Home Industry News REAL ISSUES. REAL ANSWERS: Razor Thin Margins



“Three words: service, relationships and quality. The large corporate guys really have a tough time providing the consistent service that a small guy can, especially if the owners are involved in day-to-day operations. Contractors like to speak with the owners whenever possible, rather than an executive planning committee when a decision needs to be made. This is especially true if your market is stronger towards custom builders rather than tract builders. If you have a choice, let the big guys deal with the high volume/low margin tract builders. Custom guys do not mind paying for quality grade material. Higher priced material generates higher gross margins. Check out your competition and carry something better than they do. If they stock a #2, then stock a #1. Before long, your reputation for quality will draw in better customers. You can’t expect different results unless you make specific changes to what you are currently doing.”

“Stop waiting and hoping that things are going to ‘turn around.’ There’s an excellent chance that this environment will be the new normal. As far as survival in a competitive market, prepare your company like you would for a recession. No extras, put off the new trucks for another couple years, put the plans for a new store on hold. Circle the wagons and identify what you do well. Concentrate on them and make sure you have adequate staff to execute what you’re promising from now on, the things you do the best. Walk away from sales that generate lower margins—the multifamily, the tracts, and the bid, bid, bid world. What are areas in your community or region that are underserved? Remodelers? Deck builders? Window and door replacement? You may need new vendors, new staff, and/or new equipment, but finding something with fewer competitors is much better than trying to do what ten other, larger companies can do cheaper.”

“Stay the course, cut your margin when needed. Keep the big picture in mind.”

“Systematize as best you can to eliminate error whenever possible. Train your employees to know when they can have control and when they need to involve you. Teach your people about the value of add-on sales and build your brand so people know your name and will find you when they need the next purchase.”

“Sell the value that you can provide. Differentiate yourself. Expand product lines in categories that allow a little more margin.”

“Take care of your loyal top customers. Be wary of chasing new business at thin margins. Look for other product lines to tie to new business if you must chase the thin margin products.”

“Keep your inventory down. Keep your accounts collected, or COD. Keep quality of lumber #2 or better. Keep service good. Be honest and friendly. Keep track of your financial, profit, loss reports.”

“Differentiate yourself on service and quality. I would be anxious to hear other ideas.”

“Use your relationships to bring better value to your customer. If you do not, your competition will.”

“Keep with the fundamentals and ride the storm, at some point trade-offs will need to be made. As long as you are willing to work hard and offer the fundamentals you will ride the wave and come out on top.”

“My advice is to ensure that you are building your lead and customer base. Too many times we get ourselves into situations where we have felt we had to take customer sales at lower margins due to a scarcity mindset we had towards our market. We have changed our philosophy to have more new customer targets to increase our customer base. This is allowing us not to feel like we ‘have’ to sell at lower margins.”

“A hyper-competitive sales environment, or razor thin margins, has never been a problem for us. The reason? We’ve found our particular niche, haven’t changed it, and we’ve stuck with it. We, sort of, travel to the beat of our own drum, regardless of what others in the market are modifying, changing, or doing. Fortunately, our customers seek us out, and we alone make the decision as to whether or not that particular customer fits into our business plan. We do no advertising. We do not continually solicit new business. We are the exception, rather than the rule. We’re selective in who we accept orders from, solely on the basis of whether we feel the experience will be satisfying for them, and for us. We don’t jump at a new sale, if our ‘backlog’ tells us it not feasible for all parties concerned. Our margins are established by us, not by our competition, or our customers. We know what it costs us to do business, and we don’t waver from our basic business concepts. It’s worked for more than 47 years!”

“Reduce costs ‘til it hurts, and hope your crew will stay thru it.”

“If you do the right things for the right people long enough everything will be worthwhile.”

“Continue to do the things you do well and look for opportunities to create a niche market for your area that may offer better margins. (And then do that well also!)”

“Sell out ASAP. Get what you can and leave it for the big box stores to continue to give it away! They will continue to ruin a great industry and put many small businesses out of existence and extinguish the American Dream for many good people.”

“If your market has yet to recover, the next four years seem unsettled at best. Unless you can find a competitive edge service, price, product or geography, you best consider a new line of work.

“Be bold with the right customers to offer your top shelf offerings with a performance guarantee. The best customers are swamped busy these days, and flawless performance lets them get on with their personal goals sooner.”

Have a Real Issue? Contact me at Rick@LBMJournal.com.

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