Qualified Remodeler Magazine

MAR 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/1090915

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Page 52 of 70

LAST year was a great year for home im- provement companies. Or was it? Sales and revenues increased—most net-profit margins did not. The amount of profit increased. The percentage did not. The risks associated with expanded revenue and insufficient net profit are manifold. Despite your company's success this year, you may be missing the methods used by the most profitable/successful companies in your industry. Examine the examples depicted above. In many similar examples, the conclusion drawn might be that the home improvement industry would seem to have had its head in the sand. A major hiccup could derail much of the growth and progress of this giant industry. The owners of home improvement companies are entrepreneurs who invest time, energy and capital. They bring new products to market oƁen facing vast competition, over-burdensome government regulations, con- stant hiring and training of new personnel, and rising administrative costs. If they are lucky, they get sufficient contracts to offset their overhead, complete the work, deal with uncooperative weather, and overcome mistakes that might otherwise put the business in peril. Despite propaganda to the contrary, some of the best run companies do not make the net profit to which they are entitled versus the investment in time, energy and risks involved. Let's be clear: Gross profit is an accounting term describing the difference between direct costs and selling price. Next is deducting the cost of market- ing, sales and administrative expenses. What's leƁ is net profit—the amount earned before paying taxes (pre-tax net). A 10 percent pre-tax profit should be a mini- mum for specialty home improvement companies What About Your Profit? Is your company earning the profit to which you are entitled? Research indicates more than 65 percent do not. by Dave Yoho, President, Dave Yoho Associates Note: "Net pre-tax earnings" are after all expenses, including salary and perks, plus all overhead and local taxes are paid. Note: Examples B) & D) are that of two companies operating with an imperfect business model. A) and C) are two companies who operate with improved pricing plus modern selec- tion and personnel management. SALE OF SPECIALTY ITEMS ONLY — Roofing, Siding, Windows — 5 salespeople, 1 sales manager ANNUAL REVENUE: $6,800,000 NET PRETAX PROFIT: 13.9% 1 OWNER: $945,000 GENERAL REMODELING — Contracts range from $80,000 to $140,000 — Owner plus 2 salespeople ANNUAL REVENUE: $2,640,000 NET PRETAX PROFIT: 3.9% 1 OWNER: $102,960 GENERAL REMODELING — Contracts range from $65,000 to $285,000 — Owner plus 2 salespeople ANNUAL REVENUE: $3,720,000 NET PRETAX PROFIT: 2.2% 1 OWNER: $81,840 SPECIALTY ITEMS — Bath-refitting, Windows, Roofing, Gutters — 9 salespeople, 1 sales manager ANNUAL REVENUE: $8,650,000 NET PRETAX PROFIT: 6.7% 1 OWNER: $597,550 A C B D SAME MARKET SAME MARKET 50 March 2019 QualifiedRemodeler.com

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