How to Increase Remodel Profit Margins While Costs Climb

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By George DeMare, Vice President Business Development

Remodeling a home should be a treat, but can,

One of the biggest challenges for remodelers today is rising project costs.

Over the past three years, material costs have risen 5-9 percent, and trade contractors have also increased prices.

When times are tight, small-business sub-contractors will lower prices to stay busy, but in a strong market, their prices will skyrocket.

Labor rates have also gone up. Low unemployment and a significant shortage of skilled labor is a recipe for an increase in labor costs.

Many remodelers are paying workers 30 percent or even 40 percent more versus five years ago. Mix all these rising pieces of the remodeling puzzle together, and it is easy to understand why what was once a $40,000 kitchen is now $60,000.

Most remodelers are seeing their profit margins squeezed as prices rise.

While the top line is increasing, bottoms lines are not necessarily following suit. Demand is high, but remodelers are working harder for each sale with a longer process and more internal costs. Sealing a deal in this current market can also mean tweaking markups and margins in order to get the job.

Remodelers should prepare their profit margin by assuming that costs will go up. When estimating a project, think six months into the future.

Educating clients is also important. In the first meeting, share what is currently happening with costs. Refer to low unemployment rates and trade wars, issues most people are familiar with and can understand.

Maintaining and increasing the profit margin, while all other costs are rising, is a critical subject in today’s remodeling environment. Planning ahead, knowing the current market, and communicating with your clients are all crucial to maintaining a profit margin in times when you should be making more money.