By the Numbers

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To provide that context, with your help Professional Remodeler has created a business database that allows a broader look at the state of remodeling today. This data is a tool. Use it well.

June 01, 2001

 

The largest percentage of remodeling revenue today is spent on product purchases. Labor and subcontractor expenses run a close second and third, with on-staff workers accounting for a slightly bigger piece of the revenue pie.
Average total dollar volume is $943,000, with a median of $834,000. Regional variations exist with remodelers in the western United States posting the highest average total volume at better than $1 million.
The average remodeling project bills out at $65,690, and the typical markup on work is 29.9%. Commercial jobs tend to have the highest per-project price, yet they offer remodelers the lowest average profit opportunity at just 20%.

It's the way to manage -- by the numbers. We look at budgets, job costs, sales projections and P&Ls. From this mix of data, business owners and managers glean the information and apply the management savvy to create a financially healthy enterprise that provides a comfortable standard of living for all it employs.

Or not.

It's one thing to measure business performance against internal projections. This knowledge is critical for simple business survival. It's another to know how your business performs in a bigger universe -- in a world of similar companies. This type of comparison provides a deeper level of understanding about how the numbers add up and the real value of the bottom line.

To provide that context, with your help Professional Remodeler has created a business database that allows a broader look at the state of remodeling today. This data is a tool. Use it well.

Business Basics

Full-service remodeling firms dominate the industry today. Nearly 60% of the survey respondents offer clients services for alterations and additions. In every single-line category -- maintenance and repair, insurance restoration/reconstruction, commercial  -- fewer than 10% indicate that these niches are their primary type of business. While volume might be sizable enough in certain markets to support a single-line remodeling company, this certainly isnÆt the choice of most remodeling firms today.

According to our survey, the average total dollar volume for remodelers is $943,000 and the median is $834,000. A significant portion of the respondents, 29.5%, report volume at $1.5 million or more (see chart on page 68 for a complete breakdown). Some regional variations exist, particularly in the West, where average total dollar volume tops $1 million, and in the North Central states, where average volume equals $878,000.

Drilling down, the average remodeling project bills out at $65,690 and the median is $31,340. The typical markup on remodeling work is 29.9%. Interestingly, the highest-priced projects are commercial jobs at just more than $158,000. Markup, however, tells a different story. There, commercial jobs offer the lowest average profit opportunity at 20% with insurance restoration/reconstruction adding the most dollars to the bottom line at 35.6%. Markup averages 34.2% on specialty and single-line remodeling projects, 31% for additions and alteration work and 26.4% for maintenance and repair contracts.

True to the adage you have to spend money to make money, remodelers spend the highest percentage of their remodeling revenue on materials -- 28.79% to be exact. The rest of the expense ledger breaks down as follows: labor 25.62%, subcontractors 21.68%, overhead 14.3%, other 3.93%, marketing 2.93% and sales expense 2.74%. The bottom line -- net profit -- averages 14.2%.

In the four regions of the United States, the percentages break down as follows:

Northeast: 30.52% materials, 26.06% labor, 19.44% subcontractors, 13.25% overhead, 3.94% marketing, 3.61% sales and 3.18% other.

North Central: 30.81% materials, 25.65% labor, 18.63% subcontractors, 15.32% overhead, 3.42% marketing, 3.13% other and 3.04% sales.

South: 27.63% materials, 25.37% labor, 23.40% subcontractors, 14.41% overhead, 4.98% other, 2.12% sales and 2.09% marketing.

West:26.26% materials, 25.65% labor, 24.99% subcontractors, 13.89% overhead, 4.29% other, 2.54% marketing and 2.39% sales.

Human Relations

Ask any remodeler his or her greatest obstacle to continued business success or future expansion, and the answer will likely be the same ù labor. Skilled foremen, carpenters, laborers and subcontractors are hard to come by, and every demographic trend suggests there wonÆt be any improvement near term. The solution of most remodeling professionals: Pay wages and benefits to keep and motivate the good people already in place.

The average professional remodeler has 11 full-time employees and 2.9 part-time employees. While the standard rule of business is that every $100,000 in revenue equals one head count, such isnÆt the case among remodelers. Delivering exceptional customer service skews the numbers in favor of employees in this industry, as it does in most service businesses.

Hourly wages for field crews is the near-universal form of compensation among survey respondents. Industry average wages for construction personnel are:

Foreman: $22.51. The highest hourly pay rate is in the West at $26.62 per hour, and the low is in the South at $19.61. In the Northeast foremen earn $23.76 per hour, and in the North Central region the average hourly wage is $21.20.

Lead carpenter: $20.27. Lead carpenters in the Northeast earn the highest hourly wage at $21.71. Wage rates in the other regions are West $21.66, North Central: $20.80 and South $17.91.

Carpenter: $16.47. Regional rates are $18.48 per hour in the West, $17.28 per hour in the Northeast, $16.07 in the North Central states and $14.67 in the South.

Laborer: $11.53. The highest hourly wage is in the Northeast, where laborers earn $12.40 per hour. In other corners of the country hourly wages are $11.96 North Central, $11.75 West and $10.44 South.

Wages alone don't tell a complete compensation story, as every business owner will attest. Bonuses, retirement benefits, health insurance and paid vacation figure into the total cost of an employee. Remodelers split when it comes to offering these benefits, with a greater percentage including these perks for management personnel. The numbers -- percentage of remodelers who do offer and/or pay for these benefits -- are:

Bonus/incentive plans: 35.8% for management, 46.7% for production crews.

Retirement benefits: 40.2% for management, 35.4% for production personnel.

Health insurance: 63.2% for management with 51.9% of those sharing the cost with employees, 55.7% for construction crews with 57% sharing the cost.

Paid vacations/holidays: 69.5% for management, 59.7% for field employees.

Sick days: 40.2% for management with 6.2 days the average, 26.8% for production staff with 5.2 days the average.

Who Sells?

Full-time salespeople are the exception in remodeling firms today. Only 23.8% of those responding to our survey employed full-time sales professionals. Among that group, one out of two remodelers pays a combination of salary and commission. The average annual compensation is $50,000.

More often than not, the job of selling is simply another bullet point on the ownerÆs long list of must-dos. Three out of four survey respondents own a remodeling firm. For the risk inherent in that responsibility as well as the day-to-day job of managing and growing the business, the average owner compensation totals $107,000 and the median is $55,000. Slightly better than half, 55.3%, of the owners draw a regular paycheck, with 17% adding a year-end bonus to that. Roughly a quarter, 27.8%, get paid only when money is left over.

By the Numbers

Financial benchmarks are but one measurement of performance, albeit critical ones. Other measures of business health are familiar: employee retention, volume dollars per employee, cycle time, etc. However, just as no two remodeling firms are exactly alike, the measures of business health are individual as well. Use this data as one more tool to measure your business. Doing so is the biggest responsibility of ownership.

Methodology: In late April 2001, an e-mail invitation was posted on HousingZone.com. In addition, the Business Management Survey was highlighted in biweekly newsletters from Professional Remodeler magazine, and ane-mail invitation was also sent to Professional Remodeler readers with an e-mail address. A total of 466 remodelers completed the questionnaire.

Profiles

Medina Construction Co.

Neil Kelly Remodelers

The Sullivan Company Inc.

Brothers Strong Inc.

Casanave Construction Company Inc.

Gehman Custom Builder, Inc.

Strite Design and Remodel

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