David Lupberger: Making lemonade from economic lemons

The challenge is to transition from a project-driven business model to a relationship-driven business model

February 14, 2012

Welcome to 2012. The economic downturn is ebbing into its fourth year, and many remodeling contractors are discouraged. When will things improve?

With lower real estate values and all the financial uncertainty, homeowners are scared, and they have reason to be:

  • Lower real estate values
  • They are postponing bigger projects
  • There is uncertainty about the economy
  • They don’t view their home as an iron-clad investment anymore
  • This has had a direct effect on most building professionals:
  • Most have less work than 4 years ago
  • Project size has diminished
  • Homeowners are now speaking with five, six or even seven contractors before making a buying decision, and then are demanding additional price concessions
  • A lower closing ratio
  • Company layoffs

The downturn is real, and has created a new economic order. We can resign ourselves to this downturn or become masters of our own fate. Let’s see if we can do just that. Let’s examine this economic lemon and begin to take a different stance within all this economic uncertainty. Let’s take back our marketplace, and begin to make a difference with the homeowners we work with.

Here is the good news

We are part of a $300 billion a year industry, with more than 110 million existing housing units. With more than half of those units constructed more than 40 years ago, most require major remodeling/maintenance/repair and an ongoing demand for remodeling. The future, in spite of what you might read, is bright.

There are some principles from the service industry that will assist us in understanding how to shift our business model so that we can take control of our financial future. Begin to think of the professional service people that you work with now, such as your doctor, dentist, attorney or accountant.

These trusted advisers help us manage our physical and financial health. These relationships are not price-driven. They are based on trust, and that trust comes from relationships that develop as they take care of us and our families.

Let’s introduce this “trusted adviser” role into the remodeling industry. For example, who is providing homeowners with an annual physical for their home helping them manage their largest asset? Their homes are aging just like we are. Can we become their total home care adviser? Can we assist them with understanding what improvements need to be made on a regular basis, and helping them prioritize those home care needs? Who else is better suited to provide this valuable service?

There is an issue here. We presently develop these trust-based relationships organically as a result of larger projects, but they are not by design. We need to change that. The challenge here is to transition from a project-driven business model (which works in a strong economy) to a relationship-driven business model (which works in any economy).

The biggest shift to this new business model lies with the remodeler/builder themselves:

  • Contractor resistance to smaller projects/handyman work
  • Company success being equated with larger projects
  • Understanding the value proposition of the trusted adviser role

Becoming a trusted adviser to past clients is an easy sales proposition, and homeowners are receptive to the idea. If you understand the true lifetime value of a customer, your transition to the trusted adviser role makes even more sense. It’s the best company marketing you will ever do.

Here is a quick review of the relationship-driven business model benefits:

  • Better margins
  • Not price-driven
  • Ongoing company cash flow
  • Lower marketing and sales costs
  • Business model builds company equity — transition strategy

There is a vital remodeling marketplace out there. It didn’t go away, but it has shifted. If homeowners aren’t calling us, it’s time for us to call them. They need our services. What are you waiting for?

David Lupberger has been in the remodeling industry for more than 20 years and is author of Managing the Emotional Homeowner, the Remodelers Turnkey Program, and the Home Asset Management Plan. You can reach him at david@davidlupberger.com, or at 303-442-3702.

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