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With Remodeling Spending On The Rise Is Your Construction Company Ready?

2018 is tracking to produce the strongest gains for home remodeling in more than a decade according to the latest Leading Indicator of Remodeling Activity (LIRA).

Annual growth rates have not exceeded 6.8 percent since early 2007 before the onset of the Great Recession. With growth comes customer opportunity and more competition. Is your construction company's business development team ready?

Remodeling By the Numbers

2018 is shaping up to be a robust year for residential renovations and repairs.  

"Steady gains in the broader economy, and in home sales and prices, are supporting growing demand for home improvements," says Chris Herbert, Managing Director of the Joint Center for Housing Studies.

Add a record number of devastating natural disasters in 2017, and you have the perfect recipe for a booming year for remodeling construction companies.

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I also noted that 2018 home building trends show that the limited housing supply in some areas of the country combined with a rising interest rates and costs is squeezing some potential new construction home buyers out of the market. Instead of down-payments, these expanding families may invest in home additions and renovations.

Leading Indicator Remodeling Activity

Published quarterly by the Harvard Joint Center for Housing Studies, LIRA provides a short-term outlook of national home improvement and repair spending to owner-occupied homes. The LIRA projects that homeowner spending on improvements and repairs will approach $340 billion in 2018, an increase of 7.5 percent from estimated 2017 spending.

Market Opportunity Equals More Competition

The degree of competition between companies and within an industry depends on a few factors. If the opportunity in a market is very high, such as projected 7% market growth for the remodeling industry, then the competition rises at a quicker pace. Opportunists also smell a quick dollar and enter the market.

The pace at which this happens usually depends on how difficult the barrier to entries are for the industry. The construction and remodeling industry is a regulated one, but is not as stringently regulated as the financial or health care industries.

Prospects that are price-sensitive may contract with someone who “works on the side”. The combination of high opportunity and low barriers to entry usually floods an industry with more competition and sometimes less professional, less established entities. For construction trades this often surfaces as persons who hustle remodeling part-time or “under-the table”.

To add insult to injury, the remodeling and construction industries are for the most part homogenous. There is very little differentiation between most remodeling construction companies. Unless the project was completed very poorly, the average customer can not delineate between the quality of most finished work done by construction companies and contractors.

With a plethora of remodeling design inspirations available via Houzz, Pinterest and Instagram, remodeling contractors and interior designers are now slaves to inspiration boards and HGTV. Few contractors can or need to invest in developing original talent on their benches. Simply put, it's very hard to be remarkable as a remodeling contractor in this market environment.

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Positioning Your Construction Company for Growth

Armed with the knowledge of both the good news (7% market growth opportunity) and the bad (flooded market, increased competition and little differentiation), now is a good time to take a look at your construction company positioning and the market its serves.

  • Everyone wants to claim being unique but very few companies actually pull off strong positioning in their market. It's safe to be a generalist, it's hard to be brave and specialize in a particular part of your industry.
  • Specialists are by nature more highly sought after and command higher fees. Specialists also have to turn work away that doesn’t serve their niche. It's extremely hard to turn work away, especially in a booming market and this sounds exactly like the opposite of good advice.
  • If you wish to position your company against your ever growing list of competitors, this is simply something you must do, or prepare yourself and your business development staff to meet more sales opportunities armed with nothing more than price differentiators.

If specialization is just too hard a pill to swallow for your firm, consider reviewing the markets you serve as a differentiation tactic.

  • Geographic specialization is especially easy to accomplish for construction firms considering resource availability such as crews and equipment are location based.
  • Consider narrowing your target markets to zip codes that provide not only the highest numbers leads but also the most profitable projects. This simple pivot table will give you strategic insight into the areas of your service region where you should focus your business development and marketing efforts.

As we look forward to a healthy year for residential remodeling contractors, I would heed cautious optimism.

Growth is always welcome in any industry but it doesn’t come without a price, or in this case, possibly lower pricing due to increased competition.

Review your company’s positioning and service markets to hedge against these growing market-symptoms. You’ll reap the benefits of not just increased market activity but healthier profit margins and stronger market positioning.

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