So far we’ve discussed two ways that an existing builder can expand into other segments of the industry. Service and retail seem to be the two primary lowest-hanging-fruit examples.
But you could argue that the most natural expansion would be into renovations. By employing some of the analytics that I demonstrated in previous columns to help start a renovation business, a builder can easily find a less seasonally dependent revenue stream that will help grow the top and bottom lines of the company’s profit and loss statement.
Here, let’s go over some basics for adding a renovation business, and end by sharing some metrics that can be used to help any division in its efforts to solidify and grow.
Defining the business
When talking about renovations, it is first important to discuss the scope of work that the term encompasses.
Many companies define renovations as shotcrete or gunite swimming pool rehab projects. In these instances, new tile, plaster and coping are often installed upon demolition of the old veneers. Other companies include replacement vinyl liners and new safety covers into their renovation-business model, while many include equipment repairs.
Because we have already discussed equipment repairs as a tactic to open a new and profitable service department, we are going to limit our scope of renovations to tile, plaster, coping and liner replacements.
Metric system
In addressing the addition of service and retail divisions to your company, I introduced a few metrics that can serve as analytics to help a business owner or manager measure the efficiency of your staff in selling equipment and water care products to your existing data base.
In the world of remodeling, we can also apply a few equations that will help you measure the efficiency and ability of your staff to retain and keep customers. These analytics will also assist you in promoting synergy among the other departments in your company.
In order to get started, let’s first establish a few milestones for your remodel department.
There is a lifetime expectancy on swimming pool liners, safety covers and plaster. It is important for each company to establish what those milestones will be, based on experience and manufacturer input.
At Memphis Pool, we say that a vinyl liner should last seven years and that a marcite plaster finish should last the same amount of time, provided there are ideal chemistry environments. Additionally, we tell our customers that tile and coping should last 15 years.
Remember that the goal in establishing these milestones is to under promise then over deliver.
Establishing a base
After establishing the milestones that your company is comfortable educating your clients about, lets now focus on your existing customer base.
For the benefit of setting up a metric that encourages a reoccurring revenue stream, you need to know the number of customers in your database.
Let’s say that you are a builder who has constructed 500 pools. That translates to 500 customers. With that knowledge, we can now take our remodel milestones and create a formula that allows you to self-generate leads while also mining work that you could potentially defer to the offseason.
Of those 500 pools, let’s first assume that all of them are made of shotcrete/gunite or a vinyl-lined structure. Knowing that each one needs to be remodeled approximately every seven years, and wanting to spread the work out in bite-size portions, we can see that we should be replacing at least 70 vinyl liners or replastering at least 70 pools per year.
Much like our service and retail metrics, we are going to ask ourselves why wait for the season to start and for the customer to contact us? Why not contact the homeowner in advance and let them know that they are approaching the lifetime expectancy of their vinyl liner or plaster? Then ask for the business.
Also look at ways to incentivize customers to defer the work to a more preferential time of year for your company — such as during the slow season, so you can distribute work through the calendar and serve your customers without the wait time that comes from congestion.
This proactive method keeps a client in your stable while also providing you ways to grow revenue during the months of the year where you would traditionally be slow. Additionally, this method gives you a baseline in which you can measure the revenue potential for your new department.
Technology metrics applied to all divisions
This doesn’t even account for the sales opportunities that new technologies provide for a customer wanting to keep their pool on the cutting edge of design.
These apply to divisions across the board.
Using the models we’ve put in place for service, retail and renovation divisions, let’s look at the different ways a builder-only company can expand their business in a measured way.
By establishing milestones and metrics, we have identified that a new service department can benefit a builder due to repeat equipment sales, water care sales and labor revenue from onsite calls. While hectic in the spring and summer, some of this workload can be pushed back to the offseason by using milestones to determine which customers are going to need equipment repairs and proactively marketing this work to the customer before the component breaks.
Additionally, knowing the gallonage of water in each pool allows you to determine exactly how much product each pool will need to keep the pool sanitized and clean for an entire season or year. All of these can be done with very little additions to overhead to the company. In retail, we can utilize similar metrics, but at the greater cost of potentially high overhead costs.
In retail, you can use some of the analytics we discussed to prepare yourself with a business model that promotes excellent customer service and time to give each customer the personal care they seek in coming to a brick-and-mortar store.
Knowing the gallons of each of your customer’s pools allows you to know how much product each pool needs to make it through a season and a year. Taking that dollar amount and splitting it up over a four-month period (November, December, January, February) allows you to generate revenue during months in which you normally would not do so.
In a retail setting, this practice brings another advantage: It frees up your registers during the busiest months of the year. It also promotes growth by reducing customer waiting times and allowing you to spend more one on one time with clients.
Lastly, using these metrics, we can round out a model for growth that covers all the bases of a once builder only company.
Now we can address the biggest question in all of this: Is your company structured for growth and, if so, where do we go to find the necessary labor for growth. Check back in for my last column which covers this topic!
