Last month in this space, I reviewed a series of market projections for 2014 from Harvard University as well as the industry’s leading associations.
Last year was a good one for remodelers, as Professional Remodeler's Business Results Survey found the highest average volume and profits in the survey's history. The average company in our exclusive industry survey has now been in business for 19 years, has 20 employees and has an annual installed volume of $4.
Last year was a good one for remodelers, as Professional Remodeler's Business Results Survey found the highest average volume and profits in the survey's history.
|Years in business||19|
|Full-time employees (besides owner)||14|
|Total annual installed volume||$4,600,000|
|Average job size||$47,304|
The average company in our exclusive industry survey has now been in business for 19 years, has 20 employees and has an annual installed volume of $4.6 million — all numbers that better the results of the previous four surveys.
This year's results reinforce the idea that while home builders struggled in 2006, remodelers continued to see a strong market. As more owners stayed in their homes, they were apparently willing to continue to spend money on improving them.
We made some changes to this year's survey. [For the first time we broke the results down by residential remodelers; commercial and residential remodelers; and kitchen and bath specialists, to offer a better look at how these very different companies do business.] There are also some interesting regional differences that highlight what's popular in certain parts of the country.
With nearly 400 respondents, this year's survey gives remodelers a good benchmark to see how they match up with their peers in several areas: company structure, employees, profits, cost of doing business, production, projects, sales and marketing.
As in the last two surveys, the majority of respondents (67 percent) described themselves as full-service remodelers, in line with the 66 percent who answered that way in 2005 and similar to the 70 percent in 2003. At the same time, respondents also were much more likely to describe themselves as specialty contractors, with 37 percent answering that way, compared with only 24 percent in 2005 and 17 percent in 2003. (Respondents were allowed to select more than one answer.)
There was some regional variation, though, as those from the Midwest (43 percent) were most likely to be specialty contractors, compared with only 29 percent in the West. When asked about what markets they served, 48 percent answered that they were residential remodeling contractors; 44 percent said they were residential and commercial contractors; and 8 percent identified themselves as kitchen and bath specialists.
Companies this year were more likely to be incorporated than in past studies. Only 23 percent of respondents said they were sole proprietors, compared with 31 percent in 2005 and similar levels in earlier surveys. Of those that were incorporated, 48 percent were S-corporations, 29 percent were LLCs and 23 percent were C-corporations. Companies in the West were the most likely to be sole proprietorships (32 percent), with no other region registering above 22 percent.
In terms of employees, this year's survey indicates a reversal of the recent downsizing trend. Companies reported an average of 14 full-time employees (besides the owner) and six part-time employees, up from 10 and 3 in 2005 and 12 and 6 in 2003. Companies are investing a large portion of their labor costs in office operations, with the average company having 13 field employees and seven office employees. Despite the increase in employees, there's still a significant number of companies with no employees, with 11 percent reporting no full-time field employees, 25 percent no full-time office employees, 43 percent no part-time field employees and 57 percent no part-time office employees.
There were significant regional differences as well. Remodelers in the West had larger labor forces, averaging 24 employees compared with 21 in the South, 20 in the Northeast and 16 in the Midwest.
Volume and Profits
This year saw a big increase in annual installed volume, as the average grew to $4.6 million compared with $3.4 million in 2005. Volumes varied greatly from region to region, with the highest levels in the Northeast, where the average was $8,689,000. Average volume was $3,821,000 in the West, $3,005,000 in the South, and $2,972,000 in the Midwest. Not surprisingly, smaller companies were concentrated in the Midwest and South. Just under 49 percent of companies in the Midwest reported volumes of less than $1 million, as did 44 percent of companies in the South. Overall, a significant plurality of companies (43 percent) had volumes from $1 million to $4.9 million.
Nationwide, the average profit was $2,033,000, but 76 percent of companies had profits of less than $500,000 and only 11 percent had profits of more than $1 million. Comapnies in the South had the smallest profits; 83 percent had less than $500,000. In the Midwest, 78 percent of profits fell below $500,000, compared with 70 percent in the Northeast and West.
The most financially successful companies were those that offered both residential and commercial remodeling, with installed volume of $7,112,000 and profits of $4,057,000. Residential remodelers averaged volume of $2,857,000 and profits of $509,000, while kitchen and bath specialists reported volume of $1,421,000 and profits of $279,000.
Cost of Doing Business
Despite having the highest installed volume, the Northeast didn't have the highest cost of doing business. In fact, both the West ($3,212,000) and South ($2,580,000) had higher amounts than the average of $2,480,000 spent by companies in the East. Companies in the Midwest averaged just over $2 million.
Given the increase in employees, it's not surprising that labor costs continue to grow as a percentage of expenses. In this year's survey, labor costs averaged 40 percent of the cost of doing business, up from 31 percent last year. Other costs held relatively steady from 2005, with materials costs at 36 percent, owner's salary at 13 percent and other direct costs at 10 percent.
Those trends carried across most regions and business categories except for a few notable exceptions. Kitchen and bath specialists spent 39 percent of their expenses on materials, compared with only 37 percent on labor costs. Sole proprietors also spent almost equal amounts (38 percent) on labor and materials — not surprising given their smaller workforces.
As in past surveys, referrals from past clients (94 percent) and repeat business (89 percent) were the top sources of new business, although at even higher levels than the past. The only other source cited by more than half of respondents was referrals from suppliers, subcontractors and architects at 62 percent.
Many other traditional methods of marketing slipped as sources of business, including job signs and trucks (25 percent, down from 33 percent), yellow pages (20 percent, down from 28 percent), print advertising (19 percent, down from 28 percent), home shows/parade of homes (12 percent, down from 24 percent) and TV/radio advertising (5 percent, down from 11 percent). Surprisingly, even more modern methods were less effective, with Web sites at 25 percent, (down from 33 percent), and online referral services at 9 percent, (down from 19 percent).
There were some interesting regional differences, though. In the Midwest, referrals from other professionals was cited by 72 percent of respondents, compared with 61 percent or less in the other regions. Twenty percent of Midwest remodelers also noted home shows/parade of homes as a source of business, about twice the rate of the other three regions. Job signs and trucks were rated higher in the Northeast (40 percent) and Midwest (44 percent) than in the West (26 percent) and South (35 percent), while the yellow pages were a larger source of business in the Northeast and South (both 22 percent) than in the Midwest (18 percent) and West (16 percent).
On average, companies spent 5 percent of their annual revenue on marketing, although 35 percent of respondents reported spending 1 percent or less.
Once the lead comes in from marketing, respondents did a pretty good job of landing the projects, converting more than half of qualified leads into a sale. For the purposes of the survey, a "qualified lead" was defined as someone the respondent at least gave a ballpark estimate to, as opposed to every single phone call.
Overall, 34 percent reported converting at least 70 percent of their leads into sales and only 12 percent converted less than 20 percent. Smaller companies reported more success, with companies doing less than $1 million a year averaging a 57 percent conversion rate, compared with 47 percent for those doing more than $1 million a year in business.
The average company had just under two (1.92) salespeople, including the owner. In fact, 82 percent of companies reported two or fewer salespeople, with 18 percent reporting no employees dedicated solely to sales. Even with their smaller operations, kitchen and bath specialists averaged three salespeople, compared with less than two for residential and commercial remodelers.
It's no secret that customer satisfaction is the key to referrals and repeat business. In a positive sign that remodelers could be working harder on keeping customers happy, respondents averaged 4.8 punchlist items at walkthrough, down from 5.7 in 2005 and 5.5 in 2003. Last year, 21 percent of remodelers said they averaged more than 10 punchlist items. This year, that number fell to 11 percent.
Warranty requests were also down from last year, with remodelers averaging 1.6 open requests at any time, down from 2.0. Forty-two percent of remodelers said they typically don't have any open warranty requests, up from 34 percent. Average response time also improved at 5.0 days compared with 5.8 in 2005, 6.3 in 2003 and 7.8 in 2002. More than 14 percent of respondents said they completed the average warranty request in one day and 46 percent said work was completed in two or three days.
Respondents reported completing 71 percent of their jobs on time, with kitchen and bath projects leading the way, finishing on schedule 76 percent of the time. Larger projects were the least likely to be completed on schedule, with new homes averaging 65 percent on-time completion and whole-house remodeling averaging 68 percent.
The average remodeler completed 96 jobs, with significant regional variations. In the Midwest, companies averaged 144 jobs, followed by the South at 86 jobs, West at 76 and the Northeast with 74. The average job size was $47,304.
Single-line remodeling jobs were the most popular type of project, with an average of 28 over the last year. That trend carried across most regions, except in the West where companies did an average of only six. There the top project type was decks/outdoor living, with 19, compared with four or less in every other part of the country. For companies that did less than $1 million a year in business, handyman work was the most common project, with an average of 21 per year, while single-line remodeling jobs were easily the most common (42 a year) for companies over $1 million.
While only accounting for an average of 12 jobs a year, kitchens and baths were the most popular type of projects by dollar volume, accounting for 22 percent of annual sales revenue. That's because of the average job size of $47,763 is significantly higher than the $14,137 for the average single-line job. The only region where kitchens and baths weren't the top project type was the South, where new and custom homes accounted for 21 percent of business, compared with 19 percent for kitchens and baths.
The 2007 Business Results Survey was conducted in late 2006 and early 2007 to gather financial and performance information about the remodeling industry. The study was conducted by canvassing a random selection of professional remodelers. Results are based on 397 responses.