In tough times, home improvement businesses must make painful budget cuts to protect their balance sheets. “Big jobs are becoming smaller jobs. What might have been a $50,000 project is now $2,000 to $5,000,” says Jeffrey Fick, vice president of Fick Bros. Roofing Co., in Baltimore. Fick expects sales in 2008 to be off 30%.
By August, when revenue dropped $350,000 from the previous month, it became clear to Spokane, Wash.–based West Coast Vinyl that sales this year would, at best, be flat with the $20 million the company generated in 2007. “We can't get people to let go of their money,” co-owner Jamie Keirstead laments.
CONTROL MEASURES Under such conditions, controlling costs is critical. And for some home improvement contractors, that's meant taking a closer look at purchasing. “We're holding suppliers accountable and making them prove their [price] increases,” says Greg Sliger, general manager for Prince William Home Improvement, in Woodbridge, Va., which through August had lowered its decking lumber costs by 17%. “We're checking vendor prices every month.”
Sliger's company mandates that no department's budget exceed 3% of annual revenue. But reining in budgets by reducing personnel is difficult when half the company's 50 employees have worked there at least 10 years.
However, expectations of worker productivity at Prince William Home Improvement have risen. Canvassers who weren't meeting lead production requirements have been let go, and canvassing staff reduced from 26 to 14. West Coast Vinyl cut its canvassers' per-sale commission as part of an across-the-board payroll reduction that ranged from 50 cents to $1 per hour. Salespeople, though, still receive the same compensation, even as West Coast Vinyl's lead costs have jumped to around $700 from $200 to $300 just a few years ago, Keirstead says.
MARKETING BUDGETS Companies often look first at marketing to make cuts. But Fick told REPLACEMENT CONTRACTOR in August that his company was about to increase its marketing budget, which he thought was important in a soft economy.
Figuring out marketing's cost-benefit relationship isn't easy. Through the first eight months of 2008, radio ads had generated just three direct leads for Prince William Home Improvement; yet the company's business in the market the radio station covers was up 100%. Still, the company has scaled back its radio ads to one week per month (from every week). “At $190 per spot, that's a big cost saving,” Sliger says.