If the rising demands for home remodeling, soaring materials costs and interruptions of supply chains and labor have you wondering how to adapt your business for success—you’re not alone. Today’s unprecedented building boom is creating unusual challenges for contractors all across the country.
How can you respond wisely to what’s happening, so you’ll not just survive, but thrive as a contractor?
That’s the question StructureM CEO Will Watrous posed recently to Dave Gullotti, an expert with extensive experience in the home improvement contracting industry. Dave has grown multimillion-dollar construction companies with great success, and he remains heavily involved in this market.
Reasons for the Record-Breaking Demand on Contractors
The pandemic response to COVID-19 has created a unique dynamic in the contracting industry. Originally when COVID hit, everybody retracted, expecting the economy to shrink. The initial shutdown of economies across the globe created a shockwave. Manufacturers braced for the worst.
Surprisingly, just as supply chains tightened, the demand for home improvement skyrocketed to new heights. Between historically low interest rates, increased time away from the office, and rising trends away from cities, there’s an unprecedented demand for housing.
This sudden spike in demand is driving home prices up and giving existing homeowners a good reason to refinance and make improvements. They're not just getting new roofs, windows, doors and siding. They're making changes to make their homes more livable too—like finishing the basement and upgrading the attic.
This record demand has created an amazing vortex where home improvement contractors cannot install work fast enough—creating backlogs and forcing contractors to play catchup.
The Downside to the Current Contracting Boom
Increased requests for home improvements look great on the surface, because they’re creating record sales. But with that boom come challenges.
Soaring Materials Costs
Shutting down markets in the U.S. and overseas has created an incredible backlog of supplies. Raw materials are hard to come by, and many traditionally affordable options such as wood have skyrocketed.
Cash Flow Crunches
Contractors have to complete their work to get paid, so these delays in getting materials and labor, together with homeowners wanting projects done as soon as possible, is leading to cash flow crunches.
Good workers are always hard to find, and now it’s even harder. Between stimulus payments and strong unemployment benefits, some workers are choosing to stay home. Others are being snatched up quickly for available jobs. This results in higher wage expectations, driving up labor costs.
Homeowners are ready to use their stimulus money and funds from refinancing to make home upgrades. And they don't like to wait. When delays and backlogs mean waiting two to three times as long as normal to get their project completed, it creates stress for customers and contractors.
Apply for a free coaching session with Dave Gullotti
5 Steps to Take Right Now as a Contractor
Remember—what you do right now can prepare you for a productive future. We recommend taking these five actions to maximize today’s opportunities and position yourself for when the current demand dips.
1. Use Existing Stock
To make the most out of today’s booming market, do what you can to avoid supply chain hiccups. Maximize all the stock you already have on hand, and put every bit of material you receive to good use. Don’t waste anything.
2. Expand Your Team
In the short term, focus on adding well-trained installers to your team to meet the current high demand for your services. Hiring more staff now means more projects installed as quickly as possible, which minimizes the cash flow challenge and reduces stress from waiting customers.
3. Price for Greater Profits
If you have not raised your prices already, today is the ideal time to do so. Think in terms of the profit margins you’ll want six to eight months from now. Manufacturers are beginning to raise prices, and you can expect that other costs will go up too.
By failing to get out in front of this trend now, you’ll end up losing money on every job you book now and do later. We recommend boosting your prices by a minimum of 10% to 15% or more—enough to keep your profit margin firmly in line as the costs of doing business are bound to increase.
4. Set Clear Expectations
Be proactive by equipping salespeople to successfully guide the customer through everything they need to know about installation timelines, costs and other details. Teach them to explain the demand, assure clients that everyone’s facing it, and remind them that delaying on the contract will only make the wait worse. And assure them that they’ll love their home when the work is done, so the wait to work with your top-performing team is well worth it.
5. Market Yourself Now for Future Returns
The above four steps address what to do right now, but don’t lose sight of the bigger picture. Ups and downs in customer demand are an inevitable part of doing business, but savvy contractors plan ahead to balance out their cash flow and find new leads.
Set Yourself Up for Long-Term Profits with Strategic Planning
In lean times, strong companies survive because they’ve already built good leads and created good funnels to help generate new business. They do this strategic work on their SEO, ads and more even before it feels like they need to.
Be one of those businesses. Start marketing now—before you need it. Consider marketing as a return on investment that does not happen instantly, but will pay great dividends in the long run.
At StructureM, we make it simple to beat your financial hurdles. We help you to create a customized growth plan that’s right for you, so you can enjoy a profitable, sustainable business. Apply for a free coaching session to get started.