One of my friends used to brag about how great it was to live in Minneapolis. I used to kid him that all the riff raff froze out each winter. I can’t help but wonder how many roofers were weeded out this past year.
It is no secret that much of the country has been unseasonably dry. Of course no rain means no leaks. It is also no secret that Sept. 11 sent many consumers into a wait- and-see mode. Waiting to see what happens and no leaks make for a not so good roofing season.
The last 10 years also brought on the greatest expansion in the history of the U.S. economy. This expansion certainly developed no shortage of contractors. If you look in your local phone book, the yellow pages are full of roofing contractors. And don’t forget the number of contractors who do not have “real” businesses and are just shingle slammers.
Frankly, 10 years of good times have created a whole field of “roofing weeds” that were allowed to grow. Because the economy was so hot, economic forces did not spray any weed killer on these budding enterprises. Lots of foremen, salesmen and firemen on their days off have faired a lot better as roofers than they might have in a tougher economy. So for the long term, weeding out a few of these folks might prove to be beneficial to the roofing business. When killing weeds, the trick is to make sure you don’t kill the good stuff with the bad.
How do you know if you are in danger of getting weeded out of the process? Here are some questions and thoughts you might ponder:
Do you know how much it costs to run your business (per hour, day or week) or do you just estimate so much a square? Don’t get me wrong, all jobs need to be measured, so measuring the job and quoting a price is not a bad thing. But where did that $50, $75, $100, $200 or whatever number per square come from? Do you quote that number because that is what your old boss used? Maybe this is what your competitors are using? (You know, the guys who are going broke are C.O.D. with the local roofing supplier.)
Know your numbers. Make sure you know which jobs, foremen and type of work turns a profit. The trick to downsizing is to eliminate the losers and frankly, many contractors just do not have a close enough handle on this.
What about employees? Have you let volume and growth make you captive to a bunch of guys who hold you hostage? People who don’t show up everyday, maybe have an abuse problem or are just plain lousy. Now is the time to clean up the ranks, shrink, and use good guys. Let the drunks and bums draw unemployment. When things are tight and money slow, you might be surprised when some of these loyal employees jump ship and start doing side work. Focus on crews and foremen. How many good crews can you field and keep them busy. It is not uncommon to see contractors’ profits go up as volume shrinks. Fewer guys might mean more productive jobs and less callbacks.
What about selling? We have trained thousands of sales people and encounter few really good ones. How many good sales people call on you? Ten years of good times can make many an order taker believe he or she is much better than they really are. Maybe you are more of a “stealth bomber” salesperson — you measure the job and stuff an estimate in the mailbox. In good times, you may luck out and get a few jobs. Now with your competitors desperately cutting prices, a written estimate dropped in the mail with the hopes of being low bid is almost destined for certain failure. Now is the time to merchandise your product and make sure your customers see the choices available. Trying to cut cost by selling a 20-year three tab may not work and a better strategy might be to offer some alternatives and high-end pleasing products. Selling cheap is almost certain to spell disaster.
Price Cutting and RestructuringCutting your price in a down market is very, very tempting, but my experience is that many of the people who survive are the folks who learn to say “no.” Let’s look at a couple of totally arbitrary examples to get a handle on the devastation that blindly cutting prices can cause.
Suppose your company had a gross profit of 30 percent (just a number out of thin air) and you did $500,000 in sales. This would generate $150,000 in gross profit ($500,000 x 30 percent). Now suppose the market tightens and you cut your price by 10 percent. This does not seem like a lot, but this means your gross profit will drop to 20 percent. You now have to increase sales by 50 percent to $750,000 to be back at the same point ($750,000 x 20 percent equals $150,000). Increasing sales 50 percent in a down market is pretty unrealistic. Raising your prices and spending more time on each estimate might be a more successful strategy. Cutting your prices just to get work might create an equation where breakeven becomes impossible.
When should you cut your price? If you have no work, cutting your price for work that starts right away makes sense. But how do you offer the customer a better deal without seeming like you are overcharging them? The truth might be the best approach. Simply tell the customer that you have a hole in your schedule for the following week and you could offer them a price break of x number of dollars. Then ask if they would like for you to schedule the job.
What might make more sense is to restructure the company. Try using backward delegation. Consider moving your foreman to lead person, your estimator to foreman and you to estimator. Or another approach is to pick up the hammer yourself and work in the field. Remember that for most companies, the owner’s salary is the single greatest cost people incur. Moving part of that salary into the field may make sense. This does not mean you will have to do this forever. The bottom line is that if you used to be a $1 million-a-year company and now you can only do $750,000; you may have to restructure the company to fit your new volume. As painful as this might be, losing $100,000 and having a hole to dig out of might be more painful. Avoid denial. Take action.
Another area to study in a down market is productivity. Many contractors have been forced to use very poor quality help, and laying off a couple of non-producers may increase productivity. On the other side of that coin, your employees might see that work is slow and feel a need to stretch jobs out. Remember that apathy is not the way to go. Set realistic goals and make sure your leaner, meaner crews get the job done.
In summary, weeding out a few of the weak competitors might not be so bad for business. Just make sure you are not one of the folks being weeded out. Focus on being a businessperson who happens to be a roofer, not a guy who needs work next week.