Marketing can literally make, or break, a remodeling company. As many remodelers have learned, quality work followed by strong referrals and repeat business gets you only so far. But not all marketing is good marketing. The next step is gauging your marketing effectiveness. Are you spending wisely? And, how well are you doing vs. your peers. One way to know is to join a peer group program.
At least twice a year, the remodelers who comprise the 10-member “Excel” group — like all peer groups within the Remodelers’ Advantage organization — gather to jointly review and critique their respective businesses. For those unfamiliar with the business peer-group process, the purpose is to spur, coach and cajole fellow members to achieve their respective goals as remodelers, as business owners and as individuals.
Preparation for a meeting is time-consuming. Every imaginable company metric — from gross profit percentage to profit per employee — is calculated and formated for review well in advance. These numbers form the basis of conversation and critique during the semiannual, three-day meetings.
That is why this story is unique. The members of the Excel Group, individually, agreed to share with Qualified Remodeler, the results of a quick comparison of their respective marketing numbers. Usually this information is not released beyond their meetings, but given its specific limits, an exception was made in this case.
The analysis was prepared by Bob Sturgeon, a remodeler from Westlake Village, Calif., who is a member of the Excel Group. The results, while not prepared by a professional researcher, seem to indicate one unequivocal conclusion: marketing works.
Sturgeon compared the data of his colleagues and in doing so, created a telling relationship between Marketing Budget Dollars vs. Overall Revenue vs. Gross Profit Dollars. And because there is such a variety of company types represented within the Excel group — firms that are full service with a smaller average job size all the way up to firms that only do very large jobs — there is a wide range of numbers involved. To Sturgeon, the numbers show that even the most production-oriented companies — companies that tend to focus very hard on super-high-quality finished jobs — need to move beyond simply satisfying their customers. You have to keep your name out in front of your target customers.
“Lately it has become clearer that when it comes to marketing, you have to do as much, or more, than just focus on satisfying your customers,” says Sturgeon. “If you have a really effective sales guy and you market your company to enough of the right people, you can keep your production team busy.
“So, my take-away from this analysis, is that all remodelers should be doing consistent marketing. We all should be focused on bringing in qualified leads. I’ve always heard that 2 percent of your revenue should be spent on marketing in high-end, full-line, remodeling firms, and after doing this analysis, I am sure that is about right.”
Budget vs. Jobs
The companies represented within the Excel Group, are, for the most part, established firms with owners who have been in the business awhile and understand it. But, due to different interests, different geographic and demographic markets, these successful companies operate very differently. When marketing budgets are compared with the number of remodeling jobs, the disparity within the group is quite stark.
At one end of the spectrum, Jerry Levine of The Levine Group Architects and Builders in Silver Spring, Md. is focused on big, high-end projects. It is what he and his team do best. His firm produces very polished marketing pieces that appear in local, luxury lifestyle magazines and some are used for direct mail. The company also spends significant amounts to reach the wider Washington, D.C. market through advertising on the local National Public Radio affiliate. The reason: It helps brand the company to a well-heeled customer base.
The company spends more on marketing because it wants to be able to have some level of selectivity about the jobs they do. And for The Levine Group, this approach certainly works. Yes, Levine spent approximately $130,000 on marketing in 2006, netting only 88 leads and nine jobs, but they were the right jobs for their company to profitably produce.
At the other end of the spectrum is remodeler David McBride, of McBride Construction in Petoskey, Mich. He has developed a loyal client base among a wealthy group of vacation-home clients in the summer home communities of Charlevoix, Petoskey, and Harbor Springs in northern Michigan. McBride’s operation is more full-service. He will do everything from the whole-house redo down to a nail-pop repair job. For McBride, if a client calls with a job, no matter how small, he makes sure it gets done. This ensures that he’s at the top of the list when it comes time to do the bigger remodeling jobs.
McBride is also firmly entrenched in his community. He serves on many civic boards and even has two streets named after him. His company is in the public eye in many ways. So branding is less important. That is why McBride is able to pull 248 leads on an $11,000 marketing budget and to complete 139 jobs.
Marketing Percentage vs. Gross Profit Percentage
Beyond the simple conclusion that all types of remodeling firms will benefit from some level of marketing is the reality borne out by the Excel Group data. It shows there are limits to the return you get on marketing investments. The first dollar spent is a lot more effective than the last. As was previously cited by Sturgeon, the right balance for high-end, full-line firms seems to be about 2 percent of revenue. Sturgeon proved this point by putting Gross Profit percentage on the other side of the equation from marketing budget as a percent of revenue.
“The law of diminishing returns certainly applies in this case,” says Sturgeon. “Gross profit follows marketing as a percentage of volume, up to a point, then diminishing returns kick in.”
Companies on the left half of the chart (top right) spent between 3 percent and 6 percent of revenues on marketing and tend to have relatively the same level of gross profit percentage (between 25 percent and 40 percent) as those companies who spent 2 percent or even less than 1 percent of revenue on marketing.
This becomes even clearer when marketing dollars per job is compared with gross profit dollars. The companies that spend a lot of marketing dollars per job certainly do not see a commensurate increase in gross profit dollars. And at the other end of the scale there are those who clearly could spend some more and potentially profit from it, though that is not a certainty. David McBride spent an astonishingly low $79.14 per job, but across the group, the sweet spot seemed to be near the $1,000 per job investment.
Finding the right marketing balance is an individual exercise. Some portion of the budget must be devoted to trial and error. The comparison of number of leads to number of projects is significant. The question of whether your firm is attracting buyers is significant. How much of your resources are being spent attracting the wrong kind of buyer or worse “tire kickers”? “Tire kickers” sap valuable resources.
One thing for certain, all the members of Remodelers Advantage’s Excel Group have a leg up on getting where they need to go. They currently track these important numbers and therefore can see where things might be askew. They can make educated decisions about logical next steps.
For more information about joining a peer group program, there are several from which to choose: Remodelers Advantage at www.remodelersadvantage.com; Business Networks at www.businessnetworks.com; and NAHB Remodeler 20 clubs at www.nahb.org.
Editor’s Note: Qualified Remodeler will be hosting a five-hour marketing program Oct. 9, 2007 at the Wynn Hotel & Casino in Las Vegas. For more information go to www.qualifiedremodeler.com.