Analysis of remodeling industry reveals how the best firms are garnering the lion’s share of gains
Anyone considering starting a remodeling business should pay close attention to a report from Harvard’s Joint Center for Housing Studies. The report, “Emerging Trends in the Remodeling Market,” shares a lot of details about growth projections for the remodeling industry.
The future looks bright, Harvard’s study shows. And it looks brightest for companies that weathered the Great Recession and emerged from the downturn with processes and people in place to take advantage of the upswing in the market.
“In 2013, firms on Qualified Remodeler magazine’s Top 500 list reported median annual revenue growth of 10.8 percent, far outstripping the 3.6 percent increase in total market spending for professionally installed improvements that year. Indeed, recent revenue growth at these larger companies was even stronger than during the housing boom,” the report says.
Average revenue for DreamMaker franchisees grew 23% in 2013. Between 2011 and 2014, average revenue grew 60%, to nearly $800,000. Results for 2015 will be available this spring when DreamMaker releases its latest Franchise Disclosure Document.
Why are some remodeling firms outperforming others?
Much of the remodeling industry consists of individuals or partnerships with no employees or payroll. Small operators are able to open shop with minimal startup costs, but they also have meager resources to serve customers. Marketing, managing cash flow, production work and customer service create competing demands that can push people to work 70-hour weeks while juggling multiple responsibilities. Without professional polish and support staff to help maintain customer service, small remodelers often compete almost wholly based on price — and unlike their bigger competitors, they don’t have enough scale to negotiate lower product costs from suppliers. The end result is pricing that squeezes margins and a level of disorganization that can lead to customer complaints, which of course hurts word-of-mouth and precludes repeat business.
“Firms that are able to overcome these hurdles, however, enjoy a long list of potential benefits, including stronger revenue growth, higher labor productivity, significantly lower failure rates, improved buying power, more efficient management, and increased brand recognition and trust,” the Joint Center for Housing Studies writes. “Indeed, the performance of larger-scale remodeling contractors in recent years provides clear evidence of the many advantages of scale and of the growing momentum toward full recovery from the worst downturn on record.”
DreamMaker Bath & Kitchen is a full-service interior remodeling franchise that pools the buying power of dozens of franchisees nationwide and then negotiates bulk prices with vendors. This allows franchisees to stay competitive while maintaining stronger margins. DreamMaker franchisees achieve an average gross margin of more than 40% on their jobs. This margin enables DreamMaker franchisees to hire great carpenters and sales people, which allows them to concentrate on managing their business and achieving scale. They don’t have to do everything themselves. They have a team.
DreamMaker has built systems for managing and scaling the business that helps franchisees grow a strong business without being consumed by it. The leadership and support team works with franchisees to help them not only run a great business, but have a high quality of life. Click here to read interviews with DreamMaker franchisees.
What is driving growth of the overall industry?
The biggest drivers of remodeling growth are the improving economy, strengthening home prices, and demographics.
Here’s a look at what the report says about the customer base for remodelers:
- As the economy has improved, homeowners are increasing their spending on discretionary remodeling projects (kitchen and bathroom remodels, new floors, new windows). This is especially true in metropolitan areas.
- Baby Boomers remain big remodeling spenders. This is noteworthy, because remodeling spending tends to decrease as people near retirement age. Harvard attributes this to Boomers’ tendency to work when earlier generations would have already retired, and their attraction to “aging in place” remodels that will make their eventual retirement more comfortable.
- Gen X, which matches the size of the Baby Boomer generation thanks to immigration, is now in its peak remodeling years (typically mid-30s through mid-50s). The Joint Center for Housing Studies expects Gen X spending to keep the industry steady as Boomers gradually reduce their expenditures.
- Remodelers can expect strong industry growth as Millennials gradually move into the home market. Their sheer numbers will drive remodeling growth in the future.
Ready to learn more?
For in-depth details about the DreamMaker remodeling franchise opportunity, download our free franchise report and start a conversation with us. You can also learn more by visiting our research pages.