Two Truths

In the 30 years I have been a practicing architect, including 16 as a remodeler, there are two truths I have learned along the way.

The first truth is that profit is mandatory. If you don’t make a profit, you won’t be in business. The key is learning how to exceed your clients’ expectations and still have a solid bottom line.

The second truth is that, in our profession, we all need to learn from each other. You need to heed the lessons learned from other remodelers, and they need to heed yours. That means when meeting and talking with other remodelers at venues such as Remodelers Advantage or your local remodeling group, be honest. You don’t have to share “the jewels” — those key secrets that make you unique. But to the extent possible, share what sets you apart from the competition.

The reason I bring this up is I recently spent several days judging a national remodeling competition. Judging is something I have been doing for more than 10 years. Applicants for the competition need to submit a great deal of documentation, including photos, plans, etc. They also had to submit financials for the project they entered. For some reason this year, I spent more time looking at the financials that the contestants sent in than I had in previous years.

The financial information the applicants provided was limited to their costs of the project, and what they sold the project for. Subtract the costs from the selling price and you have the gross profit. Simple enough, you would think.

Based on our experience, all the judges had a good idea of what the gross profit should be, even understanding that gross profit can be affected by demographics and local market conditions. For the last five or six years, for example, our gross profit has fluctuated between a low of 28 percent and a high of 38 percent. In our market that is doing quite well. In a smaller, more rural market you should be expect 40 percent plus gross profit as a minimum. But you get the idea and general range.

Interestingly enough, there were huge disparities in the submissions, and irregularities in several of the financials. I was not the only judge who noticed them; most of the other judges noticed them as well. This was very discouraging and disappointing, to say the least.

On the one hand, several of the entrants showed very small gross profit — as low as 3 percent. We believed these figures but had to ask the question: How can they stay in business?

On the other hand, some entrants boasted astronomical gross profits — as high as 200 percent. All the judges were aware of the fact that several of these entrants had stretched the truth about their selling price so that they could qualify for a certain category and probably increase their probability of winning an award. By being dishonest, these entrants did not allow others to learn from their experience. Moreover, their inflated (or deflated) figures did not fool the judges. In summary, heed these two truths. First and foremost, you are a “for-profit” business. To stay in business, to pay your employees, to continue to do great work for your clients, you need to make a profit. Second, when sharing your experiences with others, be honest. That way, people can learn from you as you learn from them. Besides, when you’re not honest, people generally know.

Note: During the last two months I have come across two quotes that I would like to share:

The 19th century philosopher Frederich Nietzsche said that “what does not destroy me makes me stronger.” How true is that?

“Goals are dreams with deadlines and the challenge is to keep the project and client tied to reality.” — anonymous.

Michael a. menn, aia, cgr, caps, is a principal in Design Construction Concepts. D+CC is an award winning design/build firm that was honored as the Chrysalis State and Midwest Remodeler of the year in 2003. Menn is a licensed architect, remodeler and frequent industry speaker. He can be reached at michael@dcc-ltd.com.

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