Energy Swing Windows, in Pittsburgh, recently got a call from a homeowner looking to replace a roof that had been re-roofed not long ago. What prompted the call was the collapse of the home’s second-floor ceiling. The original installation crew had put the tear-off materials in the home’s attic, which caused the ceiling to buckle, spilling old shingles and smashed drywall everywhere.
Energy Swing, a window and siding company that moved into roofing a few years ago, started by having subcontractors install its roofs. But in the past year the company, which has used employee crews to install its window jobs almost from the beginning, turned to employee roofing crews as well.
Ensuring customer satisfaction was the issue, owner Steve Rennekamp says. But not the only one. With employees nailing shingles, Energy Swing could guarantee the quality of the workmanship and the job. The company could also offer homeowners a signed statement that everyone working was covered by its workers’ compensation policy.
Done Right the First Time
Some home improvement companies install using only subs; some strictly use employees. Most work with some combination of employee and subcontractor crews, depending on product and demand. Those who use employee crews do so for several reasons. A big one is convenience. Have a request for service? Dispatch an employee.
That touches on the larger issue, the allure for most, of control. Because no matter who does the work, the company that sold the job takes responsibility for it — for better or worse. “If a subcontractor throws cigarette butts on the ground, who’s the homeowner going to call, him or you?” Rennekamp asks.
For Energy Swing Windows, the bigger issue is getting the job done right the first time. “A sub might encounter rotten wood behind the window and think: ‘Hey, they’re only paying me $40 an opening to install these,’” Rennekamp says. “Or he might encounter a situation on the roof where flashing needs to be replaced and think: ‘I don’t have time to mess with this. Caulk it and move on.’ It’s all about your mindset in running the business and delivering the quality you promise when you sell.”
Referral & Reward Bonus
When Jim Lett started A.B.E. Doors & Windows, in Allentown, Pa., more than 30 years ago, he installed jobs in the daytime and sold at night. Today the company installs using only employees.
When Dave Scott started his business — also 30 years ago — he began as a subcontractor installing wood windows. Today the fact that Scott Bros. Windows and Doors, in Pittsburgh, uses only its own employees to install is prominently noted on the company’s website (“No subcontractors, just experienced and professional installers.”)
Schmidt Siding & Window Co., in Mankato, Minn., has used subcontractors only sporadically, such as after a major hailstorm in 2009. “We had to redo three of those jobs,” notes owner Dale Brenke.
What these businesses have in common, apart from installing using their own employees, is that most of their work comes from past customers as referrals, repeat, or reputation. Roughly 60% of business at A.B.E. Doors & Windows — around $4 million last year — comes from repeat customers and referrals. At Schmidt Siding, word-of-mouth or repeat business generated 86% of the company’s sales. That allowed Brenke to budget 2.5% of revenue for marketing, a fraction of the 11.5% that large home improvement operations typically spend.
There’s no way, Brenke says, his company could get that much business from previous customers without the quality and personal relationships that come from using employee crews. “Customer satisfaction and low marketing costs make it affordable.”
The Productivity Issue
So if the payoff is so huge, why don’t more home improvement companies use only their own employees to install the products they sell?
First, there’s the large overhead cost and the complexity involved. The cost of hiring a sub to install a roofing job shows up as a line item. Besides man-hours charged to the job, the cost of doing that same job with a company crew consists of benefits, payroll taxes, workers’ comp, liability insurance, and the sundry other expenses involved in maintaining someone on payroll.
There’s also the fear that control over job quality and customer relations could prove illusory. What if the installer is not so personable and is a lousy installer? And a third: What do you do with employee installers during slow months?
“I have talked to a lot of people who thought employee installers were a great idea,” says Jim Brown, owner of Arch Home Improvements, in Ashland, Ohio, whose company installs strictly using subs. “When they did it, they told me their production immediately went down. Subs have an incentive to get the job done” — and get it done fast, so they can move on to their next job. Contractors who use subs — and most do — invariably say that subcontractors bring the advantage of controlled cost.
Author and speaker Leslie Shiner of The ShinerGroup, an expert on financial management for contracting companies, says that the issue of employees versus subs is, from a cost standpoint, far from clear cut. (See the free labor burden calculator on her website.)
Owners who regularly use independent contractors to install their jobs rationalize their decision by arguing that in not having employees, they forego having to pay not only hourly wages, but liability insurance, workers’ comp, payroll taxes, and benefits. Shiner points out that the reputable independent contractors they hire to do the installing provide all or most of those to their own employees and will include it in their overhead and billing cost.
“Say that sub is billing at $80 an hour and you’re paying an employee $25 an hour,” Shiner says. “On a raw dollar basis, it’s often cheaper [for a company to install with its own employees.] But … that’s only if they’re 100% productive.” And since an employee’s hours typically include drive time, meetings, paid vacation, and the rest, he can’t be physically installing 100% of the time.
All those things, Shiner says, could make that $25-per-hour employee a $50-per-hour employee in no time. “If you add everything up — workers’ comp, liability insurance, payroll taxes, that could be 40% of what you’re paying the employee. Add a cell phone, vehicle, paid time off, and health insurance, that could be another 40%.” And if that 40-hour-a-week employee only bills 30 hours, your cost climbs even higher. The least expensive way to install — with employees — could easily become the most expensive way.
Where They’re Expected To Be
Energy Swing Windows manages the productivity part of the equation by “tracking every job on multiple criteria” says production manager Jeff Blank. Company managers dissect each job at weekly meetings and all employees — sales, admin, and installers — review jobs at companywide Total Quality Management meetings every other week. Man-hours per job is an agenda item.
“We fix a labor rate to the job when it’s sold,” Blank says, “and I follow up.” Most Energy Swing jobs end up “plus or minus 50 bucks” on labor allocated in job costing, he says. “We get the occasional job that goes sideways, but once you start tracking, the guys know what’s going on and where they’re expected to be.”
Owners whose companies use only employees to install argue that those costs can be managed — for example, by backlogging work through slow months to avoid downtime — that installation quality reduces callbacks, and that more homeowners prefer to go with companies whose employees install the job.
Among other reasons, notes Lett, is the fact that employees are vetted. “The homeowner can feel comfortable knowing that we did drug testing and background checks,” he says. “I know who’s going in someone’s home.”
In some ways the issue is quality over quantity. “It’s not a huge concern to me to get the most work done,” Scott says. “Our concern is to get it right and have a customer who is extremely satisfied in the end. And what matters to the homeowner is what kind of crews I’m bringing into the house, since most of our customers come through word-of-mouth referrals.”
The other part of managing employee installers is finding the right ones. Not only do they need to be great installers, they also need to be personable. No one at the company spends more time with the customer, in the home, than installers. The best installers take the time to cultivate relationships, and those relationships set the stage for additional work.
Schmidt Siding & Window Co. puts installers — who make up 35 to 40 of its 62 employees — front and center on its website, making them, in effect, part of its marketing, by posting their photos and customer feedback on each.
Last year the company received 756 customer satisfaction survey cards. The cards, pre-metered, are handed to homeowners by Schmidt’s foreman when the job starts. The back of the card features his photo and cell number. Most of the six questions on the card are about installation. The last asks homeowners for a yes or no answer to the question: Would you recommend this crew to others? “Out of 756 cards with 4,536 questions, I got 21 No’s, for a customer satisfaction rating of 99.537%,” Brenke says.
—Jim Cory, editor, REPLACEMENT CONTRACTOR.