Pricing for Profit

Rising fuel prices and health care costs are enough to challenge any small business. But gutter installers also face competition from anyone who has a pickup truck and a credit card to buy a used gutter machine. In a marketplace where both overhead and price competition is increasing, how should legitimate installers respond?

Potential strategies range from lowering prices to better sales training, from expanding geographic coverage to targeting a niche market and from diversifying product lines to concentrating on your core business.

Alan Miles, owner of Miles of Seamless Gutter in Norfolk, Va., is in the enviable position of saying, “We might be the most expensive in town, but we have the most business.” Low-ball installers, he believes, are actually putting themselves at a competitive disadvantage. Lacking the profit margin to fix their mistakes, their reputations suffer and they forfeit repeat and referral business. And driven by the need to generate constant volume and cash flow to keep ahead of their costs, they miss out on more profitable high-end projects.

“We’ve learned that building a good reputation is one key to success,” reports Miles, whose installation business is complemented by a manufacturing division that markets in four states. “Since we’re making a fair profit on each job, we can afford to go back and fix problems if they come up.” Because Miles of Seamless Gutter combines superior products and craftsmanship with responsive customer service, he notes, “Sixty-five percent of our leads come from repeat customers and referrals.”

Addition and Subtraction
The Miles family has been in business for 90 years. So Alan Miles speaks from experience when he observes, “Most gutter contractors forget that if they take jobs at cost to stay busy, they’re unavailable to take the profitable jobs.” Miles of Seamless Gutter installs not only 5- and 6-inch aluminum, steel and copper ogee gutters. The company also offers seamless (6-inch) and sectional (5, 7, or 8-inch) copper and aluminum half-round gutters.

“Half-round products have been a very profitable aspect of our installation business,” explains Miles. “Most installers just see that they can do five houses in the time it takes to do one half-round job. But for us, it makes sense to have a lot more profit even if it’s at one job.”

Miles of Seamless Gutter is not immune to price competition. “Pricing for common aluminum gutters is somewhat competition-driven,” says Miles. When it comes to .027-inch residential gutters, he explains, “Although we get a higher price for jobs than our competitors, it’s still a lower percentage of the overall profits for our business.”

Yet because standard residential gutters are not his entire business, Miles can respond creatively to price competition. The profit margin he gives up on these jobs can instead be seen as an investment in on-the-job training for newer employees. As these installers hone their skills, they become available for high-end and high-profit residential and commercial jobs. In this way, Miles develops the skilled labor to support a 40/60 mix of residential and commercial gutter sales. “And having the best available labor,” he adds, “maintains the reputation of the company.”

Neither is Miles averse to opportunistic pricing when the occasion is right. “We’ll take some jobs at a low cost if the project is big enough to give us some long-term marketing benefits,” he allows. For example, dropping prices to service a new subdivision may afford opportunities to advertise by posting jobsite signs. Yet such decisions must be made on a case-by-case basis. “Marketing in outlying areas might not be cost-effective,” he relates. “Lowering your price to seal the deal on a subdivision that’s 75 miles away could lose you money.”

Adding products is another strategy for boosting profitability. “We were one of the first in our market to add a franchised leaf protection product,” Miles points out. “We’re always looking at new innovations, though we make sure to test them out before offering them to customers.” He estimates that perhaps only 10 percent of the gutter product samples he reviews have the potential to be a good fit for his business and his market.

Yet diversification has clearly played a role in Miles’ success, helping to smooth out the natural peaks and valleys of the business cycle. The manufacturing division, doing business as All Copper Manufacturing, has seen booming sales of gutters, coil, accessories, leaf protection, roll-forming machines, and related equipment. The installation division, Miles of Seamless Gutter, also performs roofing jobs from small repairs to large commercial projects.

Because the company practices fair pricing — that earns a fair profit — it has the revenues to adequately support a diversified operation. In turn, diversity helped Miles last year weather a small slowdown in installation sales. When installations slumped a bit he could respond, not by cutting prices, but by adding a salesperson to generate more volume.

In the end, Miles believes pricing for gutter installers comes down to three principles. “Keep a current job list in mind, to see how quickly you can do the job,” he advises. “Then consider the client’s ability to pay. And finally, consider your competition.”

Finding your niches
Another approach to pricing is suggested by president Bill Frazier of Austin Gutterman in Austin, Tex. “Every quarter we look at our products and see if we need to make a change.” The 23-year-old company boasts a full line of traditional and specialty gutters, accessories and leaf protection.

“Lately, with metal costs three times greater than before, these increases have been a major factor,” Frazier continues. “The other factor is that the cost of doing business has been on the rise. Twenty trucks — that all need gasoline — affect profitability. And then there’s furnishing medical insurance for employees, which has gone up 25 percent. It’s inevitable the price changes must be passed along to the customer.”

These are the factors that drive pricing decisions, Frazier states, not “worrying about the other guy.” Austin Gutterman works hard to stay connected with its customer base, so a majority of its business comes through referrals. To secure new leads, marketing dollars are invested wisely after carefully tracking results from various media. “Advertising on the Internet has been one of our strongest lead sources,” he says. Effective marketing, rather than knee-jerk price cutting, is the best way to keep jobs coming.

Then, too, Frazier notes different niches in the gutter market yield different profit margins. “The commercial side of the business is very competitive,” he relates. “And usually the least profitable deals are selling to a tract-home or production builder. They just want to know how cheap can you do it — and they want it done the next day, and won’t pay you for 90 days.” Yet Austin Gutterman would consider taking a low or no-profit job if there were justifiable advertising benefit.

Most installers are familiar with the residential retrofit market. But the high-end custom home market has its own dynamic, as projects take more time but yield more profit. To further tap the upscale market, Frazier recently added half-round copper seamless gutters to his product line. “They have been a boost to our specialty gutter business,” he reports, “and the seamless half-rounds also have commercial applications for customers who want a unique look.”

Yet Frazier cautions against diversification merely for its own sake. “If you’re good at what you do,” he advises, “be careful about adding new products that might conflict with your core business. There’s a whole retraining process needed to successfully sell and install new products. But that process can eat away at your profitability. It’s better to focus on what you do best.” For those gutter installers who may be thinking about entering the commercial market, Frazier warns, “You need to treat commercial and residential gutters as separate businesses that require different sales mindsets and strategies.”

Divide and conquer
Nine years ago Weatherguard Systems in New London, Wis., went through the process of taking on a new mindset. The company has been in operation since 1967, boasts more than 18 million feet of gutter experience and ranks among the nation’s leading remodelers. “Though we’re primarily known as a seamless gutter company,” explains CEO Jared Murray, “in 1999 we diversified and added a home improvement division by offering siding and windows.”

Murray evaluates his pricing on a quarterly basis, yet must accede to the economic realities of a downturn in the housing market. “The past two years we’ve shifted to a mode of survival,” he acknowledges. “With the market fluctuating so much, sometimes you just have to ride it out. You can’t raise prices too much, and there have been times when we had to operate on a break-even basis.”

Yet Murray is careful not to cheapen his brand and considers discounts case by case, only upon request. “We show customers the value of our products,” he explains. “But if it’s a large job that uses a number of our products, we can find ways” to close the deal. At the same time, he also considers local market conditions in Milwaukee, Madison, Green Bay, Wausau and Wisconsin’s Fox River Valley. “Although we’re seeing less of a difference now than a few years ago,” he relates, “we look at the per capita income to see what a particular market will bear.”

In tough times, Weatherguard Systems must be judicious about passing along costs to its customers. “We address energy issues on a daily basis to try and keep our costs down,” Murray notes, “and up to certain tolerance level, we absorb those costs. But for us, anything related to petroleum products can cause a ripple affect. So after a point, rising energy prices force us to implement price increases to cover our expenses.”

Energy is not the only commodity subject to volatile swings in price and supply. When aluminum was at a shortage last year, Weatherguard Systems was compelled to make weekly price adjustments. Last June alone, the company received three aluminum price increases totaling 14 percent in a single month.

“One key to being a successful gutter contractor is finding ways to increase the ticket size on a project,” Murray advises. His own company strives to get a bigger piece of each customer’s pie by offering not only gutter systems but also gutter protection, siding, soffits, fascia, trim and windows. Weatherguard Systems and its 15 crews are active in most Wisconsin major cities, as well as Fort Myers, Fla.

The stainless steel Gutter Trojan protection product developed by Weatherguard, is distributed wholesale and sold through dealers. “And we’re in the process of negotiating with other companies,” adds Murray, “in an effort to offer products like solar panels and windmills, which meet the demand for more green products. Also this year, we’re working at partnerships with other companies in heating and plumbing, and who market ‘dry’ basements.”

At first glance, Murray admits, “These products might seem totally outside the realm of our industry. But we’re looking for synergies that provide one-stop shopping for consumers. For us, the best strategy has been diversification. In this day and age, no single business model can guarantee success. You’ve got to develop close relationships with your supplier and banker, and do your homework on every project you consider.”

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