Forty years ago, most remodeling companies were small. The owner was salesman, production manager, and sometimes carpenter as well. Only a few owners had any idea how to charge for or sell their products.
On the other hand, in that era, there was a thriving market in the sale and installation of exterior products. In those days, the one-stop sales call, or one-call close, developed. Salesmen were trained to sell on the first call or walk. Those unwilling to sell this way didn't survive.
Some roofing, siding, and window companies still sell at 300% to 400% markups, with salesmen paid commissions in the 10% to 15% range. In the general remodeling market, on the other hand, the average sales commission is 6% to 8% of total cost, with the commission jumping to 10% on a project in the $5,000 to $20,000 range.
Some remodeling companies have changed the approach to compensation. Instead of paying a percentage of total cost, they pay a percent of gross profit on the completed project. For instance, if a $100,000 project comes out with the full 40% gross profit and the salesperson earns 20% of it, that comes to $8,000. If the gross profit is only 35%, then the salesperson is paid $7,000, and so on.
Changing sales role
Technology is rapidly becoming necessary in remodeling, and two areas where the sales function is affected are estimating and design. Many remodeling companies are training their salespeople to be able to estimate the project and use CAD to show the client what it will look like when completed. With the exception of large projects, the estimating part is relatively easy. CAD is usually more difficult.
In companies where the estimating process is detailed, the design is complex, and product costs need to be researched, there is likely to be substantial support given to the salesperson. The sales commission may be reduced in such cases in order to pay for this help.
For years, many remodeling companies required salespeople to be in almost constant contact with the customer. This included collecting progress payments, writing change orders, and handling any questions. The lead carpenter concept has mostly eliminated this requirement. If there is an add-on request such as remodeling the kitchen or bathroom, the salesperson is usually called in to estimate and sell the job. But if the customer wants to add two or more outlets or change the front door, the lead carpenter can usually handle it.
Super salespeople
Up until 10 years ago, there were maybe two or three thousand remodeling contractors who sold over $2 million a year. The majority of those worked in specialty remodeling. The number of design/build companies was less than a thousand.
But sales methods in general are changing, and remodelers would do well to pay attention. In the past, 20% of the salespeople in any given field were usually responsible for 80% of the volume. That's no longer true. For instance, in the real estate field, 5% of the salespeople in the Washington, D.C., area are responsible for 95% of the business. Many top salespeople sell $20 million worth of real estate or more. What they do is handle the customer at the outset, then delegate most of the detail work to assistants.
That's entirely different than the way sales are handled in the remodeling industry. There are many top-flight salespeople in remodeling. But most companies don't back them up with a sales support staff so they can spend all their time doing what they do best: selling. Large remodeling companies will get even larger when they begin to hire and train top salespeople to sell their customers and then provide competent staff to design the project, estimate the job, set up the appointments, and handle all of the details from start to finish.
--Walt Stoeppelwerth is a publisher of management and estimating information for professional remodelers. (800) 638-8292; [email protected]; www.hometechonline.com.
