In the world of sales, there are often no right answers. What would you do in this tough sales situation? Make the call below, and see instantly how your judgment compares. Final results will appear in LBM Journal. Be sure to check back next month for a fresh Tough Call.

Tough Call - Remodeling Redux

Offering bigger discounts to builders than remodelers made sense—until builders became remodelers. What would you do?

As the manager of Builder & Remodeler Sales, Inc., you and your full-line lumberyard have prospered by watching overall industry trends, drinking in the wisdom of consultants like Bill Lee, Tom Fife and John Wagner, and making the slight adjustments necessary in materials and services in order to optimize your market share. The fact that you’ve grown while other yards in the area have not—and one long-time competitor recently shut its doors—gives a pretty clear indication that you’re on the right track.

One example: for years, you and the other full line lumberyards in the area snubbed remodelers. And why not? They bought less than builders, they were much higher maintenance than builders, and they required what seemed like an inordinate amount of service—especially when considered how much less they bought than builders. Over the past decade or so, you noticed a real shift; remodelers in your market were ramping up their professionalism and, more importantly, landing ever-larger remodeling jobs. From reading relevant magazines and watching industry trends, you knew that remodeling was the next big thing. First, you wisely changed your name from “Builders-Only Supply,” then you worked hard to make your mix of products and services more remodeler-friendly.

It worked—far better than you’d hoped. While selling to remodelers was very different from selling to builders, you and your team learned how to do it successfully and profitably. For that, you had several large remodeler customers to thank. They were happy to work with you and your team, discuss their specific product needs, and share the services that they needed from you. As the head of the single largest remodeling firm commented at the end of a meeting, “The more you help us succeed, the more we’ll help you succeed.”

He was right. Your yard became the go-to supplier for remodelers, and your sales have actually grown somewhat the past year. Unfortunately, your success has created an unexpected problem.

Your builder customers—the ones who’ve been buying from you for decades—are in dire straits. They’re sitting on inventories of new homes—and there isn’t enough new business to keep them going. Suddenly, it seems that they’ve all launched Remodeling Divisions. Which is a problem, because successful remodelers operate very differently than builders. For example, the standard margin for remodelers is upwards of 30%—a full 10% or more higher than builders.

Therein lies the problem. Your desperate- for-work builder customers are underbidding your best remodeler customers. Plus, they’re enjoying the same product discounts they received when buying entire framing packages. Your remodeling customers have learned that their new competitors are paying less for the same materials. They argue that when builders are doing a remodeling job, they should pay the same prices as remodelers. Naturally, your builder customers have vowed to buy from your competition if you raise their prices—and several competitors are aggressively courting your remodeler customers.

What would you do?

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