December, 2006

Put Up and Cash In

As housing starts cool, dealers’ installed sales sizzle.

By Craig A. Shutt

Installed-sales programs, particularly those aimed at homebuilders, have given building-material dealers new ways to generate revenue, provide value-added service and retain customers in a more competitive market. But dealers who run such programs say they take more consideration and care than some companies realize when they start them.

"I wish I’d learned more about the program before I took it on,” says Marco Mattorano, East Coast installation department manager for Causeway Lumber in Fort Lauderdale, Fla. Mattorano had worked with a general contractor in the area and had been a customer of Causeway before joining the company this year to run its installed-sales program, which Causeway officials wanted to expand. The program has expanded well and has proven successful, he notes, but it takes a lot of work.

"You really have to do your homework, know the demographic you’re trying to reach and target your customers specifically,” he says. "You have to decide what market you want to reach, whether it’s custom or production builders.” Some dealers have found success targeting remodelers and homeowners with their programs, too, but those one-hit projects require even more juggling. Causeway focuses on production builders and a few custom builders in its area.

"Most of our builders want the products installed,” he says. "They like having one person to deal with and having one contract for the entire process. It’s definitely a convenience factor for them. If they do their own installation, it means there are more bodies on the site and more worries and training to do.”

Providing that service, often with higher margins than the products alone can supply, helps keep companies competitive. Harbin Lumber in Livonia, Ga., began its installed-sales program six years ago as it saw competitors nipping at its business, says John Hilton, division manager. "We realized that we had to diversify our business, as parts were being taken away by specialists,” he says. "We saw that our value to customers was dropping in areas like siding and drywall, and we saw the need to expand our services.”

The added value also has boosted the program at Tindell Corp. in Knoxville, Tenn., says Steve Moore, general manager of the installed-sales division. "From an operating standpoint, the company loves installed sales, because we are profitable, and we are adding value for our customers. The ultimate goal for the program is to increase our piece of the pie.”

The types of products companies install run the gamut, but companies tend to focus on those products where they excel, and on the products their customers most want installed—whatever they are. Harbin, for example, started out with garage doors and then added cabinetry and insulation.

Tindell likewise began with garage doors, adding fireplaces, insulation, after-paint products (shelving, mirrors, bath hardware, etc.) and this year doors and windows. At Causeway, the focus has been on millwork, interior and exterior doors, and windows.

Although all three programs are profitable and they operate in somewhat different ways, they face many of the same challenges. Some of the key questions the managers wrestle with include:

Subs or employees? Deciding who will do the installation is a major consideration, all agree. Subcontractors bring ready experience and absorb expenses such as insurance. But using them also boosts dealers’ cost, reducing the company’s margins. Causeway Lumber uses both in-house employees and subs, trying to maximize the benefits of each, says Mattorano.

"We’ve been using subcontractors because the program has been expanding so fast, we didn’t have time to hire crews and train them,” he says. "To sit down and go through the interview and testing process to ensure they can do what they say they can do takes a lot of time.” But with his in-house crews, he says, "I can bring more to the bottom line.” Using subcontracted labor, he generates margins of 20% or so on product installations, he says, whereas with in-house labor, he can boost that to 40%. But that cost, he notes, doesn’t include in-house expenses, which cut into profits when they have to be absorbed separately.

Harbin Lumber uses both formats, too. "Virtually everything is done with in-house labor except the cabinetry work,” says Hilton. "That’s too specialized a field, requiring a skilled person. It’s easier to find people who can do the work than to try to train them ourselves. We like subcontracted labor—we don’t have to worry about insurance because it’s their responsibility. There’s a higher cost, but it’s easier to line them up when work arises, and we can usually keep them busy.”

Tindell, meanwhile, uses 100% in-house labor. "We have used subcontractors in the past, but we prefer using employees because of the control factor,” says Moore. "Employees are more attached to the department and the company and feel more responsible for the job they’re doing. The bottom line is that we have 100% control of the schedule and don’t worry about working around a sub’s schedule or demands. Subs have many customers to juggle and satisfy, and our employees know our expectations.”

Who supervises the crews? Particularly with subcontracted projects, supervision of completion and overall quality is a critical concern, all agree. "Our number-one problem is making sure each job is done completely, accurately and with the quality we expect,” says Hilton. Mattorano agrees. "The one place where the installed-sales program differs from my work with a general contractor is in running the crews,” he says. "There aren’t as many subs or as many different activities, but there’s a challenge in ensuring the work is completed properly.”

To alleviate that concern, both Harbin and Causeway have instituted sign-off sheets that must be completed by the sub, indicating that all aspects of the installation have been completed before the work is paid. Harbin uses an installed-sales specialist to inspect the projects, checking off details on the list, which is between a half-page and one page in length, depending on the project. Causeway works with two supervisors, divided by geographic region, to oversee the projects.

"One of the keys to success is getting subs into the proper frame of mind to do our processes as we want them and to change how they have worked on their own, so they can meet our needs,” says Mattorano. That’s also true for employees, he notes. "We have to spend time getting them to understand the needs with these services. A lot of people are comfortable working the way they always have, and change can be difficult.”

How do you qualify crews? Running employee crews requires hiring experienced people or training them separately, and each approach requires time and oversight. "When I screen subs, I look over their paperwork and licenses, and then I get references and go see their work,” says Mattorano. "I have to see that they can hang as many doors per day as they say and find out how they work under pressure. It’s an intensive interview process.”

Training in-house crews can be just as intensive. "Training has been a main focus for us this year,” says Moore. "We’re having our crews take any type of product training available, whether provided by vendors or through certification programs.” Tindell has extended that to include cross training of the installation crews, he adds. Fireplace and garage-door crews can install each other’s products, and door-and-window crews are being trained to handle after-paint areas and vice versa. "It’s a control factor. If we lose someone, we want another crew to be able to pick up the slack. Eventually, we want to have everyone cross-trained.”

How do you recruit crews? Finding the right hires also requires dedication. "Our approach is vast,” says Moore. "We’ve tried every scheme possible.” That includes newspaper ads, job-site visibility and word of mouth—approaches Causeway also has used, says Mattorano. Both agree that word-of-mouth endorsements, enhanced by employee recommendations, works the best. "We put out the word at job sites, so subcontractors contact us if they’re interested,” says Mattorano.

How does Harbin do it? "We pray,” says Hilton. "There’s no magic wand you can wave to make it work. We are constantly looking for good employees and keeping our eyes and ears open to find good candidates.” Ads have a hit-or-miss success rate, he notes, and even shifting people in-house has worked well in some cases, but not in all.

Who sells the service? The notion of a dedicated installed-sales team that helps boost the service’s penetration has some appeal, but these dealers are not using it—at least not yet. "We’ve had debates internally about whether a dedicated sales team would increase sales or distract our customers by having multiple people calling on the same customer,” says Tindell’s Moore. Currently, customers have one contact source—their sales rep—and that focus has been successful.

At Harbin, both inside and outside sales managers promote the installed-sales program, says Hilton. "Our goal is for the outside sales people to push it all the time, but currently we split it.” The company also sponsors local HBA events that focus on installed-sales programs, and it just produced a brochure that includes descriptions of its services. "Our goal with the brochure is to really bring installed sales to the forefront.”

At Tindell, new customers are approached with installed-sales products as an upfront package. "We want to show them that we’re a one-stop source from the ground up for their needs,” explains Moore. Salespeople don’t offer the products separately, but they will sell them that way if the builder requests it, he notes.

At Causeway, the outside sales reps sell the products with installation as an offered service, and then they bring the program to Mattorano for final pricing on the take-off, so customers receive one price in their quote. About 70% of the company’s millwork sales include installation, he notes. "Most of our customers want the price with installation included.”

It’s critical to create strong communication with the sales people, Mattorano adds. "They can over-promise on scheduling to help the customer, and then they bring it back to us to make it happen,” he explains. If Mattorano has a good relationship with the client, he’ll call to explain the scheduling conflict. Otherwise the sales person has to work it out. "We try to find a way to make it happen as soon as possible.”

Is it a separate division? All three companies run the installed-sales program as a separate division, with its own P&L statement. That approach makes it easier to track whether the service is making its own way. "It didn’t always make money, but it does now,” says Hardin’s Hilton. "We’ve discussed rolling it into each individual yard’s operations, but it would still have its own P&L so we could track its success.”

When do you add new products? When looking to add new products, dealers should ask key questions, says Hilton. "You have to determine if you have product specialists who can handle the products, if it fits with your customer base and if it fits with your product mix.” Harbin explains that he wouldn’t agree to install appliances, for example, because appliances are outside his traditional product lines. "But we’re always looking to add more products,” he adds, noting that windows and doors are now being evaluated.

Often, product additions are driven by customer requests, says Moore. "Builders go to shows and then inquire about products they’ve seen. Our sales team looks at the products and asks how we can add value to them. One of the things we look at is if we could install it.”

One large customer asking about the possibility drove this year’s addition of doors and windows. "We did some market research and found that a lot of our customers were interested. We bounce ideas off each other in the office all the time, but we won’t add a product until we’ve done market research to gauge the interest by our customers.”

Causeway is considering adding siding products due to the increase in the variety of products being used—particularly with the growth of fiber-cement products, says Mattorano. The company currently is working with a manufacturer to become a dealer and certified installer, with the products handled by the company’s existing installation crews.

What will a slower market mean? Surprisingly, the dealers expressed confidence that their installed-sales programs would help them as the housing market cools. "As the market slows down, I’m using more in-house crews without needing to rely on any subcontractors,” says Mattorano. "That actually increases my bottom line. The market has hit a soft spot, but we haven’t felt it so far. Our sales teams are getting new accounts we didn’t have before that want installed sales, so I’m actually looking to add people now.” How long that continues will depend on a variety of factors, he says. "I expect the market to soften more, and our competition does offer installed sales, so I have to be aggressive in my pricing. Our success will depend on how aggressively we promote the service, but I expect we’ll be fine and may even pick up work.”

Tindell’s Moore agrees that installed-sales programs can keep revenues flowing even as the market cools. "It helps us form a relationship that none of our competitors can match,” he says. "We don’t want price to be the main factor in the sale. People will beat you up over price, so you need something else. We want our customers to know that if they have a problem, we can solve it. Our goal is to have our competitors ask to present their pitch and have our customers say that it’d be hard to beat what they’re getting from us.”

CRAIG A. SHUTT, senior contributing editor of the magazine, has nearly 30 years experience covering the LBM industry.