'Theory of Evolution' Advocates Change in Focus
by Steve Vlachos
The thing about running a business is, just when you think you've got it right, you don't! There's always something that needs improving or changing. You have new competition, new products, new problems. If you get complacent, you lose!
Cam's operation is located in Norwell, MA, with the showroom offices residing in a renovated older home. In the beginning, Cam sold cabinets. Twenty-two years ago, you could make a decent living just selling cabinets. Then, kitchen and bath "design" became an issue, so Kitchen Concepts morphed from a cabinet retailer into a design firm. Some time later, the installation of the cabinetry became a requirement, so Cam's group figured out how to handle cabinet installation. Today, total project management is the goal. The name RoomScapes says it all, with the newly christened firm providing everything for a room renovation. That may include windows, flooring, labor. . .the works.
And, they're willing to pay more to have someone take care of their projects for them. That's where Cam comes in.
RoomScapes tells a bigger story than Kitchen Concepts has. You want a bath remodeled? It can handle every detail. Home library, you say? It specializes in home libraries. Entertainment center? Bedroom cabinetry? Living room built-ins? No problem for RoomScapes. Closets? Of course! Cam isn't coming out of the closet. . .he's going in!
The best thing, and perhaps the most surprising thing, about the
change in direction has been the effect on gross margin. The
addition of full project labor and materials has actually helped
Kitchen Concepts traditionally operated with margins in the 40% range, according to Snyder.
RoomScapes, however, is operating with margins a couple of points higher. Snyder believes there are two reasons for that. First, to be safe, the firm adds a significant "fudge" factor to all of its project pricing. Because of the firm's attention to detail, it has not needed the "fudge" on most projects, which results in a boost to the firm's bottom line.
Secondly, and more significantly, the addition of full remodeling services has acted as margin insurance for the products that the firm sells. Cam says that he feels little, if any, competitive pricing pressure on his products anymore since the products are wrapped up in the full-service, full-project price.
The biggest surge in new business has come from full-scale bath projects. Snyder predicts that 40% of his business will come from just such projects. Only a few years ago, Kitchen Concepts would have sold only a vanity cabinet and, maybe, a top to a bath customer. A big bath sale might have been $1,000. Today, the average master bath job at RoomScapes produces $35,000 in revenue for the firm. That's an additional $8,400 in gross profit.
While Cam appreciates the income stream, his customers appreciate the full service. Snyder believes that being part of the renovation project from design to completion generates more referral business from clients. While they may forget who sold them cabinets, they never forget who did the work for them.
RoomScapes has a project manager on staff whose job it is to estimate and run the various projects that the firm is contracted for. He is the only person on the payroll involved directly with the installation process. Everyone working out on sites is a sub-contractor. The project manager is expected to coordinate all activities involved with each sub on each project. Snyder points out that one of the keys to running multiple renovation projects is to use the same sub-contractors over and over again. Once they learn how to work the "RoomScapes way," they become invaluable members of the team. Cam stresses that it is important to him that his sub-contractors are making a fair profit so that they will want to be available whenever RoomScapes' project manager needs them. For this same reason, Snyder also makes it a point to pay his sub-contractors as quickly as possible.
In order to keep cash flow moving nicely through the project, RoomScapes requires a 40% deposit on product and a 25% deposit on the remodeling work at the time of order. The firm receives the remaining 60% of the product payment at time of delivery and an additional 25% of the labor when the firm actually starts working on site. The remaining 50% of the remodeling portion is divided into 25% when the walls are finish ready, 20% when all the final fixtures are installed and 5% on final walk through. Cam is working on a system that will simplify and tighten his payment schedule. RoomScapes has also invested recently in a construction pricing program that should accelerate both the pricing and the closing rate on jobs.
The Kitchen Concepts showroom is also undergoing changes. The plan is to begin limiting the present number of kitchen displays. More baths will be featured, along with home offices, libraries, bedroom built-ins, etc. The firm has also changed its showroom hours to an appointment-only basis. Potential clients are welcome to visit the showroom at their leisure Monday through Friday, but for any design or project consultation, an appointment must be made. Snyder admits that since requiring an appointment to talk with someone, his showroom traffic has gone down. He insists, however, that the quality of his leads and the size of his projects have risen dramatically.
We all have had the occasional client that reminds us that Darwin was probably right about his evolving from the apes thing. It's much easier, however, to grasp Snyder's more modern Theory of Evolution, which says that you have to keep changing to remain the same. In other words, keep changing to remain profitable. From creation as a cabinet seller to maturity as a design/build firm, Snyder's company has continually grown in sophistication. It's a classic case of advancing up the evolutionary scale. And I suspect that Mr. Darwin would heartily approve.