Qualified Remodeler Magazine

JAN 2019

Qualified Remodeler helps independent remodeling firms to survive, become more professional and more profitable by providing must-have business information, namely best business practices, new product information and timely design ideas.

Issue link: https://qualifiedremodeler.epubxp.com/i/1070573

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Page 36 of 66

MANY contractors proceed through their careers without ever truly knowing how to estimate the cost of a job and price the project correctly. Whether they fail to grasp the contrast between markup and margin or mistakenly treat job costs as overhead, a con- tinuous oversight can be the eventual undoing of a remodeling business that otherwise seemed prime to dominate the market. The volatility of prices for construction mate- rials, especially lumber and steel, combined with an ongoing skilled labor shortage has only exacer- bated the challenge. Remodelers who form a plan to address rising job expenses promptly can boost their chances of surviving unexpected happenings, and they become more likely to deliver exceptional projects to customers on budget and on time. Robust Cost Book Normandy Remodeling had a decent pricing mod- el when Andy Wells started at the design/build company 21 years ago. But the ability to approx- imate the cost of a job sufficiently has become a never-ending evolution for the Hinsdale, Illinois- based remodeler, where sales designers conduct their own estimating for the projects they sell, says Wells, the owner and president of Normandy. "We have a pretty robust cost book, [as] we call it, that we use to estimate from. That's a part of our training early on when anybody gets into that job," he notes. "When we get notified of price in- creases happening now or down the road, we try to incorporate those from vendors quickly; so that a project we're estimating now, if there's a price increase coming next April, we plan for it." If a material price rises before Normandy can encompass the increase, the company just absorbs the difference, Wells says. Many manufacturers will notify him a few months prior to their price hike, so Normandy can integrate the new pricing into its cost book. Cabinetmakers, for example, usually institute a price increase at least once each year— and sometimes more oƁen, Wells adds. "We don't have a clause built into our contract to recoup future increases. Because our model of how we go to market, we don't really have a good way to track and collect that," Wells explains. "To do that would require some incredible detail—and a different kind of pricing model—where you'd ba- sically give them a list of every single item that goes into their job, which we don't do." Normandy has implemented a minor line item in its projects to account for prospective tariffs on certain products, such as lumber. But the compa- ny does not share that information with potential customers because the small fee only aims to cover fluctuating costs internally. If a job does not include material subject to impending tariffs, Normandy still benefits from the slight price jump. "Our average job is about $125,000 so any in- dividual item generally isn't a major component of the cost," Wells notes. "The biggies are maybe windows and cabinets. Again, those two types of companies—those two vendors—are usually pro- active in letting us know when a price increase is going to happen, so we can anticipate that well enough to where it doesn't become a surprise." March 2019 will mark 40 years in business for the company, which has built a dependable group of trade contractors over that time. In the last few Price Crunch Four remodelers discuss how they deal with uncertainty surrounding job costs—specifically rising material prices and the ongoing labor shortage—and still earn an adequate profit on their projects. by Kyle Clapham " WE'LL ADJUST OUR COST BOOK QUICKLY AND APPROPRIATELY IF WE FIND TRENDS ARE HAPPENING. " Andy Wells SPECIAL REPORT 34 JANUARY 2019 QR QUALIFIEDREMODELER.COM

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