Should you let remodeling clients buy their own materials?

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Tom Swartz: How often do you get calls from customers asking you to install projects that they have purchased?
Donna Shirey: About 25 percent of our clients want to supply some materials.
Scott Mosby: Much less than 25 percent. I’d say we get 5 to 10 requests per month. It’s not a large problem for us. The reason that they call is that they’ve got a problem, they need to fix it and they may construe the fix as starting with a product rather than a service. It’s a lot easier to buy a thing than it is to evaluate and judge a service.

Swartz: That’s in 2011. How does that compare to 3 or 4 years ago?
Shirey: We think it’s pretty much the same. It has not really changed too much. There are people who just want to do that. They think they’re saving money.
Mosby: It’s probably doubled since 2008. I would respond that with the big box stores, they display and sell product way better than I do. As the consumer has a visible choice to make, walking in on their own time, on their own schedule, they can go see something and educate themselves. As the big boxes thrived, it’s increased.

Swartz: What do you do when a customer, they call up and say they’ve bought their own material? What’s your response to that?
Shirey: We find that mostly it’s faucets that they’re concerned about. They like to go in and pick out a faucet. A lot of it is education that we have to give them about what to buy, because there are brands that we will not put in because they are very difficult to install. The other thing is we have to make it very clear about the warranty; that when they
supply materials we have no warranty on that.

Swartz: Do you ever put a mark-up on the material the customer has purchased?
Shirey: No, we do not.

Swartz: Scott, what’s your initial response?
Mosby: The initial response is why, what is it they’re trying to figure out? What is the real problem they’re trying to solve? For example, in 2006, we did the largest project we ever did — $2 million. It came about because this guy bought a hot tub at a silent auction and needed it installed, so we don’t blow anybody off anymore.

Swartz: How did you end up moving a person who had a hot tub to a $2 million project?

Mosby: He didn’t really want a hot tub. He wanted to relax, soak and watch the sunset. Are you going to do this in January in St. Louis when its 10 degrees outside? He needed a place where it’s warm. Then we need to moisture manage this room, and we went on from there. Again, I get back to what is this particular client trying to achieve.
With the level of knowledge that consumer has, they use whatever words they understand. They are trying to solve usually a symptom and not a problem. It takes some vetting to get down to the real reason.

Swartz: Do you charge the same on these particular jobs where they have the materials as you would if you were supplying labor and materials?
Shirey: We do charge the same rate whether they supply materials or not. What we’ve come up with is, we call them segments. We have a two-hour segment, a four-hour segment and an eight-hour segment, so we can estimate things pretty well over the phone by using our segment process. We’ve been doing this about a year and it seems to work pretty well.

Swartz: Scott, talk to me about your estimating.
Mosby: We try to do it as a flat rate. For labor-only, we charge by the hour. It’s around grab bars, vent fans, storm doors. We have 8 or 10 products that supply about 80 percent of our requests for owner-supplied materials. Those we have a flat rate. That works out.
It’s not a real profitable thing for us. The real objective for us is a marketing objective of acquiring a life-long client that wants our services and reliability.

Swartz: How do you treat the warranty of the project when the customer supplies the product?
Shirey: We do not warrant the materials that they supply. We do warrant our labor and our installation. It’s a bit tricky if there is an issue with it and they want us to come back and take a fan out, for example, or a light fixture that isn’t working so they can take it back and get a new one. They have to pay us to take that out. We do not cover that if they supplied the light. If we supplied the light, we would absolutely cover that.

Swartz: What happens if the product you’re installing … gets broken when you’re installing it?
Shirey: If we caused it, we might replace it, but we would rather have our clients do that. I can’t remember us ever breaking something that a client supplied.

Swartz: Scott, what’s your warranty?
Mosby: We’re a little more hard-line on things if we break it. If we buy a faucet it’s probably a brass faucet body. If a client buys a faucet, it’s probably a plastic faucet body. Obviously, two different levels of risk. If we provide the whatever and it breaks, we take care of it. If they provide it, a poor choice on their part should not be a problem or added responsibility for us. That’s part of the conversation up front.
If we break their product, they pay for it.

Swartz: What if there’s not enough material, or what if there’s a miscut?
Shirey: In that situation, we would talk to the client, say, “We need more material, do you want to go get it?” Otherwise, my guy’s got to get in his van, drive to the store and pick it up, and we mark it up our usual rate and charge for his hours.

Swartz: Where have you found that most of the customers that supply their own material, where does it come from? I would have told you that online is driving this in our experience.
Mosby: Most of the products still come from the big box stores, Most of our owner-supplied materials, they’ve finally called us after two or three efforts that resulted in failure.

Swartz: You have certain margins that you have for labor and certain ones for materials. How do you make money and make margins on projects where they supply their own material?
Shirey: We do our best to have it limited so that it’s a small job. In our segments, we charge out our guys at $93.25 [per hour], so we’re making overhead and profit on our guys that is going to cover it.

Swartz: So you have a good mark-up on the labor that you have. You’re not making anything on materials. You say you’d work for that and not ever have to handle the materials or buy the material. Is that OK with you?
Shirey: Some of the time it is. I like to charge for everything, but I think there is a segment of the market that really thinks they’re saving money if they supply a bathroom fan. I don’t think they do, but we’re in this long-term and we may be establishing a relationship with a client who will always remember that we let them supply the fan. It’s not our first choice, but we do it very happily.

Swartz: Scott, how do you make it work, margin-wise, for a customer who wants to supply their own materials?
Mosby: Making money at this, one foot is in the marketing budget and one foot is in the profit incentive budget, but I want to be real clear about this, our objective is to have a repeat client in the future that will expect us to provide labor and materials.

Swartz: Last thoughts on what you would advise a remodeling contractor that is running into it where customers more and more today [want to supply materials]?
Shirey: I think one of the most important things is for you to know your costs so you can look at that and know whether you are going to make money on that or not.
Handyman and small projects are very difficult, a tough way to make money unless you are very disciplined about it. It’s a choice — you can say yes or say no.