A shiver went through me recently while I was moderating a dealer panel discussion. It came when I realized that sometimes construction supply companies aren’t all that different from payday lenders and pawnshops—vultures that exploit people who can’t manage their lives or their finances.
This idea surfaced when a dealer at the panel discussion said something I’ve heard often from dealers nationwide: Lots of LBM businesses’ profits are built on the laziness and incompetence of their customers.
You see this in action every time a builder calls a lumberyard from the living room of a project to order something he forgot … and then calls again when he reaches the kitchen … and once more when he reaches the attic. You see this when a builder turns you into a de facto project manager. You see this when you find yourself calling remodelers to collect on a past-due bill, only to discover that they’ve never learned the importance of keeping on top of their own customers.
Why put up with all of this? It may be because such pros are your best source of revenue; back during the housing crash, some dealers were making more money from late fees than from material sales. But what worries me more is that you rely on these customers because, like the payday lender, you’re their last hope and thus they will pay—eventually—the prices you charge. Meanwhile, the more solid, better-paying customers have found other ways to get their building materials.
I should stress here that there’s a difference between a service and a lifeline. Americans are more willing to pay for services than ever, from grocery delivery to dog walking. If you can do something special for your customers that makes their lives easier and that attracts good customers—online services that let pros interact with you at night, for instance—that’s great.
The challenge comes when services lead to dependencies, particularly when those services don’t generate any profit. Think of how much it’s costing you to do material take-offs, or give discounts even when the customer pays by credit card. De facto project management takes hours away from your sales reps. And remember how hard it was for dealers to stop offering free deliveries.
We’re entering a time in which more-advanced builders will embrace technologies like building industry modeling software, which means they will be producing take-offs and conducting stress tests even as they are designing a project. There’ll be more emphasis on planning the entire project in advance, so your skills at managing the project will be less in demand. Multifamily jobs will proliferate as land costs rise and affordability challenges for single-family detached homes worsen. Build-to-rent companies, run by people with whip-smart financial skills, are on the rise.
The lazy and incompetent builders won’t go away and, thus, many of you can keep profiting from them. But don’t make them your main source of income. Instead, ask yourself: What do we need to do to serve the best builders and remodelers in town? What services can we provide that will win them over?
Odds are, when the best builders and remodelers need money, they don’t turn to payday lenders or pawn shops. When it comes to construction supplies, don’t get tarred with the same brush.