Targeting the Middle Market

DreamMaker Bath & Kitchen brings service and design to midlevel consumers while promising franchisees strong margins and quality of life

November 30, 2003
Doug Dwyer, president, DreamMaker Bath & Kitchen by Worldwide

Photography: Griffin Photography
Doug Dwyer purchased DreamMaker from his mother, Terry Dwyer, in November, after running it for seven years. "He took over Worldwide when it was a real mess," she says. "It's finally at the point he's been striving to arrive at."

All too often in remodeling, as a firm's revenue increases, customer service and profits decrease. Company culture disintegrates or warps.

Staying small has its limits, though. Educating and training employees and investing in technology can be difficult. Remodelers who don't move a lot of products also don't have a lot of pull with suppliers.

This year we honor a remodeling company that is growing in sales and profits while sustaining a strong company culture and high customer satisfaction ratings and investing in its people, systems and facilities. On top of that, DreamMaker Bath & Kitchen by Worldwide, a full-service kitchen and bath franchise firm with 105 U.S. locations, is one of just a handful of national companies in a fragmented industry on the verge of consolidation.

Repositioning a Company

DreamMaker's vision " "to be the first household name in the kitchen and bath remodeling industry" " will be realized, president Doug Dwyer says, when the company is in 65% of the nation's markets and captures 1.5% of the national kitchen and bath remodeling market. In 2003, the company tied for 71st on Entrepreneur magazine's list of fastest-growing franchisers.

To achieve that vision, the company targets the $5,000-$50,000 jobs that make up the bulk of kitchen and bath work. Its market research reveals that the "average" customer DreamMaker wants is a 55-year-old, married woman with a college education. She and her husband are professionals or retired, have a household income of approximately $56,000 and own a 26 1/2-year-old home. The demographic parameters are broader than that, but DreamMaker's target homeowners share common desires: quality work and products, a fresh look for their home, a quick process, and good value for the money. "They're looking for a professional experience, but they don't fit the high-end market," marketing director Amy Brown explains.

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"We don't want owner/operators," Karen Cagle says. "We're looking for people who have a good business." She looks for prospective franchisees at trade shows and then qualifies the leads through follow-up phone conversations, questionnaires and background checks.

Marketing director Amy Brown provides each franchisee with an initial package that includes van decals, stationery, postcards, apparel, brochures, fliers and promotional products such as rubber ducks. Printed items, including yard signs and newsletters, can be adapted for local use.

Identifying the right market and aligning the company in pursuit of it required a major transition, begun by Dwyer soon after he joined DreamMaker as chief operating officer in 1996.

At the time, the company was named Worldwide Refinishing Systems and belonged to The Dwyer Group (www.dwyergroup.com), the Waco, Texas-based parent of several franchiser businesses. Worldwide originally consisted primarily of one-man shops that refinished sinks, tubs, tiles, counters and cabinets. Today, the bulk of DreamMaker's business is traditional kitchen and bath remodeling, with cabinet refacing and tubliner installation as a middle option and refinishing as the third choice.

"The alternatives produce very good margins because it's a real quick turnover," explains Lenny Wortham, vice president of technical support and training and research & development.

Becoming a full-service remodeling company, even one focused primarily on kitchens and baths, called for a name change, implemented in 1999, as well as targeting a different kind of franchisee " one with more capital and more remodeling experience.

DreamMaker did $16 million in business in 2002 and projects 2003 revenue at $20 million. For a firm with 105 locations in the United States, three in Canada and 82 in nine other countries, that's not a lot of volume. Dwyer says the reason is that many franchisees are still owner/operators. Since 2000, the goal has been to build businesses, not practices.

DreamMaker has added 12 franchises this year and plans to add 18 in 2004, hitting 400 locations in approximately 15 years " the point at which the strategic plan calls for the "household name" vision to be realized.

Vice president of franchising Karen Cagle leads the search and evaluation process. She looks for general contractors or design/build remodelers with at least 10 years in remodeling and five years of running a remodeling business, with 50-70% of volume in interior residential remodeling. They must have a working knowledge of financial statements and be able to use Microsoft Excel, e-mail, personal digital assistants and QuickBooks or a comparable program. Site visits verify quality construction. Prospects should have $35,000 to $85,000 to invest, preferably $150,000, and a minimum annual volume of $500,000.

Meeting those requirements still isn't enough. Headquarters must be sure the prospect shares the DreamMaker values, is a high-energy overachiever and will use the required systems. "To build a name brand and image, we want people who match our business model," Cagle says.

DreamMaker checks criminal history, lawsuits, driving record, financial statements and Better Business Bureau record. In turn, a prospect interviews existing franchisees and visits the Waco headquarters for a 11/2-day orientation, with DreamMaker paying half of the airfare. The program includes a personality profile test. "We want people who are honest, have integrity, provide good service and care about their reputation," Cagle says.

Code of Values
We believe ...

... in superior service to our customers, our community and to each other as members of The Dwyer Group family.

... in counting our blessings every day in every way.

... success is the result of clear, cooperative, positive thinking.

... that loyalty adds meaning to our lives.

... management should seek out and recognize what people are doing right and treat every associate with respect.

... challenges should be used as learning experiences.

... our Creator put us on this earth to succeed. We will accept our daily successes humbly, knowing that a higher power is guiding us.

... in the untapped potential of every human being. Every person we help achieve their potential fulfills our mission.

... we must re-earn our positions every day in every way.

... in building our country through the free enterprise system. We demonstrate this belief by continually attracting strong people to The Dwyer Group.

Creating a Culture Across State Lines

Everything DreamMaker does and every decision it makes begin with the corporate Code of Values, which all franchises must adopt.

Daily use makes the code work. Every time three or more employees gather for a meeting, they read the code aloud. It is included in information packets sent to franchisees and can be downloaded at www.dreammaker-remodel.com, the company's Web site. Training and education sessions include time to share Code of Values stories. Colleagues "beep" any employee who deviates from one of the values, a polite way of notifying someone to shape up. An audiocassette training series developed with a third party helps build common terminology, such as "cheerleader customer" (the kind you want to create).

Franchise director Russ Herman, who used to own a Worldwide Refinishing business, believes that the franchise model outperforms large companies with multiple locations in terms of shared values and commitment. "It is a lot more close-knit," he says. "These guys get together and marvel at each other's talents."

What DreamMaker calls the brand promise " "Strong Margins. Quality of Life." " is the reason remodelers are willing to follow rules and pay royalties. DreamMaker promises franchisees the ability to recruit the best people, deliver world-class service, have strong net profit, develop equity and have time for family, friends, religion and community. It delivers on that promise with proven, refined business systems combined with business training and support.

A system for Every Task, and Every Task in its System

As vice president of franchise systems management, Andy Ross teaches new franchisees the DreamMaker systems during initial training and calls them weekly during the next year to check in and coach. His bookshelf is lined with binder after binder of DreamMaker guidelines and forms for everything from qualifying a client to managing subcontractors before they even get to a job site.

Marketing: Targeting the right clients requires a comprehensive marketing system. A corporate brand identity manual explains how and where the DreamMaker logo should be used, what color vehicles must be, how showrooms need to look, how identification badges must be worn when entering homes, and other details that affect DreamMaker's image.

Just as important, Brown puts together detailed reports, pulled by ZIP code, on customers who fit DreamMaker's target demographics within each franchise region. It's a big difference for remodelers used to working primarily from referrals. DreamMaker encourages repeat and referral business but believes that spending approximately 5% of annual income on targeted marketing keeps remodelers more stable and less inclined to rise and fall with the general economy.

Every week, each franchise pays 2% of gross receipts up to $600,000 volume and 1% thereafter into the central Marketing, Advertising & Promotion Fund, governed by a committee of 10 franchise representatives. They write the corporate marketing plan and decide on new initiatives to pursue, such as three recent television commercials and a 2004 effort to create presentation book samples and templates.

Estimating and Financials: Everyone must use the same reporting system: a standardized chart of accounts and a standard profit-and-loss statement. Currently, QuickBooks Pro, Excel and fax are the technologies of choice. All franchises send weekly reports on gross cash receipts to headquarters, which determines royalty fees. Quarterly financial statements must be sent, but Ross encourages monthly reporting so he can track progress and budget and coach before a problem snowballs.

Each franchise sets goals depending on its financial health, but DreamMaker expects all franchises to hit certain performance standards regardless of market.

"There isn't a regional variation that someone should earn 10% net profit in the Southeast and 8% in the West just because of the region," Ross says. "Differences will be reflected in general administrative expenses." Federal franchise law prohibits the corporate office from revealing specific financials, but individual franchisees indicate ambitious goals on the high end of the remodeling industry: 40% minimum gross profit, 10% minimum net profit.

Pricing is critical, so DreamMaker insists that franchisees use its proprietary estimating program, which includes labor and material costs for the refacing, liner and refinishing options and builds in 3% slippage. Ross says it's much simpler to use than many retail programs because DreamMaker jobs share many characteristics and products, making costs predictable. Franchisees can customize the program with local labor or material prices as necessary.

Removing an unused stairwell made room for a new wall of cabinetry. Casters on the island let the homeowners move it for entertaining. This project won the St. Louis Park franchise a 2003 national Contractor of the Year award for residential kitchen, $15,000-$30,000.

After photo: Dana Wheelock Photography

Customer Service: Any good remodeling company has customer focus at its core, and DreamMaker believes that education is one of the best ways to satisfy customers. Each new client receives a packet including information about the DreamMaker process, certificates of workers' compensation and liability insurance, a copy of the contract, contact information and a change order form.

A pre-construction meeting and distribution of a "Survivor Kit" " gifts such as bath soap or a restaurant gift certificate accompany literature addressing the emotions homeowners typically experience during remodeling " precede every job's start. "We don't want them to be surprised about anything that's going to happen," Ross says.

DreamMaker maintains that approach during construction with an on-site job binder and client/remodeler communication center as well as weekly meetings. Pre-close punchlist walkthroughs help prevent problems at the final walkthrough with the customer.

Thank-you letters follow each project, with newsletters and other mailings establishing ongoing contact. Clients whose referrals turn into business receive a gift certificate or a charitable donation in their name.

The Dwyer Group has a service that DreamMaker uses to survey the customers of randomly selected franchisees. In those surveys, 95-97% of respondents say they would use the firm again.

Recruiting Employees: The evaluation process that DreamMaker uses to identify good franchisees trickles down to the hiring level.

Using tools from Profiles International (www.profilesinternational.com), DreamMaker identified basic traits and qualities that a DreamMaker salesperson or carpenter/technician needs. The company provides franchisees with job descriptions and profiles for these positions.

Recommended compensation plans reward employees for individual and company performance. Benefits are optional, but DreamMaker works with preferred service providers that can help establish benefit programs.

No system works unless used properly, which is where ongoing business coaching and education enter the picture.

Education and Training

The mandatory Level I training program runs 10 times per year for franchise owners, general managers, salespeople " anyone a franchisee wants to send. A day and a half spent with the entire Dwyer Group covers broad topics such as work/life issues, coaching a team, time management and business finance. The next 3 1/2 days cover the basics of the DreamMaker systems and give attendees a chance to start on homework. They spend the sixth day completing those assignments: a franchise vision statement, organizational charts of the franchise as it is and as it will be in a year, financial targets and a three-month marketing plan.

After a day off, class resumes, wrapping up in the afternoon with sales role playing and presenting completed assignments. Then come two days of technical training on remodeling alternatives and applications, showrooms, vendors, and pricing and ordering. Lead carpenters can visit separately for a week of technical training.

Ross or Brown visits newbies within the first year to reinforce the business training. Regional meetings called team conferences bring together 20-25 franchisees to hear seminars by industry speakers, consultants and manufacturers. Optional workshops in Waco tackle in a hands-on fashion specific topics such as creating the next year's budget. Each of The Dwyer Group's annual reunions provides an opportunity for workshops, roundtables, awards and networking.

Top performers receive invitations to Level II business training or join one of several peer groups that have developed to benchmark performance and let group members serve as each other's board of directors.

DreamMaker will launch two new educational options in 2004: weekly telephone training sessions implemented on a 15-week cycle and a mentor program to visit the top two franchises.

Purchasing Power and Private-Label Products

For most remodelers, a buying group is the only means to get negotiating power with suppliers. Not so for DreamMaker, which developed a decentralized purchasing plan that provides discount pricing, the ability to order direct from manufacturers rather than pay supplier markups, and even products branded with the DreamMaker name.

Lenny Wortham teaches the "alternative" techniques " refacing, installing tubliners, refinishing " to franchise employees and educates them about products from national suppliers.

Five years ago, Wortham began developing a national supplier base of building product manufacturers and service providers. Today, the base includes more than 30 companies, including Alumax, Danze, Vita Bath and Wood Pro. To differentiate DreamMaker from competitors and keep the focus on its brand rather than the manufacturers', Wortham avoids products sold at big-box retailers.

He also looks for suppliers that offer excellent service, product quality and selection, as well as fair prices. "Our franchisees generally get 30% or more savings below retail," Wortham says. "Before, the best they could get was 7% or 10% below. We set our franchisees up individually, so they are the wholesalers. They have direct access to all of the vendors."

Preferred vendors must provide service and distribution at a national level and give all franchises the same deal despite regional pricing differences.

Unlike a buying group, DreamMaker's plan does not require an upfront investment, nor does it eliminate participants who don't reach a minimum volume. Still, headquarters provides annual monetary incentives for those who purchase certain percentages of their materials from preferred vendors.

Eventually, Wortham wants the close vendor relationships to pay off in the form of several private-label lines. In October, DreamMaker announced that BCI Acrylic Bath Systems will manufacture acrylic tubliners with the DreamMaker logo. Cabinet vendor Showplace Wood Products puts the logo on drawers.

"It builds the DreamMaker brand," Wortham says. "When franchisees retire, they want to be able to sell that brand."

The Technology Difference

DreamMaker's ability to leverage technology will be key to its ability to build equity and provide remodelers with a viable exit strategy. E-mail, faxes, PDAs, estimating and accounting software and other technological advancements have made running a national remodeling company much more feasible than it was even 10 years ago. Now DreamMaker is investing in an integrated, proprietary software program called Z-Ware that will track customers from start to finish and handle everything from estimates to scheduling.

Now in beta testing, Z-Ware is scheduled to launch in the first quarter of 2004. Using a Web interface, franchises will be able to use the program as a contact database from which corporate easily can help with marketing; a project management tool to organize contracts, estimates and schedules; and a financial reporting system that will track sales, margins, closing ratios, slippage and other key metrics.

"We'll be able to support franchisees at a greater level than we are today," Dwyer says. "You can do benchmarks and comparisons. It's cumbersome to do it through e-mail or fax. Z-Ware will revolutionize things."

Time will tell, but DreamMaker just might have found the perfect balance between big-company resources and little-company personal touch to create a national remodeler that's both profitable and service-oriented.

"We're pretty committed to the franchise model," Dwyer says. "In remodeling, it works out real well to have the owner at the local level. Remodeling is much more hands-on. There's just that personal touch. The customer service attitude is greater. We're helping people protect and grow their assets."

 


 

Designing for the Middle Market
Designed by an in-house interior designer/salesperson, this bathroom remodel by the St. Louis Park, Minn., franchise replaced the tub with a shower, added a vent fan, created more storage, and used light-colored wood and an oversize mirror to increase the space visually. It won a Silver Award in the small bathroom category (less than 55 square feet) of the 2003 National Kitchen & Bath Association design competition. After photo: Dana Wheelock Photography

 

Many remodeling clients want a look like they see on television or in magazines, so design is an important part of DreamMaker's services " just not at the design/build or architect level. "The middle market is trying to do the same look as the high end, and we can do that because manufacturers are making the look available at better price points," marketing director Amy Brown says.

For more complicated jobs, that means having in-house space-planning and interior design skills or getting assistance from suppliers. DreamMaker limits product choices to keep the process efficient and cost-effective.

Packaged remodels, introduced about 18 months ago, minimize customer selection time even more. One- to four-star bathroom packages determined by corporate can be customized with local pricing and products to recognize local variations in taste.

"Our consumer focus groups liked the idea," Brown says. "They compared it to buying a car. You know your make and model, but you have different choices. There's so much information out there, and they're looking for someone to guide them through it."



 

Buying into a National Brand

 

Rich Maile purchased a DreamMaker franchise one year ago. He also owns and runs Maile Design/Build, a $5 million, third-generation remodeling firm in the Cincinnati suburb of Crescent Springs, Ky. The two businesses have separate books but share some staff and space resources.

"One of the things I felt was really lacking was a system that gave the middle market that one-stop professional remodeling resource," Maile says. "My design/build firm, where we have an architect and interior designer and lead carpenters, gets a little pricey because of the people involved and the time it takes."

He adds, "When two clients walk in, you can't look at them and says that one's DreamMaker and one's design/build. The latter has resources and the desire to spend those resources a certain way. The DreamMaker client may have the same or more resources, but their values are a little different."

His franchise exceeded its first-year sales goal of $720,000 by more than $80,000. Nearly 50% of the volume was business that Maile Design/Build would not have signed.

Maile, who took over the company in 1991 and then taught himself the business through seminars and college courses, says, "It took me every bit of five years to learn the business. DreamMaker would have taught me sooner."

He considers the preferred vendor program one of the franchise's primary benefits. Originally, however, it was one of the main reasons he put off joining DreamMaker for nearly two years. Maile says his field crew, unfamiliar with some of the preferred manufacturers, worried that they would have to use poor products.

"My production guys were like, 'Man, we're not putting junk in. We're not cutting corners and duct-taping stuff together,'" Maile recalls. That concern has not been realized. "I've been thrilled with the products we're getting. The cabinets have been everything they said and more. The challenges are mostly logistics."

Ordering direct from manufacturers, he explains, requires complete accuracy, whereas a local vendor might fix a mistake for free. Also, while his company had sufficient storage space, that space was unorganized and full of unused items. Cleaning it out and implementing a staging system became critical.

The payoff has come in profit. "You can do fewer jobs at better margins," Maile says. "We're paying a better price because so many of us are buying. Part of that savings gets passed on to the customer. They don't have to pay a premium price."

 


 

Doubling Profits with Better Pricing

 

After 19 years in construction and nine years owning a remodeling business, Steve Buckner of Amarillo, Texas, was producing $300,000 to $500,000 annual volume at 15-20% gross profit. He credits Dream-Maker's systems and training for his 2003 numbers: as of November, $1.05 million in booked sales and $875,000 already produced " at 40% gross profit.

"I was frustrated because I was doing OK but basically just making a pretty good living," Buckner says, recalling early 2002. "I wasn't making much of a profit, and I was ready for some substantial changes."

He rolled all of Buckner Building Services into his DreamMaker franchise when he opened it one year ago.

"I found I could go out and get all kinds of different systems training and things, but no one else had the whole package for me," Buckner says. "Now I can logically look at every aspect of my business and feel comfortable about how to measure it and whether I need to change it."

Using DreamMaker's proprietary estimating program, a templated Microsoft Excel spreadsheet that can be customized, Buckner has increased his markup and prices to produce better margins. As a result, he has lost some previous clients, and average job size has dropped by half to $12,000-$15,000.

Losing some of his upper-middle-class clientele doesn't bother Buckner. Middle-class clients, he says, provide a larger customer base and are more willing than the wealthy to pay for service.

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