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Market Slowdown Creates Opportunities

August 28, 2006
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Attention contractors! If you haven't noticed, the downturn in new residential construction is finally occurring. Reports from all over the country indicate that new housing starts are down in nearly all regions. As the sales numbers go down, it becomes even more difficult to be profitable in the already price-sensitive new construction market. On the positive side, even though the starts are down, since the last few years have been so good, the actual numbers are not really that bad. However, if we have geared our operation for the inflated start numbers we had been experiencing, it's necessary for us to make some adjustments.

My optimistic nature is to look at this turndown as an opportunity rather than a bad thing. Our company has gone through many of these down times and finally we have made some adjustments that will help us through the period and maintain our profitability. I'd like to share with you some of my recommendations.

THE FIRST AREA TO LOOK AT IS OPERATIONS

As good as your installers may be, are there some that aren't giving 100 percent - that can be dropped at this time? Making a change or two will improve overall production. It's time to look at your inventory as well. Likely you were stocking up when you were very busy, so now it's time to consider reducing those inventory levels. The goal is to look at every step in your operation and take this opportunity to eliminate anything that isn't adding to productivity. Usually when we are very busy, we are moving things and turning dollars and everything is happening so fast that we don't have a chance to really look at the details of what we are doing. When things slow down, that's the time to look at those areas that may have gotten out of control.

The next step I recommend is to look at your sales processes. Given a little more time, is it possible to put more emphasis into selling upgrades to those buyers who are purchasing a home at this time?

When you are very busy, you may not have a chance to push upgrades. But by upgrading a buyer to a high-efficiency furnace and/or air conditioner or by adding an air cleaning unit, you can greatly improve your margins to help make up for some of the lost volume. You may also have the time to call on some new potential customers whom you haven't had time to contact while you were busy.

But there is another more important change you can make to ensure your future success. If you have been concentrating most of your efforts on the new construction market, now that there is a slowdown in that market, you have no excuse to not put some effort into the service and replacement markets.

YES, MAINTENANCE AGREEMENTS

Now is the time as fall approaches to go back to those new construction homeowners and sell them a maintenance agreement. I have been encouraging contractors regarding the importance of maintenance agreements, but I know that when you are busy you may not want to make the effort to sell them. Start right now. If you would like to receive a copy of our maintenance agreement and the promotional piece we use to sell them, just e-mail me at the address below my picture.

I can tell you from personal experience that if we hadn't begun to emphasize the service-replacement market, starting with maintenance agreements, we would be in a very bad position right now. In our area, even though new permits are down 25 percent, overall we are down just 5 percent. We have had a hot summer and that has helped us increase our service/replacement business enough to overcome almost all of the loss in volume while actually increasing our profit margins.

So don't hang your head because new construction has slowed down. Use this as an opportunity to sell maintenance agreements and to increase your service-replacement business. In the long run, your company will be better after the downturn.

Publication date: 08/28/2006

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