The Design Builder's Blog

More Work Coming In Than You Can Produce? – Here’s Some Guidance and Advice

The Joint Center for Housing Studies at Harvard University indicates that the dollars spent on remodeling will increase by 8.6% by the end of 2016.   Most remodelers are already feeling this surge in spending as their backlog of work keeps increasing and at the same time the number of estimates they need to push out is also increasing.  Smart business owners seeing this happening are already increasing their field staff capacity to take advantage of the work.  Adding staff can help get more work done.  However if production efficiency and organization are challenged due to the growth profits can quickly drop. To help these contractors out I have searched out and assembled the list of articles below. Each article is helpful, but collectively they can help identify a plan of action contractors can take to protect the profits they expect to earn by growing their businesses.

A good number of contractors have been contacting me for help in this area.  Most share now that they have more staff they are challenged to properly manage them and the sequence of work. Others report they have come to realize they may have hired the wrong staff.  The solutions to these problems are actually not that difficult to put in place.  What typically gets in the way is not knowing what systems to put in place to support the growth and how to get things started. 

Here is one message I got just today, from an employee:

“Hello. I was hired 3 years ago as an estimator. We had 2 carpenters and a super. We now have grown into 7 carpenters, super, production manager and additional secretary. None of our carpenters are "lead carpenters" but about 4 think they are. We are experiencing some growing pains for sure so any input would help. Thanks.”

So, here is my list of helpful articles for contractors seeking to advance and grow their production capabilities.  The articles will help enlighten you to what your options are as well as several important considerations to be aware of before you jump in and get things started. I hope you find the info helpful and motivating.

List of articles about growing production capacity at a Remodeling Company:

Options for Managing Production

What’s the Difference Between a Production Manager and a Production Supervisor?

All I want for Christmas… Is a Real Production Manager!

Is He Really a Lead Carpenter?

Key Differences Between Carpenters and Great Lead Carpenters: Part 1

Key Differences Between Carpenters and Great Lead Carpenters: Part 2

Checklist for Implementing the Lead Carpenter System

Considerations for Putting the Right Employee on the Right Job

Help With Evolving From Contractor to Construction Business Owner

Think Twice Before You Use Subs or 1099’s Who Can’t Speak English; Here’s 2 Simple Reasons Why

The government has recently been cracking down on improper classification of workers as subcontractors.  Understanding the difference, at least in the eyes of the government, can help a remodeler avoid challenges as well as the fines and penalties that come with misclassification.  I recently became aware of an additional consideration as a result of reading an article in Remodeling magazine titled “Se Habla Ingles + No = No Deal? Get Real!”   After reading the article, but particularly the reader comments, that new consideration jumped out at me.  Using subcontractors and or 1099 workers who do not speak English can put your remodeling business at risk in at least two costly ways.

Two simple ways the language barrier can put your remodeling or construction business at risk

#1: Customer service can be compromised leading to loss of repeat work and referrals.  

Let’s face facts here; if a worker cannot speak English there will definitely be communication challenges.  This is clearly demonstrated by the comment left at the article I mentioned above.  The comment was by Perry, an actual consumer who personally experienced the challenges and disappointments caused both by the workers who could not adequately understand English as well as the business that hired them:

“It's difficult to quantify or fully explain in this comment the magnitude of problems we've had on our current job, but approximately half the problems can be traced directly back to a communication problem with the workers at the site.  I witnessed our job supervisor explaining what was needed (in as good a Spanish as he could muster), the worker acknowledging his understanding, and hours later when the completed work is inspected, it's clear the worker did not understand exactly what was needed.  This has happened repeatedly, with some of the mistakes far more costly than others.”

When a customer experiences what Perry speaks to its not likely the contractor performing the work will ever get future business or referrals from the disappointed customer.  Remember, quality is not just determined by the final outcome.  Quality is also determined by the experience the consumer has as the product is being delivered.

#2: Risk of the government deciding they are employees

Contractors should be using fixed scope contracts with subcontractors.  Subcontractor agreements should detail the work to be completed, the expected outcome, when it has to be completed and include a fixed price for the services performed.  If a subcontractor and or his/her workers cannot read a written work order due to a language barrier someone outside the subcontractor’s business will have to explain what is to be done and how it is to be done to the subcontractor.   And in the absence of the subcontractor at the jobsite someone will need to explain and direct that sub’s employees.    This type of relationship with a sub and or the sub’s employees demonstrates control by the business that hired the subcontractor.

The IRS will consider a worker to be an employee unless independent contractor status is clearly indicated by the relationship between the worker and a remodeling business.   The way the IRS sees it an employee is a worker who performs services at the direction of an employer.  Subcontractors are considered to be in business for themselves and work under their own direction.  So simply stated anyone who performs services for a remodeler is an employee if the remodeler can and or does control what will be done and how it will be done.  Explaining things to a worker and orally directing how and in what order to perform their work therefore makes the worker an employee.

The fines and penalties for misclassification can ruin your business

As I pointed out in a previous blog post the determination by the government of misclassification of workers can be caused by many reasons.  Plus when it happens the government assumes you to be guilty until you prove your innocence.   If you cannot create a written subcontractor agreement, in the language of the subs you work with which details the scope of work they are to perform independently, you and or your business will be forced to orally direct the work of the subs.  Once you do that the government no longer classifies them as subs, but rather as employees.  That is therefore misclassification.   According to an article at workcompcentral, in Tennessee a company by the name of Aguilar Carpentry was caught misclassifying workers and was fined $73,000.  In another article posted to WTNH.com a CT contractor was fined $20,240 for misclassification. Those fine amounts would put most remodelers out of business.

Still unsure about your relationship with sub? Here are three possible options

For a quick answer perhaps just take the quiz Remodeling Magazine recently offered titled:  "Take the Quiz: Are You Misclassifying Your Subcontractor?"  Answer the questions honestly and then see if the government would call them subs or employees.  

If you want help from the IRS and you have a lot of time to wait you can use IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.   The completed form can be filed with the IRS by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.  Unfortunately it can take at least six months to get a determination.  Additionally, often times because determining factors used by the government are not always objective, the determination may not binding.

Five Things I Wish the Remodeling Industry Would Change In 2016, But won’t

The majority of remodeling contractors who participate in the remodeling industry are holding the industry back from becoming much more professional and successful.   Remodelers forever complain about what they perceive the government and even consumers do to them to make running a business and earning a profit difficult. However in many ways remodelers are their own worse enemies, creating problems for themselves and the industry by both their actions as well as their lack of action.   Below are just five things I wish all remodelers and the industry would change, but won’t.  

Before you check out my list keep this in mind.  If you’re a remodeler and you eliminate and or address most of these things in your business you will stand out as different.  You will also be more successful, be at much less risk and can also make much more money.

#1: Stop calling them estimates, they are not estimates

Home owners ask for estimates. In most cases they don’t want a guess, they want a fixed price. Next time a consumer asks for an estimate give them one right away; “That will cost somewhere between an arm and a leg depending on your final product selections”. Then help them discover what it will really take to help them assemble a fixed price for a fixed scope of work that meets their needs. Then let them know how your professional services can help them do so; and what you charge for those services. One way to explain it is your estimates are free, you charge to help develop solutions… (Check out this Design/Build Agreement)

#2: Calling Employees Lead Carpenters when they are not

Although most remodelers really don’t know what a true lead carpenter is many claim they have several on staff.   If you don’t believe me read this job description first, then ask a few to define the difference between a carpenter and a lead carpenter.  Giving the title to an employee who is not a true lead carpenter does a disservice to the employee and misleads consumers. It’s like passing off roof cement as a flashing. It’s just not right to do so if you are really a roofer. Becoming a Lead Carpenter is an accomplishment, let’s reserve the title for those who have earned it.

#3: Claiming to be Design/Builders when they are not

Like Yoda said; “Do or do not, there is no try”. You either are a Design/Builder or you are not. If you allow others to bid on and or build from your plans you are not a Design/Builder; that is something else. Decide what you are or will be. There is a big difference between Design/Build and design-bid. (Design/Build definition) Remember, in a bid situation it’s often the biggest loser who wins! If you hate bidding become a real Design/Builder. That’s what motivated me to become a Design/Builder when I had my business.

#4: Guessing at what markup to use

Surveys of the industry as well as my own experience show that at least 85% of remodeling contractors have no idea how to figure out what markup to use.   Our industry even has a name for this; “The Wild Ass Guess”. Sadly, many remodelers are even under the false impression that markup and margin mean the same thing! What does it say about an industry when so many of its business owners are ignorant about what they need to charge to be successful and profitable? (The Five Biggest Financial Related Mistakes Contractors Make)

#5: Tolerating illegally operating business

There are probably more than one million remodeling businesses in the United States if you include those without payroll.   Sadly, I bet fewer than 20% operate completely legal. That’s probably why so many remodelers find some way to rationalize why they tolerate other illegal businesses; “People who live in glass houses shouldn’t throw stones”. Here is just a partial checklist you can use to self-assess: RRP, OSHA, permits, using 1099 workers, taking cash, proper licensing…   Need I go on?  (10 Steps To Building A Successful Construction Company)

What about you?   What would you like to see change in the remodeling industry? Please offer your perspectives by posting a comment, or two.

Is It Worth It To Risk Using 1099 Workers To Avoid Employee Responsibilities?

Many contractors are using what are refer to as 1099 workers to avoid employee and payroll related administrative responsibilities and financial costs.  Some use this tactic to reduce their costs to help win bids and or make more money. If you never get caught you may feel or believe it was worth it. On the other hand if you get caught, whether you knew what you were doing was illegal or you really believed what you were doing was OK, the financial and litigation related costs can kill your business. The chance of this happening has dramatically increased in certain areas of the country because Washington is offering money to states to help them do so. Read on to find out about what is already happening in Virginia.

In a well written article written by Courtney Malveaux of Thompson McMullan PC, Courtney shares a scary story where a GC jobsite is inspected by VA’s version of OSHA and makes and on-site determination that certain “Independent Contractors” were actually employees, triggering the automatic loss of any ability to negotiate violation penalty reductions. The story gets much scarier as you read on; I suggest you read the whole article.

“Under the new policy, if the inspector declares that your contractors should be considered employees, watch out.  You’re paying full freight on each penalty, without exception.  Your only recourse would be legal action.” Courtney Malveaux

Guilty until proven innocent

The part I found most scary in the story was that the contractors who take this risk, for whatever reason they justify doing so, are automatically assumed to be guilty by the inspectors.   If that happens to you it means you are guilty until proven innocent, at your own expense to try to do so. And, even if you eventually win your legal battle, you are not entitled to receive any damages for your challenges. So your legal fees cannot be recouped.

That means you have to pay up on any fines, at their full rate (anywhere from $7K to 70K per violation) right away. Then you have to decide if you are willing to wait for your legal case to make it through a legal system sponsored by the same entity that is accusing your business.

Collateral damages may be unavoidable

From what I have witness I know the story can go even further than explained in the article. For example if the 1099’s are deemed to be employees you may also become responsible for all employment related taxes on all the money you have paid to them to date, plus fines of course. The same may happen with Workers Compensation and General Liability insurance coverage. Again the likelihood of these things happening has also become more likely. For example in Massachusetts several different state departments are participating in a memorandum of understanding, committing to refer observed violators discovered by each department to the other departments. In a 2012 article I reported on how OSHA and EPA have done the same regarding RRP Inspections.

The Bottom Line

As a business owner only you can decide the level of risk you are willing to take on by avoiding employment responsibilities. I recognize by doing so you may be saving your business and your customers money. At the same time by doing so perhaps both of you are preventing a worker, or many workers, from having the employment rights and benefits your customers expect and even demand at their jobs. Some know they are doing it. Some, I hope, just found out.

Now Might Be a Good Time to Remodel How and Why You Do Marketing

On April 2^nd, 2015 I presented a half day marketing workshop titled "Choosing and Targeting the Right Customers and Projects Types for Your Business". The workshop was billed as the keynote session for the Builders Association of the Twin Cities (BATC) annual trade show in Minneapolis.   At the workshop I shared new ways contractors can think about and do their marketing so they can attract their desired customer and job types. It’s what I call strategic marketing.   For those of you who missed the workshop here are some of the key points we discussed at the workshop.

Take advantage of the timing 

The economy and residential construction are both picking up.  At the same time the majority of attendees agreed with me in that we are not yet confident that the pace of the current surge will be sustainable considering the uncertainties businesses and consumers still have about the economy.  With that in mind this is however a good time to take advantage of the surge to concentrate on developing market share in a strategic way.  It’s my opinion that most contractors would benefit from becoming a specialist in what they do and how they do it.  After all specialists typically command higher prices than generalists.  And, true specialists are always in demand, even in down economic times. Now is a good time to specialize, as long as you also work on branding to establish and maintain your position as a specialist in your desired market areas.

Here are some specific tactics contractors can consider and use to strategically build market share

Pick your customers, don't let them pick you:

Stop taking just any customers and jobs.  Be selective about who you will let become your customers.  For example why not only work with people who would say they are "working with" you, not those who would say you are "working for them".   Also, be selective about the project types you go after.   For example why not attract people who want high quality products.  If you sell using one markup across all cost categories the gross profit dollars earned on material intensive projects due to higher price point products is an easier way to meet overhead and net profit goals, both now and in the future, particularly when compared to selling and producing labor intensive projects.

Stop competing, differentiate:

Being different comes with pros and cons

If you decide to use these example strategies many prospects will go away.  However, the ones that see value in your differences will become cogs in your new referral generating machine and will pre-sell the value of your differences to their referrals so you won't have to.  I call those types of referrals "layups".

Think of how you do marketing in a new way

The old traditional marketing methods of trying to find prospects who want your services now and interrupting them to get their attention no longer work.  Today consumers are the ones deciding how they will find and qualify their project ideas as well as the contractor they will work with.  Instead use inbound marketing tactics that help consumers find your business.  This should be one of the two primary purposes of your marketing and can be accomplished on your web site using SEO tactics and good content on your site’s pages as well as your blog.  The other primary purpose of your marketing, particularly at your web site, should be to help prospects decide if what you offer and how you do business are right for them.  In other words your marketing should help them prequalify themselves so they either want to contact you or know they shouldn't.

Final Thought- Marketing shouldn't just be limited to creating leads

At the workshop I also shared one more new way to use your marketing; to advance the sales process.  Consumers want to gather information and ideas about their project, but they want to be sure they are getting accurate and useful information.  Savvy contractors are now using the content at their web sites to educate consumers before they call to setup an appointment with a contractor.  This saves both the prospect and the contractor a lot of valuable time.  In addition to offering project and product related information, you can also educate them about how and why you do business the way you do.  This can not only speed up the sales process, it can also help clearly differentiate your business and therefore improve the quality of your leads.

Contractors, Is Your Pricing Really Fair?  

I often hear contractors say they offer fair pricing.   When I ask them what they mean by that most really can't provide a logical answer, or their answer is subjective. It got me to thinking about what fair pricing really is.  I came up with three considerations I think make a contractor's pricing fair to their customers, but also to their business as well as their employees.  Let me know what you think.

#1: Your markup is established using math, not a Wild Ass Guess (WAG)

Your pricing will be fair if the markup your company uses to price your projects is based on a budget that identifies your true overhead costs for running a professional operation and a respectable net profit.   I suggest if you run your business, but don't work in the field, you shoot for a salary at 10% of your produced volume as well as a 10% net profit for the risk of being in business.  Remember, if you don't work in the field your salary is considered overhead.  If you do work in the field be sure to split your time and related salary appropriately between direct job costs before markup for your hammer swinging activities and the balance for your time under overhead for your business management efforts.

Your overhead will be fair if you include enough money to properly manage your business, market to the right customers and adequately staff your office so you’re not a slave to your business.  Therefore, your price will be fair if your markup is fair. Click here to read an article on how to calculate your markup using simple math.

#2: You pay and treat your employees as professionals

I would suspect most contractors work for customers who have good jobs offering decent pay for the job performed, workers compensation coverage, benefits like vacation and holiday pay so they can enjoy life, health insurance so they can stay healthy and retirement contributions so they can save for a comfortable retirement.  I bet if their employers took any of those things away from them “it wouldn’t be fair”.

Therefore your pricing is fair if it includes enough money to offer those same things to you and your employees.   Perhaps remodeling prospects who don’t think paying enough so you can offer those things aren’t being fair to you and or your employees when they hire contractors who pay their employees under the table or as 1099 subs.

#3: When consumers buy from illegal businesses they aren’t being fair to any of us.

Home owners who work with illegally operating contractors aren’t being fair.   If contractors ignore RRP requirements, that’s their choice, but it’s not fair to legal business, or to those who end up getting lead poisoning as a result.   When they buy from unlicensed contractors when licensing is required, or purposely do the work without a building permit, that’s not fair. And when they knowingly work with contractors who operate this way, then sue them because they can, that’s not fair either.

If you and your business comply with these things and many others such as OSHA regulations and payroll taxes at your business, and charge appropriately for them, it is my opinion that your pricing is fair.

Are my article and my opinions fair? 

Let me know what you think. Did I miss some things you think should be considered regarding fair pricing?  Do you disagree with my thoughts? If you don’t share your opinions, maybe you’re not being fair either?

Guest Blog: As Designers, Are We Honest in our Business Dealings?

In the design industry we have many challenges besides meeting the concerns, wants, and needs of our precious clients. Many businesses have resorted to marketing on the basis of something for free. It prompts clients to want what is offered for free, however, at the same time, causes the knee jerk reaction question to arise, “How can it be free, what’s the catch”?
This poses itself as one of the challenges most noteworthy; the honest perception of value that is created. For a certainty, most trends are to downplay, for market segmenting purposes, the true value of reputable trades or product.

As designers we need to realize that no sale is really complete until a successful installation of product or service has been provided for the paying, trusting client. This client in-turn may or may not be a super advocate for our business’ success, depending on the final result.

Wouldn’t it make sense as designers to present all services and products in the true light of actual cost, thus leveling the playing field by being honest in our business dealings? Is it not tantamount to lying to present design or trade services as something that can be commoditized for less than its true value, or for free, when we know it isn’t?

To advertise something for “free” in reality means something else needs to recoup the costs related to the “free” product or service. This is, in all respects, “Bait and Switch” by offering something for free that really isn’t. Doing so may call into question being honest in our business dealings.

“Bait and Switch” tactics are used all the time by many larger corporations and have severely damaged flooring installation, renovation, carpet cleaning, vacuum sales and services, design agent services, product value and the like. The result leaves well intentioned clients in a quandary of who, why and what they can trust.

All operations that work on lowest price marketing set everyone up for failure and feed our waste facilities with massive amounts of materials, due to bad decisions made as a direct result of unscrupulous enterprises who are in it just for the money and opportune themselves to the consumer disposition being taught today. It may be manufacturers, distributors, retailers, advantage driven designers and sales persons who are not honest in their business dealings. Full disclosure of what is lacking in the offer is skillfully sold over to reap unjust profits, at the expense of the honest and unwary, with no regard to the environmental impact.


Lowest cost marketing is not being honest in business dealings, as it may not spell out the true reason something is less, or much less, as many products and services, on the surface, appear to be the same. The adage, “You Get What You Pay For”, is usually visited after the disappointment comes, once the bargain fails to meet the expectation and the delight for the savings is replaced by the sinking feeling, “I’ve been had again”. As designers, is this really the outcome we want our clients to experience, let alone, having to deal with it once exposed?

As designers, we should never want to feed the greedy price shopper mentality created by corporate opportunists and smaller businesses who buy into this mindset. By reflecting on true value all the way around, it makes good sense to present our services and that of others in the true light of costs and need. Today many are thinking in line with “save the planet”. This means as designers we want to be the forerunners in leading and educating by example. Therefore, let us be honest in our business dealings, and thus save our designer business services, giving due representation to great trades, products, costs, the environment and education of our precious clients while we are at it.

Guest Blogger: Ron Preston started into the trades at the age of 13 with tools purchased from savings acquired working seven nights per week. Today at 53 he enjoys working with people to bring their dreams to fruition and writes regularly to share his knowledge and thoughts. Let Ron know what you think about his guest blog and the opinions he offers.