Whether completed internally odr by an outside accountant, a budget that supports your market position is key to achieving your income goal.
Most remodelers sell work at the best price they think they can get. This is far from ideal.
Becoming a larger company that can provide strong margins takes planning. We work with many remodelers who say they have the reputation of being the most expensive option in town. After working with us, they typically found out that they weren’t the highest priced, not even close. Why would someone think they are one of the most expensive companies around and it not be the truth? For one, remodelers often grossly underprice their work. And many who hear that they are the most expensive naturally assume it’s the truth.
Did you catch the keyword there? It was “assume.”
Value For the Money
Research shows, the real issue to the consumer is value for the money. People are willing to pay more if they are confident they will get what they really want.
Then why do most remodelers underbid their services? Primarily because they don’t understand higher margins are necessary to afford quality staff and management.
So what’s the cure? First, decide on the end product and experience you want to provide: high volume, low/price; medium volume, mid to high price; or lower volume, high price. Those three sectors provide very different quality levels and experiences.
Did you consciously decide your company’s market position, or did it just happen? No matter the answer, the next step is to create a budget that supports your market position. Consider what kind of staff, images, equipment, product quality, facility, marketing, salary, and net profit you’ll need to deliver on your market position and achieve your income goal. Once this is established, you can decide on what kind of gross profit margin you will need, and the markup you will need to sell your services.
Markup and Profit
Many industry consultants say that you need a 50-67% margin to make money in remodeling. This is good news: The bars of professionalism have been raised in the industry. All those that are serious about moving the industry to new level will benefit from this. (Added note: It is not uncommon for specialty remodelers—window, siding, doors companies, etc.— to sell at 150-200% markups to cover higher marketing and finance costs.)
If you show up on time, communicate effectively with the customer, and complete quality work, you deserve, at minimum, a 33-40% gross profit margin (which is a 50-67% markup). Pricing for profit and growing sales to the next level is the only way to have true freedom in remodeling. Be the “company that thought large from the beginning.”