Ken Moeslein, CEO of Legacy Remodeling, founded the company, then named Swingline Windows, 25 years ago. Legacy Remodeling recently hired designers and has expanded beyond roofing, siding, and windows into design projects such as kitchens and additions.

Replacement Contractor: What led you to full-service remodeling and now to design/build?

Ken Moeslein: As a window company only, we grew into siding, roofing, and decks because of customer requests. We had to find ways to offer more services without compromising the quality and value of our window side. So when we started getting requests for additions, I would give contractors I know addition opportunities. At some point I thought: This isn't that hard. It's a matter of taking the time to learn it and get the system in place.

RC: How long have you been selling and installing big-ticket jobs such as additions.

KM: For eight years we've done an addition here and there. I'm sure there are full-service companies that get requests for window replacement. We didn't target it as a business model. We just let it happen.

RC: Do you consider sunroom jobs to fall in that category?

KM: Seven years ago we took on the Owens Corning basement and sunroom franchises. We doubled our company size in two years. Clearly it wasn't a room addition or design/build. But for us these were larger projects. Then the economy did what it did and — my son and company president — Jeff and I looked at the market and it was our perception that if the new construction business — joined at the hip to basement finishing — went away, that the customer would still want to expand their house, that there'd be more bump-out addition opportunities than there ever have been. We also felt that home builders would move into this area but that we could do it better.

RC: Who designs kitchens and additions for you?

KM: We have two design people on staff and we use Chief Architect.

RC: How difficult was it to manage these big projects, which are 10 or 15 times the size of a window job and require multiple trades?

KM: You take a $100,000 room addition and really you do a whole lot of the same things when you sell a $25,000 window project. We already had most of the systems because we'd done some big-ticket basement and sunroom jobs. It was a little easier for us to go from replacement to big projects because we had an outside production manager, an inside production manager, and company installers.

RC: A number of replacement companies have ventured into kitchens and additions, while at the same time some design/build companies are looking to expand into replacement. Which is more difficult to do?

KM: I think it's harder to go from design/build to replacement than from replacement to design/build. Part of the difficulty of going from design/build to specialty or replacement is that your marketing is totally different. You're accustomed to a 3% to 5% marketing cost. If you want to expand into specialty you need a lot more leads and you have to be willing to double or triple your marketing budget. A design/build company can live on 30 or 40 leads a month. A replacement or specialty contractor of any size is going to have to have 250 leads a month. That's a tough one 'cause a lot of the design/build guys don't see the obvious benefits of marketing. That's a cost they don't put out there.

RC: How would a full-service company even begin to put that marketing machine in place?

KM: If you want to spend some money and expand your company's size, the first element is obtaining leads. You need a person dedicated to marketing. Our company is spending just a little under 10% on marketing and our goal for fully loaded marketing costs is 10%.

RC: How about selling?

KM: Design/build companies typically use their design people to sell. Design people are awesome. They can do great things for your company. But they don't understand that the specialty customer is a different customer. We like to earn the business the first time we visit. The design/build person you send out to sell windows thinks they will be coming back to that house two, three, or four times. Then they call the prospect up and find out that that person bought from some other company. The specialty or replacement customer doesn't have quite the same buy-in as the customer for design/build. If you don't wow them on the first visit you've allowed two or three other companies to get in there and take that business away from you.

RC: What about the replacement contractor who's trying to add some full-service jobs? What have you found to be the pitfalls in taking on kitchens or additions?

KM: You're used to turning jobs in one, two, or at the most three days. Now you have jobs that take months; jobs that are vastly more complicated. On the specialty side you can pretty much make anything work because you're not messing with the structure of the house. But with full-service jobs, you're into elaborate permits. You've got electrical, plumbing, concrete issues. You now require project management. We typically schedule five to seven replacement jobs a day. My wife, Linda, can do that at her desk. But with a design/build project you can't do that. You are out there talking with the subcontractors. You have to build relationships with those subcontractors. You have to know who the best concrete guy, or electrical guy, or framer in the marketplace is.

RC: What about the gross profit you need to bring the job in profitably?

KM: Design/build contractors are happy to get a 30% to 35% gross profit. In replacement, you need to be at 45% to 50% every day. You need to be aware of that difference or you're going to be way overpriced on full-service jobs and you won't sell many.

RC: So estimating and pricing out a job can be a formidable hurdle for the replacement contractor who starts taking on kitchens and additions?

KM: We have found that materials and labor are easily defined for replacement. And your job cost never leaks more than a half a percent on a window or siding job. Now you go over into design/build and suddenly you need another post over here or you've underestimated the amount of lumber you need, or the extent of plumbing charges, and on and on. So in the beginning we made the mistake of allowing our salesmen to be intuitive in their estimating. We certainly changed that fast.

RC: What about the logistics and paperwork of processing multiple replacement jobs versus a $90,000 addition?

KM: That's the other thing. A replacement contractor can do $90,000 worth of work in a week. That is, say, five big window jobs. He gets paid in full at 46% gross profit. For the design/build contractor that $90,000 job will take two months. At least it used to. We're getting better now. It's about six weeks if you have all your systems in place.

RC: What do you think is the biggest mistake design/build contractors make when they try to move into replacement or specialty contracting?

KM: If they're serious about the specialty side they need to have a separate business with a separate business model. If the full-service guy's approach is that he's getting into this now because he has to and can't wait until he doesn't have to, that's the wrong approach. He should ask himself: "Is this a part of the home renovation business I really want to be in or is it a holdover until my remodeling business comes back?" A lot of people don't realize that there's a new norm out there.

This is a longer version of an article that appeared in the February 2011 issue of REPLACEMENT CONTRACTOR magazine.