Subscribe to the Design/Builders Blog

The Design Builder's Blog

Why Building a Backlog of Work Could Cost Some Contractors a Lot of Money

Posted by Shawn McCadden on Tue, Feb 10,2015 @ 08:44 AM

Why Building a Backlog of Work Could Cost Some Contractors a Lot of Money

Why contractors lose moneyBuilders, remodelers and lumber dealers often get in trouble with lumber framing packages by overlooking the obvious…the volatile lumber market. Most contractors and lumber dealers do not have the luxury of pricing a job today, signing it tomorrow and buying the required materials the next day. By the time a job is priced, signed and the lumber gets delivered to the jobsite 30, 60 or even 90 or more days may have passed and lumber prices may have changed as much as 20%. At the Estimating Workshops I offer this concern comes up quite often and attendees often share how their profits are affected as a result.

 

An educated guess is much better than a Wild Ass Guess!

Matt Layman is the publisher of The Layman’s Lumber Guide. I met Matt through LinkedIn. His expertise is forecasting “when” lumber market pricing will change. Having and using the information he assembles through his research can help contractors and lumber dealers price future jobs involving framing materials with precision.

 

According to Matt lumber prices are reported twice weekly.

Framing_lumber-wrHe says some weeks do not change at all. However he also points out that 70% of the time they do change by an average 2.5% each week or 10% per month.   Based on those realities a contractor who estimates a framing package using today’s lumber costs at $10,000 may end actually paying over $13,000 for that same package 90 days later. For those of you who understand how margins and markups work, not only will the contractor have lost the $3300 due to price increases, but also the gross profit margin on that difference. At a 50% markup that’s another $1650 of gross profit that could have been included in the sell price to help cover overhead and profit.

If as a contractor you buy a lot of framing materials you may want to consider subscribing to Matt’s monthly publication called the Lumber Market Blueprint. I also think lumber dealers serving contractors could share this information with their customers on a regular basis. Doing so would be a great service that could help differentiate them in the marketplace.

 

Lumber Market Blueprint

The image above is an excerpt from the February issue of Matt’s Lumber Market Blueprint. Notice that the information not only includes his predictions for the next 30, 60 and 90 days, he also offers some insight as to why he makes his predictions. I suggest by knowing the why’s behind his predictions you can consider your own pricing adjustments if for any reason conditions change dramatically during the month.

 

I appreciate Matt allowing me to share this information with you.

If you are a contractor do any of your lumber dealers share this kind of info with you?   If so, it would be great if you shared the name of the dealer with us as well as an example about how the information has helped you.

 

Topics: Job Costing Considerations, LBM Related Topics, LBM Dealer Topics, Estimating, Cash Flow, Production Considerations, Estimating Considerations, Keeping More Money, Business Planning, Plans and Specifications

Update On The Lowes 2X4 Story And Controversy

Posted by Shawn McCadden on Tue, Sep 16,2014 @ 06:00 AM

Update On The Lowes 2X4 Story and Controversy

Lowes 2x4 story update

 

Last week on September 9, 2014 I posted a blog titled California Judge May Have Created Huge Challenges for Contractors.  At that time the information reported indicated that a California Superior Court judge by the name of Paul M. Haakenson had ordered Lowes to pay $1.6 million dollars for selling 2x4’s that are not really 2” x 4”.   The story and my blog caught quite a bit of attention in the construction and building materials industries.   Additional information has now surfaced.

 

Some clarifications

I had originally found the information in an article posted to ProSales magazine, a publication for professional building products dealers.  Remodeling magazine recently posted an update about the story, offering some clarifications provided by the West Coast Lumber & Building Material Association (WCLBMA).  In the article WCLBMA clarified the $1.6 million final judgment Lowe's reached with the State of California appears, at least in part, to involve labeling certain non-wood products as wood as well as the incorrect labeling of certain other lumber products.

In an August 27th press release by Marin County, the county where a local weights and measures division visited one of Lowes’ retail store locations, said the district attorneys' civil enforcement action claimed that "Lowe’s stores throughout the state unlawfully advertised structural dimensional building products for sale and those advertisements stated, contained, and described product dimensions that were not the actual product dimensions".  The press release also states; “The judgment requires Lowe's to immediately remove products from sale or correct false, misleading, deceptive or inaccurate product descriptions when Lowe's knows or should know that the product descriptions are untrue or misleading”.

 

Don't blame the source

Lowes 2x4 challengesIt would appear that in the original interview ProSales had with Lowes about the story the fact that Lowes was selling 2x4’s that did not meet the standard accepted size of 1 ½” x 3 ½” was a detail left out of the interview.  I say this with a high level of confidence because I find ProSales to be consistently accurate and the magazine editor, Craig Webb, does a great job vetting the information being published. 

 

Do contractors still have plenty of reason for concern?

On the other hand I and many of the commenters at my blog are still concerned about the ruling details Lowes and other retailers must now follow.   According to another ProSales article Judge Haakenson’s order lists the following three main rules for the retailer to follow going forward:

  • "Common descriptions" must be followed by actual dimensions and labeled as such. For instance, a 2x4 must be followed with a disclaimer that the wood is actually 1.5-inches by 3.5-inches and include a phrase equal or similar to "actual dimensions."
  • "Popular or common product description," like the word 2x4, must be "clearly described as 'popular name,' 'popular description,' or 'commonly called.'"
  • Dimension descriptions are required to use the "inch-pound unit", meaning they must include abbreviations such as "in., ft., or yd.," and can't use symbols like ' or '' to denote measurements.

 

Regulations affecting contractorsThe concern I am expressing is  if these rules apply to retailers will they also apply to contractors? If they do, or eventually will, contractors in California and the rest of the country may also run into challenges not only with the government, but also with their customers.   Perhaps trade associations such as NAHB and NARI should proactively seek out the answer to this question to help guide and protect their members and the rest of the construction industry.   The RRP Rule came about because our industry didn’t proactively deal with the hazards of lead during construction on its own before the government stepped in and dictated regulations many do not agree with.  

 

Perhaps this case against Lowes can serve as a warning and the industry can get out ahead of what the government could require of contractors.  If these are or do become requirements contractors must follow perhaps the trade associations and industry publications can inform contractors before they experience costly challenges that could put them out of business.

 

What are your thoughts? 

Are you concerned enough to ask your trade association to look into this? 

 

Note:

Click here for an update on this story

 

 

 

Topics: LBM Related Topics, LBM Dealer Topics, Legal Related, Government Regulations, Shawn's Predictions

Will LBM Dealers Be Ready For The Next Generation of Contractors?

Posted by Shawn McCadden on Tue, Feb 18,2014 @ 08:00 AM

LBM Dealers, Will You Be Ready For The Next Generation of Contractors?

Next generation of contractors

I hate to be the bearer of bad news; I’m really just the messenger.  Servicing and doing business with contractors is about to change dramatically, again.  That’s right, after the home building crash, if as an LBM Dealer you thought you had finally figured out how to get business from the remaining contractors, get ready, things are about to change, again! 

At the upcoming NRLA LBM EXPO in Boston I will be presenting a lunchtime seminar for LBM Dealers on this topic titled “Will Your LBM Business Be Ready for the Next Generation of Contractors?”  This blog will give you an idea of what the seminar will include.  I hope you can attend.

 

Many LBM Dealers struggled to make it through the recession. A good number of them stayed alive by finding better ways to service and sell to remodelers.  Savvy dealers quickly identified the unique differences between remodelers and builders.  Realizing the differences they changed things like their selling methods, pricing strategies and product offerings to capture needed business and revenue.   As a result many remodeling businesses enjoyed much better service and could offer their clients a greater variety of products and price points.  Dealers who did not make the changes, or didn’t make significant enough changes, ended up closing their doors and or were bought up by larger dealers.

 

The mindset of the contractor will be changing

Generation Y contractorsOne thing that remained fairly constant during this evolution was who the contractors were and how they did business.   For decades the majority of contractors operated their businesses as technicians.   They thought of themselves as contractors, not construction business owners.   The joy of building things and advancing their trade skills where the driving factors that made them who they were.   As a result of this mentality, and the fact that there was almost always way more work available than contractors to do it, they could command profitable prices.  And unfortunately, at the same time, they could also get by with poor business practices in the areas of sales, marketing and accounting. 

Now is the time to recognize almost everything in the residential construction industry we could assume to be considered the norm about contractors, the marketplace and doing business will be going away.  A new generation of contractors is rising to the surface.  This next generation won’t accept the old ways of doing things.  Get ready for Generation Y!

 

Here are several factors causing and or contributing to the coming changes

    • About nine of every ten remodeling contractors go out of business within ten years of getting started.  That means the construction industry has a new generation of remodeling business owners about every ten years, regardless of other factors. 
    • Employees who worked at failed firms often start their own businesses.
    • Due to their age and physical abilities, a good number of baby boomer contractors will also be retiring.   Many of these businesses will either be led by the next generation of the family or will simply close up shop.
    • Many “old school” contractors who operated on “low bid” will need to work until they retire, die or their bodies give out due to a lack of retirement savings.
    • Many older contractors will end up working for more savvy younger construction business owners.
    • The next generation of remodeling and construction company owners will come from members of Generation Y. 

Next generation of contractors

 

They are tech savvy and ready to take on the world 

At about 80 million strong, Generation Y is hell-bent on changing the world and is totally impatient with outdated business models.   How they will do business and how they will buy what they need from LBM dealers will be dramatically different than what dealers have experienced from all previous generations of contractors. Use of technology, theirs and yours, will be the biggest factor.

Dealers and their staff will first need to recognize that this change is coming and that it will be significant.  Then they will need to learn about these new contractors and embrace the changes needed if they want to be ready for Generation Y as they arrive.   If not ready for Gen Y, like the “old school” contractors, LBM businesses will eventually end up closing their doors, seeking new leadership to survive, or be swallowed up by dealers who were the early adopters of new ways of doing business.

 

 

 

Topics: LBM Related Topics, LBM Dealer Topics, Future of the Remodeling Industry, Generation Y, Shawn's Predictions

Contractors Are You Sure You Are Working With The Right Vendors?

Posted by Shawn McCadden on Sun, May 19,2013 @ 11:02 AM

The Marketplace is Improving; Are You Sure You Are Working With The Right Vendors?

Building product supply and demand

The marketplace seems to be picking up for contractors.  Many are reporting increased leads and sales.  With increased demand for the products contractors need to build their projects we will definitely see supply and demand challenges with local lumberyards, the big boxes and specialty product vendors.  This supply and demand challenge is one of the reasons many in the construction industry are predicting as much as a 25% increase in cost on many building products.  Although contractors need to be aware of these increases as they price their projects, I suggest they also need to make sure the vendors and suppliers they purchase their materials and products from will be prepared for the increased demand.

If you are a contractor who has been buying on price from vendors who have been selling on low price to get your business, you might want to think twice.   If that vendor has a good business, low or no debt and is using efficient business systems and technology to keep their costs low, you may be OK.  But if your vendor has very high debt, has cut back on staffing, equipment and service, just so they could sell at low prices, their business may not be prepared for a surge in sales as the economy improves.


Choosing and keeping the right building product dealers for your business and your customers

Here are some things to think about regarding the vendors you are currently using.  This same list can also help you decide which vendor or vendors you should work with going forward:

    • Many lumberyards and specialty dealers are short staffed.   To save money and to stay in business many of these businesses have reduced staff during the recession and often times the people they let go were the higher paid employees.   If this is a tactic any of your suppliers used they may have let go many of their most knowledgeable staff.   The remaining staff, often less skilled and far less knowledgeable about building products, construction and contractors, will be challenged to serve contractors as the number of contractors doing work and buying materials picks up.
    • Lumber supply and demandBuilding product suppliers who have high debt may not be able to finance the cost of increasing their inventories to keep up with the predicted supply and demand challenges as the economy improves.   If this happens at your supplier you may find that many products, even common commodities like framing lumber, will be out of stock.  Imagine going to the lumberyard first thing in the morning to get the materials you need to frame a deck or reframe that kitchen, only to find out you can’t get what you need.  To keep working that day you might have to pay for longer lengths than you need, or might even have to drive to a different supplier in the hopes that they will have what you need so you can work that day.  Remember, if you lose two hours chasing materials, in reality you also lost two hours of productive time on the job.   That would mean you lost a total of four hours you could have billed your client for if the materials were already at the jobsite.
    • Choosing building product vendorsLumber and building materials dealers who cut back on staff may also be challenged to help you sell to your customers.   If you had a customer who wanted to see the door, cabinets or windows you recommend, will you be able to send them down to your local supplier to see the products they are looking for?  What is the condition of the showroom?  Is there going to be anyone there to make and take the time to meet with and help your customer?   Will the person working at that dealer have the sales skills, product knowledge and knowledge about you and your business to help you make the sale?

 

The risks of low price

Selling on low price typically puts any business on a path to failure.  Sure, it may seem to help things at first when money gets tight.  However, unless they can ramp up their businesses, and do so before the market place improves, they will be forced to play a game of keep up and catch up as their customers’ needs and demands for products and service increases.   Working with a low price vendor might seem attractive, but can you be confident they will have what you need when you needed it?   If they require a deposit on special order items, are you confident they will still be in business by the time you expect delivery of what you ordered?   What will your customers think of you and your business if their project start date gets delayed and or the completion date gets extended because you can’t get what you need from your vendors to keep their project and your business on schedule?


Summary

Low price LBM dealers

 

Choosing the wrong vendors by saving a few bucks on materials may cost you and your construction business lots of wasted time, money and the valuable referrals your business has enjoyed from what used to be happy customers.  I highly recommend you choose your vendors wisely!



Topics: New Business Realities, Working with Vendors, LBM Related Topics, LBM Dealer Topics, Business Growth, Production Considerations, Building Relationships, Customer Relations, Keeping More Money, Sage Advice, Shawn's Predictions

Help For LBM Dealers Planning Contractor Education Events

Posted by Shawn McCadden on Tue, Apr 02,2013 @ 06:00 AM

Free Webinar: Help For LBM Dealers Planning Contractor Education Events

One big win-win for building material dealers and their contractor customers is offering contractor education.  By helping contractors improve their businesses, and advance the trade skills of their employees, contractors can do more business and improve profitability.   If the contractor can increase the amount of business he or she does, the supplier benefits as well because that contractor will likely need to buy more products and services from the dealer.  Helping contractors grow their business is also a great way for LBM dealers to initiate and expand upon the creation of mutually beneficial relationships with their contractor customers.

Planning a contractor Training Event

For suppliers and manufacturers, planning a successful educational event for contractors takes a lot of work and time.   Many factors go into planning, promoting and executing an event that will provide value for the attendees, the dealer as well as any event sponsors.  However, if planned and executed correctly, educational events for contractors will not only attract attendees for the first time, the events should also make attendees want to keep coming back for more!


planning a training event for contractors

If you are a LBM dealer thinking about holding your first educational event, or want to improve results at your next event, consider attending an upcoming webinar I will be presenting on April 11th, 2013 titled “Planning and Delivering Educational Events to Maximize Your ROI”  The webinar will be hosted by BuilderLink.

 Click here now to register for the webinar

Webinar for LBM Dealers

 

If you are a contractor looking to encourage educational events at your lumberyard or supplier, consider forwarding this article to them.  By attending the webinar dealers and their staff can learn how to plan a great event, choose topics and speakers that will help you grow your business, and make sure the event will be fun and entertaining to attend.

 

Here’s a partial list of how attendees will benefit by attending this webinar

  • Learn some creative ways to promote the event, attract contractor attendees and get them to show up!
  • We will explore seminar topic ideas that can be beneficial and profitable for the contractors as well as the dealer.
  • Learn several very important things to consider before choosing a presenter/speaker.
  • Learn several ways to maximize the investment for the dealer and sponsor(s); before, during and after the event.

 

Speaker for contractor education event

Other LBM Dealer Related Articles:

Lumberyard Ambassadors - Partnering With A Lumber Dealer’s Yard Staff

Understanding and Selling the Many Shades of Green

 

 

Topics: Remodeler Education, Contractor Training, Working with Vendors, LBM Dealer Topics, Success Strategies, Worker Training, Differentiating your Business