Handyman

If you think there might be, here are answers to your key questions from the inveterate members of our special Remodelers Executive Roundtables Handyman Task Force who met recently in Washington D.C.

Is There a Market? The answer is a resounding Yes!

Walt Stoeppelwerth, HomeTech, estimates that "Over 50% of the remodeling dollar, or $50 billion... is an opportunity for the retailing of services in a handyman business."

The 6/23/99 edition of the Wall Street Journal reports, "Buoyed by a robust economy and a surging stock market, more Americans, particularly dual-income couples...are paying others to cook, clean, mow, weed, drive and mind the children, among many other chores. Last year the number of servant-type jobs....grew 8% to almost 1.8 million, more than five times the rate of overall job growth."

81% of employed consumers feel the need to simplify their lives and create more time for home and family....37% are making up lost time by getting less sleep....38% just skip the housekeeping! says Yankelovich in a 1997 Monitor Survey of American Social Values.

Those online grocery delivery services might even do windows. They are looking at handling video and dry-cleaning pickup, shoe repairs, photo-finishing and firewood orders. Homegrocer.com plans to deliver postage stamps and home/office supplies to its Seattle customers, while Streamline in Westwood, MA, transports its customers' clothing and food donations to charities. "Money is to be made in simplifying people's hectic lives, not just delivering groceries." From the Wall Street Journal, 2/12/98

Ken Harney, who writes a syndicated real estate column "The Nation's Housing," recently described an awakening of the national real estate companies (RE/MAX, Coldwell Banker, Prudential) to the potential in home services. Most have imitated the concierge approach of first-class hotels offering as many as 150 types of services -- alarms, termite treatment, moving services, lawn care, dry cleaning, and much more. From Walt Stoeppelwerth's column in Remodeling, 5/99.

In sum, consumers have lots of money, no time, few handyman skills and lots of wants and needs. No one seems pessimistic on the future of the professional service company.

These Are the Key Issues:
1. What is your goal in starting this division? Remodelers differ on their goals for starting a handyman division. Some just want to do a better job of servicing their current clientele. Others want to expand their full service remodeling client base. It's fairly easy to meet these goals and means you probably need less planning in the setup and you won't be focused on profitability.

But most remodelers want their Home Services division to make profits for their company while creating security with diversification. If this is your goal, study what others are doing and carefully answer the following questions. Produce a business plan that shows what it will take in volume, in markup, in staffing and in marketing to make a profit on this division. Only by setting clear goals will you be able to decide on a Home Repair Division.

2. What type of job do you want? While many remodelers use a job dollar cutoff for what the Home Services Division will handle, job size alone is not a clear determinant of a good handyman job. Instead, simplicity, quick turnaround, no need for design, and little need for management involvement are more important parameters.

This could include one "job" that reaches $15,000-$20,000 or more as a client continues to add small projects once the technician is in their home -- or it could include a very simple large job. Your decision here will affect many other decisions down the line (such as who "sells" the job and how they sell it.)

3. Will your emphasis be primarily on carpentry or lots of multi-trade work? Will you handle subcontracted work like window or carpet cleaning? If you are thinking just home repairs with an emphasis on carpentry, you may be thinking too narrowly. Here a just a few ideas for innovative and needed services:

• A toddler-proofing package

• A fixup-your-home-before-you-sell-it package

• A regular maintenance package including cleaning gutters, window cleaning, changing HVAC filters and detector batteries

• A safety check package for lead, radon, changing batteries in smoke detectors, cleaning chimneys, having water tested, better exterior lighting

• Retrofitting homes with recycling bins in the kitchen, trash area.

The options are truly endless and you can look to your clients to tell you what they want and need.

4. Are there some repeat buyers or referrers you could tap for continuing work? Many offices, factories, manufacturing plants need a company they can call for quick no-hassle repairs. Painters need carpenters (and quickly) to replace rotten wood. Real estate agents need a good reference for quick and reliable repairs to rental properties they handle and homes on the market that need a quick-fix. If you already have these types of contacts, you will want to shape your services and products to them.

5. What geographic area will you serve?

6. How will you staff your division? Will there be a division manager? This will allow you to be hands-off and yet give you a "champion" for this new business who is expected to help set goals and achieve them. Or will you start out simply folding small jobs in with your current load? If so, will you overload your current staff?

The Remodelers Advantage Roundtables Handyman Braintrust recommends that the Home Services Division should be a stand alone profit-producing unit with a manager who reports to the company owner. This scenario means a volume of at least $500,000 (see below).

7. Will you go first class - and professional - trucks with decals and staff uniforms? The Remodelers Advantage Roundtables Handyman Braintrust feels this is the way to go but this will affect your volume goals and your need for capitalization. Franchises use this professional image to differentiate their businesses from the "small guy."

8. Do you intend to invest capital in this new division? That will allow you to hire ahead and start on very professional footing. Or you may want to bootstrap the new entity through your current firm. A national handyman franchise (21 sold nationwide) requires a $35,000 franchise fee plus $5000 in marketing contribution. They recommend that anyone investing have an additional $50,000 in operating capital available to fund the division until it can stand on its own.

9. Will you "sell" the job or take orders? Much of this decision depends on how big your home services jobs will be. Cutting off doors in preparation for new carpeting is likely to be an order taken over the phone by an expediter. Pulling and replacing a kitchen for $15,000 calls for onsite visits by a salesperson who can scope out the job, estimate it and close it. Whether you have a salesperson will also be dictated by your answer to this question - how will you charge. If you are going to charge based on a line item estimate, you need a salesperson to visit the site and create that estimate and contract and sell the job. The good news is that a talented salesperson can substantially increase the job size in contrast to a telephone order taker.

10. Will the person selling be managing the job? Will they be constructing the job? Some companies use a dedicated salesperson, others use a salesperson/ production manager and still others expect the mechanic to perform the job on a time and materials basis. Much of your organizational structure will be dictated by the job size parameters and by the volume you intend to do. Your organizational structure will also be affected by how you intend to price the job (see below). Before you start this division, be sure to develop an organizational chart for at least the 1 year/2 year time frames and job descriptions for each of your employees.

11. Will work be done on a flat rate, fixed price or T & M basis? This is a controversial area. There is a move afoot to create the kind of pricing found in auto repair where a task has a charge assigned which sometimes is overly profitable and sometimes is not profitable enough but which averages out favorably to the company. HomeTech (1-800-638-8292) promises their new handyman pricing guide will be out first quarter, 2000. Their web site contains the first three chapters of Walt Stoeppelwerth's book on Handyman Services. Obviously, this flat rate approach to pricing will only fit standard tasks.

Or you can provide consumers with a fixed price as is commonly done in large remodeling jobs. If you use this system, it requires a salesperson/estimator visiting the site and that means a larger staff. However, many remodelers feel that homeowners are less likely to quibble when they know exactly how much the job will cost. You will have to examine whether smaller jobs -- under $5000 -- can support the costs of someone going to the job to gather information or the time needed to create an estimate, even with a trip fee. These smaller jobs may dictate a T & M approach.

T & M has its pros. There is no need to develop a firm estimate. A technician can go directly to the job and work until it's finished. If all of the correct markups and costs are included in the price, this method can produce a nice profit. But it also has its drawbacks. Some clients are afraid of time and materials because they don't know how much the job will cost and that could be a sales stumbling block. And because the invoice is broken down for the client's benefit, they can see the amount of hours, costs of materials, etc. and may argue about particular costs.

Typical Home Services Pricing: These are the ranges used by the RER members who participated in our Handyman Braintrust Workshop.

T & M. Some companies require the buyer to use a minimum number of hours B typically 2-4 . Many companies charge more for the first hour in order to compensate for travel time.

• Hourly billing rates range: $45-$58

• Materials: marked up 35-100%

• Subcontractors: marked up 20-40%

Fixed price estimate. If the job is complex enough to need an estimate done -- or the client insists on working from a flat price--the remodeler may charge a fee ($45-$65) to cover the cost of the research and development. An estimate is then provided to the client. If the prospect accepts the bid, often the initial charge is credited back to their job.

Some owners will only estimate jobs that they expect to be larger than $5000. Most experts recommend marking up jobs by at least 100% in order to insure a profit.

12. How will buyers pay? Making money in Home Services requires fast tracking all your administrative procedures. That includes collections. Consider credit cards -- but only if you can isolate your repairs division from your general remodeling division. Credit card companies demand that no services be held back from the use of their cards and that no extra charges be levied for the use of the cards. One remodeler found a buyer demanding that they be able to use their mileage-based credit card on their extremely large remodeling job. That means a 2-3% charge that was never built into the estimate.

Barring that, credit cards are a perfect payment medium for this service. Or if the homeowner is home, ask for a check. Try to avoid the mailed invoice except with very large jobs. Mimic the dishwasher repair company or the HVAC servicers who want their money at the completion of the service.

13. How will you set appointments so you best serve clients' need for convenience? Will you give them a definite day and time? Many remodelers feel that this is demanded by the marketplace. They feel that if a definite time is not provided, they could easily lose the job as the prospect will simply hang up and go to the next service on the list who will provide this. In order to provide for the probable expansion of every job, the scheduler may sandwich each job with several hours of unscheduled time. Then, if the job grows, no other jobs have to be rescheduled and no clients are unconvinced. If the current job does not expand, it's easy to move other prospects forward in the system or to add in a new call.

Because most handyman jobs do expand ("While you're here . . ."), others feel that the best way to handle scheduling is to tell the prospect that they will be serviced within a certain block of time -- usually a week. "Sir, we'll be able to schedule your job during the week of ." The client is then called with their specific time and day a few days before the beginning of that block . By doing it this way, they can work with a more concrete schedule and again avoid rescheduling the client.

14. Will you provide weekend and emergency service? Most remodelers feel that this is a valued and profitable part of their Home Services. That means a technician and/or manager needs to be on call over weekends and holidays. Most people pay their technician a fee to take the pager and be responsible for all calls. They're paid time and 2 for any jobs they actually go on. One member pays their supervisor $200 to be on call every weekend for an entire month.

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Do You Dare to Offer a 24-Hour, 7-Day Service? is the title of an article in the PHC Profit Report Newsletter. Frank Campisi of Bruni & Campisi Plumbing and Heating, interviewed about his 24 hour service noted that after-hours work is 15% of their annual sales volume. Campisi advises that this round-the-clock service is one of the best ways to gain new clients and grow your business. They feature the service prominently in all their ads. The clients who use this emergency after-hours service are charged premium labor rates (time and a half) and the tech gets a generous percentage of the labor portion instead of an hourly rate.
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15. How will you market your services?
Remodelers tend to start a Home Services Division with a client base that is already needing repairs. However, this is a business made up of many small jobs. Experts advise a marketing budget of 8-10% of the projected volume. Since past clients are your first tier customers, why not give large remodeling job buyers a gift of 5 or 10 hours of your handyman service? Or give them a preferred customer account with expedited servicing and a 5 hour credit toward their first purchase. Be sure to let them know your small jobs service exists in all general marketing pieces.

Here are some other marketing approaches that work:

• Give hours of handyman services as charitable donations for auctions, fund raisers.

• Use door knob hangers around all jobs.

• Brian Reid markets the phrase, "Make a List" to encourage his handyman customers to maximize their use of their investment -- and enlarge the job to boot!

• Consider newsletters mentioning the service to prospects as well as clients.

• Truck signage is important. The larger, the better. That's one of the benefits of owning the trucks -- you can plaster them with attractive signage.

• Provide stickers or magnets so your clients can keep your phone number handy. Use stickers on furnace, electrical boxes, inside cabinet doors.

There may be an Achilles Heel in this rosy picture. You'll have to do the homework - creating a business plan and an operational budget, setting your markup and your volume - to see if the profitability is there for you in your market. Our Remodelers Executive Roundtables Handyman Task Force felt there was a critical mass of volume needed for profitability and that that volume was $500,000 to $750,000.

After analyzing the costs associated with running a handyman division, the group felt that a handyman division must produce approximately $500,000 or more of volume to achieve a decent net profit. Since the common wisdom states that one service tech with truck can produce approximately $125,000-$170,000 in volume, this means that any company must have at least 3 techs out on the road. ($166,666 average volume.)

Here's are some scenarios at two volume levels:

Volume $500,000 $750,000
Job Costs (COGS) 50% $250,000 50% $375,000
Gross Profit 50% $250,000 50% $375,000
Indirect Costs
Salaries $115,000 $115,000
Owner 20,000
Division Manager 40,000
Service Expediter 25,000
Marketing 6% $30,000 4% $30,000
Overhead 22% $110,000 14.6% $110,000
Total Indirect Costs 51% $255,000 34% $255,000
Net Profit 5% $25,000 16% $120,000

It has been written that you can expect only 6 billable hours a day from a Service Tech. In order to make your Home Repair Service viable, you may have to challenge that premise.

*If your service technicians average 6 billable hours/day for 5 days/week for 52 weeks @ $56/hour, your service techs will produce $87,360 annually in labor billings.

*If they average 7 hours in the same scenario, they=ll produce $101,920 in labor billings.

*If they average 8 hours in the same scenario, they=ll produce $116,480 in labor billings -- a 33% increase over the 6 hour/day figure.

This issue of billable hours may be the determining factor as to whether you make a profit or not. Also, in this scenario, you can see that you have to average more than $56/hour in order to reach the volume per technician that is necessary to make a healthy profit even if you do bill 8 hours per day. Here are some tips to help:

1. Charge for travel time starting the moment the technician leaves their home until they reach the first job. Then charge for any travel time between jobs. David Foster of Foster Remodeling Solutions, Inc., begins charging when the technician leaves their home to head to a job -- but pays the tech from the time they arrive at the job.

2. Avoid cancellations. Call the night before to confirm appointment.

3. Hand the technician 8-10 job folders at a time so if there is any switching around, they have the next job they can call.

4. If you're scheduling ahead by the week, tell your clients you'll be there the week of "Sunday, Month, Date." By using the Sunday date, they'll be more likely to remember that you'd only confirmed for sometime that week -- not Monday -- which helps avoid disappointment and cancellations.

To Sum Up: Here's the good news!
1. Home Services is an idea whose time has come -- at least from the consumer's buying patterns.
2. The internal processes of a Repair Services company lend themselves to systematization -- in fact demand that discipline.

Here's the not-so-good news!
1. The wide range of conceivable job requests presents a huge area of variability making systematization and predictability difficult.
2. Working in occupied space with all its attendant dangers raises the risk level. There is no room in small jobs for damaged carpet, nicked paint, smashed vases.
3. This is a high overhead business when pursued professionally.
4. It may be difficult to get all the parameters working efficiently to produce a 10% + net profit.

As you look at this viability of this diversification, be sure to ask yourself whether money could more easily be made elsewhere? Or is this just the right fit for my company?

Many thanks to our RER Home Services Braintrust:
Anthony Wilder Design/Build - Liz Brady
Carey Contracting - Mike Carey and Tim Chiamulera
Carnemark Systems & Design - Jonas Carnemark, Phil Twomey
Cobb Hill Builders - Tom Avallone
D/R Services Unlimited - Ron Cowgill
Foster Remodeling Solutions - David Foster, Tom Doyle
Mitchell Best & Goldsborough - Mark Goldsborough
Reid's Remodeling - Brian Reid

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