or mark-up cost; spending more on one item only if they can save on another. 

Finding the Perfect Customers For Your Remodeling Business

Most contractors I meet are attracted to the trades and running their own businesses because they love the work.  But, when contractors allow the wrong customers to buy from them those customers can quickly take all the pleasure and reward out of being in business and working with the tools.

At the Remodeling Show last year I asked a group of seminar attendees if they had their choice of customer types who they would prefer to work for.  One contractor said he only wanted to work with “nice people”. 

His answer drew some laughs, but we all agreed it would be nice if all customers were nice.  I also asked him what he meant by nice.  His response included characteristics like pay on time, make and stick to decisions, and being kind to him and his employees; treating them with the respect and dignity they deserve.  Wouldn’t that be nice!

There are many characteristics about customers that can be used to differentiate between them.  

Each characteristic can make a difference regarding who they are and what it will be like to work with them.   If you think back on past projects you can probably identify a variety of characteristics that make up the ideal customer type for you and your business.  Who they are as people, and their personality traits, are definitely important.  Also though, just as important as the personality of customers, can be other differentiating characteristics called demographics.  Used in combination with personality traits, demographics can help contractors target market prospects who are also most likely to buy what they are selling. 

Demographics are the quantifiable statistics of a given population of people.  Smart and strategic business owners seeking to work with a specific customer type will combine several demographic variables to define the demographic profile of those customers.  Then, using that profile as a guide, they do marketing in ways and places where their target customers can be found.

Here is a partial list of customer demographics contractors can use to target their ideal customers

• Marital Status
• Gender
• Age Ranges
• Number of People in Household
• Income Information
• Actual Home Market Value (predefined ranges)
• Home Equity Loan and Amount
• Year Home Built
• Owner vs. renter
• Family Composition
• Length of Residence
• Fuel type
• Dwelling Type: Single vs. Multi-Family
• Occupation

So, give me an example of how to use customer demographics:

Here is an example of a fictitious remodeling company’s target customer description using demographics. For this example we will assume the remodeling contractor is looking to offer smaller repair type projects at high margins.

The goal of this marketing campaign is to build a customer list of people who will continually need more work due to the age of the home they live in, and or will refer the company to other people just like them who are willing to pay more to get the comfort and quality offered by a professional and legal business.  We want and will use this customer list so we can market additional services to the same homeowners in the future.

To accomplish this goal the company is looking to work with married couples who either have very young children (no time to do the work themselves) and or empty nesters (been there, done all that, want to keep my free time for outdoor activities).  Combined household income should be at least $150K so we know they can afford the work.  Target home must be built after 1977 so the RRP rule will not apply.  Target customers must either have no mortgage or a home equity loan with at least a $100K available balance so it is likely they have money to do larger projects in the future.   

Oh, and we don’t enjoy working for engineers who want to tell us how to do our jobs so will eliminate them from our mailing lists.

I'll be back at the Remodeling Show again this year. 

If you come to my sessions be sure to say hello!

"Choosing and Targeting The Right Customers and Project Types for Your Business"

"Success Starts With a Business Plan"

Helping Lead Carpenters Become Managers Benefits Them And The Business

As a construction company moves into a true Lead Carpenter system, managers and lead carpenters may become confused and insecure with the idea that the lead carpenter isn’t always “working” or “productive”; at least in the traditional sense.  Knowing in advance that this can actually happen is a great way of avoiding the confusion and insecurities.  A lead carpenter in training might not necessarily like what’s happening, but being forewarned and understanding that this is a typical side effect helps to relieve the stress and speed up the transition.

Motivating them to make the changes

It’s a fact of human nature for any of us; being required to leave our comfort zone for a new way of doing things creates resistance.  You can defuse that resistance by helping your leads discover the new opportunities this change can bring about for them as well as your business.

For them: A chance to create their own destiny:

With the right manager and company, a good lead carpenter has a huge opportunity for personal and professional growth. Proper training as well as the ability to implement what is learned creates many opportunities for a lead carpenter. As we implemented the system at my remodeling company, our leads discovered that this new role generated a variety of benefits for them. For example; our leads discovered that they could delegate to others those activities that they preferred not to do.  At first this included activities like roofing, insulation and siding. Soon they discovered that if they could find a landscape subcontractor to supply laborers to dig footing holes, they no longer had to dig those holes (provided the cost was within the project’s budget, including the lead’s management time).

For the Lead Carpenter it created a way to control what they did and didn’t do on each project. They also recognized that they had more physical energy left on Friday afternoon. This was an immediate benefit to their social and family lives, but was also a long-term benefit in terms of their careers. Mastering a lead carpenter system certainly can prepare that person for future management roles, or simply allow a carpenter’s body to make it until retirement.

Benefits to the business:

As a company, we discovered that these personal benefits for our leads had created other residual beneficial effects we had not originally anticipated. This type of delegation quickly became a way of doing business.  As the company grew, the need for more subcontractors grew as well. Soon our leads were finding, qualifying and developing relationships with new subs.  They were also helping us find good carpenters to hire who also wanted to become lead carpenters.  The benefits to the business were many…  

Some of the benefits my company came to realize included:

1. The ability to grow the business quickly but with control
2. More sub contractors to choose from, particularly when current subs can’t meet the scheduling requirements of a growing company
3. Higher volume of production without increasing the number of production employees
4. Fewer risks of losing and replacing in-house production employees
5. Subs observe your company style and culture, like it, buy into it, and might even consider becoming an employee
6. Provides a great way to discover and observe potential employees
7. Might unleash hidden talents in your current employees
8. Customers will love the efficiency and quality of an organized and talented production team
9. Customer satisfaction is easier to achieve
10. Customers want “their lead carpenter” to return for their next project
11. The business makes more money
12. The owner and management staff can concentrate their efforts on other pressing issues or new business opportunities