Bob is one of the nation’s most respected financial & business management consultants. SMA’s mission is to help homebuilders run more efficient and profitable businesses.
Prior to his full-time move into consulting in 2004, Bob was Executive Vice President and Chief Operations Officer of Land Solutions, a Florida based land development firm, EVP for Cooper Homes, the home building division of Cooper Communities, and Partner and Chief Operations and Financial Officer of Wayne Homes of Ohio prior to their sale to Centex. While at Wayne Homes, Bob helped triple Wayne’s annual volume while raising profit levels to 35% gross and near 20% net.
In a prior professional life, Mr. Whitten also served as Director of Business Management for the National Association of Homebuilders. He is author of the best selling NAHB book “Building Partnerships: How to Work with Trade Contractors”. He is also a frequent speaker to industry groups having conducted over 750 workshops and seminars over the years. He has presented annually on business management for homebuilders at the NAHB International Builder’s Show (IBS) since 1989.
Bob can be reached at firstname.lastname@example.org
Becoming the Builder of Choice for Your Trades by Bob Whitten
I had the great experience this past week of meeting with the construction team of client company Destination Homes of Layton, UT. During the planning portion of our meeting, we discussed the key issues facing our team. One of their key issues can be considered a key issue for our industry; Trade Contractors.
Specifically, the issue is the quantity of trade contractors available. As Kam, Jeremy, Nate, Dustun, Eric, David W., Sam, Rich, David B. and Mitch were discussing strategies to become the builder of trade choice in their market, this management message took shape.
Where did the trades go? The terrible housing market of 2008-2011 (earlier and/or later depending upon your market) drove many of the baby boomer trades to early retirement or second careers. The immigration reform movement has driven many skilled laborers back to their homeland. Perhaps most important in the long run, residential construction fell out of favor of young people and college construction programs over the past seven years.
Ten years ago, the industry was attracting many bright young stars. The construction management program at BYU – Idaho that I sat on the Advisory Board for was placing 50% of the graduates with top 20 homebuilders and another 25% with local and smaller builders who recruited there. No longer does residential rule. The percentages have reversed in most cases.
Ten years ago, fathers were still introducing their sons and daughters to the industry to continue the family tradition. That has changed. A whole college/trade school generation has gone through their educational formative years being told to avoid residential construction as it is too volatile. It will take us another 5-6 years to reverse that trend.
Now we are faced with an improving marketplace, better sales and fewer qualified trade contractors to handle the work. We will see upward pressure on prices and less trained people on our job sites.
What is the “Builder of Choice”? We will all have the same situation. However, if we are proactive and willing, we can become one of the builders of choice for the trades in your market. First, what is a “builder of choice”. This is the builder who the trade wants to be on best terms with. This is a builder who they will go to first when faced with multiple jobs begging for performance “now”. This is the builder they will stick with when they have too much work and are smart enough to realize they have to cutback somewhere.
What can we do? I see a three step set of strategies to maximize your potential to be your trades “builder of choice”. These revolve around three themes’
- Best payment terms
- Efficiency &
- Relationship building
Step One: Payment Terms – To become the builder of choice you first have to follow Maslov’s hierarchy of human needs. We first must take care of the primitive needs. This is “cash” to the trades. Most of them have to their labor each week. It is a rare residential trade contractor that will not chase the paycheck first.
Become the builder of choice by adapting a best practices trade payment policy. You need to pay your labor only trades every week. I recommend a system that calls for purchase orders approved by Friday get paid the next Friday. Variance POs can wait an extra week but once the pre-approved base PO work is done to the satisfaction of the Construction Manager, the PO is approved and paid the following week.
A bi-weekly schedule can be implemented for the labor and material turnkey vendors as best practice. Material suppliers can still be on a monthly payment process of PO approved by the 1st paid on the 10th or other supplier terms if more favorable terms to the builder.
This concept holds true for suppliers as well most of them have monthly terms for the goods and commodities they sell to you. If you pay 100% of value on time, you are amongst their builders of choice. If you make them wait and become you bank, you will be in a lower tier of preference.
Step Two: Efficiency – You also have to offer the trade a chance to earn his money as quickly and effectively as possible. You have to be efficient in terms of having the job ready for them when you say. You have to have the materials available and keep them working rather than waiting. Their crews are typically paid hourly.
Your plans, selections/color sheets and purchase orders have to be accurate. That 1% variance rate not only helps protect you profit margins but your trades as well.
Step Three: Relationship Building – After the payments are timely and frequent, the real long term benefit you can offer a trade contactor is a positive relationship. Get them to truly feel like a part of your team. Here are a few things you can do in this regard. This is not an all-inclusive list. It would take a full chapter in a book to list them all but AI trust you will get the point.
- Start a trade council and invite participation, including getting a couple of trades to sit on the Council Committee.
- Include trades in quarterly construction training and update meetings. At this meeting the agenda includes starts, closings, new plans, new communities, safety training, etc.
- Hold a trade of the quarter “election” and make announcement at such meeting.
- Perhaps “trade of the year” decision maker gets a paid trip to IBS.
- Create a regular newsletter and include information on trade contractors as well as employees.
- Help the owners of trade companies with hiring and financial management training.
- Use promotional items (hats, shirts, coats, hardhats) with your logo and distribute them liberally to trades.
What you are trying to do is treat them like a member of your team – not an outsider to be used and abused. You want to make it personal.
I have one final suggestion in this area. I suggest you budget $100/month per construction manager on your team to be used to provide relationship building networking experiences with trades; lunches, soft drinks brought to site in hot weather, hot drinks in cold weather, etc. would fit this description. Monitor and make sure there is budget accountability but err on the side of openness.
Try to come up with operational improvements in all three key trade areas above. Spend the time planning these events and procedures to save time and money in the future as you build positive teamwork with your trade partners.
Have a great week!