Progress Report: John Maka Home Improvement and Remodeling Co.

Last year, remodeler John Maka laid out his key concerns for keeping his business successful and growing. His worries focused on some of the typical difficulties that remodelers face: finding qualified labor, paying competitive wages, organizing and scheduling time, estimating accurately and competitively, and incorporating computer software into the business. The concerns he faced in running John Maka Home Improvement & Remodeling Co. in Minehill, N.J., were outlined in "The Next Level" (April 1999). Several members of Professional Remodeler’s editorial advisory board offered advice on how to overcome the obstacles he faced.

One year later, Maka has made substantial improvements in many of those areas, but he realizes there is more work to be done to ensure his business continues to grow profitably. Maka implemented some of the advice of our editorial board, so we asked Alan Hanbury Jr., CGR, and Paul Sullivan, CGR, to help evaluate Maka’s progress and offer additional guidance.

Labor:

Our board suggested upping the wage scale to hire more experienced crews, receiving a return of better-quality work and faster performance that would offset the higher cost. They also proposed subcontracting out rough work and focusing on high-profile finish work.

Maka hired two assistants to replace departing staff. He reports good results so far "to an extent. It was a scary step bringing in these higher-priced guys and covering their higher hourly wages," he says. One problem was that to justify the higher pay, he wanted to check their backgrounds closely, including talking with former employers to ensure he made long-term hires. But he found those employers didn’t return calls or would not give details on why the applicants left. "They didn’t want to bad-mouth anyone for fear it could come back to haunt them," he says. "I finally had to make judgments based on my own assessment."

The new carpenters made it difficult for Maka to make money on the smaller, $4,000 to $5,000 jobs he’d been taking. "If I had bid them on an hourly basis, I might have made money, but I was figuring a square-footage price, and their wages ate up the profits. The customers were happy, but I wasn’t." He’s now turning down those projects, explaining he can’t make money at a price the customer will accept.

Only one of the assistants he hired remains today because the two hires had a personality clash that made working together difficult. The remaining assistant’s experience does help finish projects faster, Maka says, but he needs another carpenter to move forward smoothly. But he isn’t finding anyone suitable -- or who’s willing to work at his scale. "I’m baffled by the level of benefits workers say some companies are offering. They’re just too steep for me to cover. I need to find a way to incorporate some of those costs so I can offer more and still make money."

Maka also has discovered the value of working with good subcontractors. "In my area, the subs are working cheaper than on-staff guys," he says. Because they focus on one activity, such as framing, they also work faster and better than Maka can for that work. "I’m very pleased with what I’ve seen so far. Subs may be the answer to some of my problems."

Sullivan: "John shouldn’t be afraid to take on the small and handyman-type jobs; he should just charge more for them. Those clients come back and spend hundreds of thousands of dollars later. It’s easier to sell a small job at a much higher margin than a large project. Suppose you priced a repair job at $2,400 and your competitor priced it at $2,000. That 20% difference is nothing to a good salesperson. On the other hand, the difference on $200,000 and $240,000 is much tougher to sell. Take the small jobs, but take them profitably."

Regarding benefits and pay scales: "Welcome to remodeling in the new millennium. We are now faced with performing like real businesses. Those who learn will survive. Those who cannot adapt will be left behind. The challenge is to be able to offer competitive packages and still be profitable."

Pricing:

Estimating accurately remains difficult, especially for customers who want ballpark figures and then expect Maka to stick to that figure. "I’m just not good at looking at plans and giving a tight figure," he says. "There’s too much range. When I try to explain that to the customers, I get the impression they consider me inexperienced or unprofessional. But I know others seem to be able to do it. I’m hoping that it comes with experience."

One problem is that he’s working in a vacuum, with no idea of how his competitors price jobs or format their contracts. "I’d like to see some other company’s proposals so I can see how I compare in writing them up and estimating them," he says. "I usually add a contingency to my estimate to cover problems, but I don’t know if I’m adding too much and making myself noncompetitive."

He knows his pricing is higher than some remodelers’ because he isn’t selling all the jobs he proposes. "I think I’m in the middle, but I’m not sure," he says. He stresses to customers what they receive for his price and establishes his credentials for doing high-quality work. "But I know that on projects at the lower price end, their key concern is pricing." He’d move up to a higher level of project, he says, but there’s that significant gap in house prices in his area - either $175,000 or $500,000 homes. He’s not sure he’s ready to take on the larger projects. "I may try to move in that direction, but I don’t feel comfortable with the products and projects that are involved there."

Hanbury: "Never give someone a single price; give a range starting at the price you think it might be at first glance and up 30 to 40% from there. Accurate budgeting and pricing does come from experience, but it comes accurately from collating information on jobs in a computerized job-costing system. It demands that you save all possible job-costing data: time cards, materials bills and subcontractor costs for each job. It needs to be saved not just by customer to see if you made target margins but by job type to help price the next ones.

"It is a simple matter to look at the completed job data to know what it cost you to produce similar jobs in the past. The key is not to be a good estimator but to be a good pricer, which requires knowing what it costs to cover your new, more skilled labor, your new computer system, and to pay yourself enough money to get professional fast.

"Buy a good estimating book or CD that will give you regionalized cost estimates for most remodeling projects. With this in hand, in a few minutes you can accurately ‘bracket-style’ budget most any job: 'Would you be comfortable investing between $9,000 and $12,000 on this bath remodel?’

"Get out of that vacuum and join a local HBA and its Remodelors Council. Take CGR classes on estimating, sales and marketing for remodelers, business finance, contracts and law. There you could see 10 to 20 contractors, two to 20 samples of contracts. Talk about pricing and all other manner of trade concerns."

Computers:

Maka says he has made no progress toward computerizing his office. He assumes it would help, but the time investment is more than he can manage now. He has added e-mail and Internet access, but the sole business function the computer performs is still simple word processing. His wife, Dianne, still types up contracts and ensures that all paperwork looks professional with everything itemized and explained. But neither has had the time to determine how the computer could best help them or to evaluate software. "I know some of my competitors are drawing up designs on their computers," Maka says, "but I just don’t have that ability yet."

Hanbury: "Computerize -- immediately. Hardware: modem; CD-ROM drive (rewriteable for backups); combination fax, printer, scanner, telephone, answering machine. Software: off-the-shelf word processor, spreadsheet, Internet service provider, and an industry-specific or customizable accounting package which has a chart of accounts template for a construction company built in or for purchase from a third party.

"Start typing contracts using fonts, boldface and color, and save each different job type in a separate folder. You can cut and paste the best of each into one super-template for each job type. Soon you will be just tweaking old contracts to make new ones, saving time, being thorough and protecting your assets by being legal in all respects.

"Home Builder Press at NAHB is a great start [800/223-2665; www.builderbooks.com] for books on how to choose an estimating program, how to use Excel, a CD estimator program, books on several of the most popular accounting packages that cost under $500, and all manner of industry-specific books, some of which include computer disks so you can customize without a lot of retyping."

Legwork:

Maka has made considerable strides in improving his time efficiency and scheduling his workday better. Last year, he made all sales calls on Saturday, spending the entire day working on the business to catch up for the next week. This cut into his time with his family, which he regretted. Making that a priority, he revamped his system and is happy with his approach.

One key change came in working with his local building material supplier to help make up for any forgotten products needed at the site. He has created an agreement so that the supply company will deliver key products, such as a door or several lengths of trim, when necessary."I’d never call them for a bucket of spackle, but they’re willing to drop off significant items because of the amount of material I’m buying from them," Maka says. "That solves a lot of the delays I was running into during the day."

He also has rescheduled his workday. First, he stopped doing smaller, handyman-size jobs, realizing they weren’t profitable enough to justify the time they added to his day. He also shifted his sales calls and estimating to weekdays, taking off earlier to finish them at home if needed. "The goal is to shift my time away from working Saturday and open that up for me and my family," he says. He still occasionally makes a Saturday morning sales call. "It’s working out great for us, and it’s giving me my sanity back."

Sullivan: "Stick to your guns on the after-hours and weekend work. Family comes first. Sometimes I work in my home office after the kids go to bed. I also get up by 5 a.m. and do some work before everyone else awakes. When you are starting out, you most likely will still have a few night and weekend appointments. Most people will respect the fact that you are a business and have hours like everyone else.

"Don’t worry about getting more leads. Learn how to qualify them and take the best jobs. The best thing a remodeler can have is too many leads. Choose the work that you enjoy and that is profitable."

As that time frees up, Maka is looking at how to take more control of his project leads and considering if he’s ready to jump to that higher-level project. But he’s afraid to take the big leap into advertising to that market, fearing he’ll get too much business too fast, get in over his head and lose his reputation. "I’m afraid I’ll get a lot of shoppers from ads that’ll waste time I don’t have," he says. "But I’ve seen some ads from remodelers who are doing real well, and I think I could do that." Maybe by the next update, he will.

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