Surviving the Housing Slump

From electrical contractors and landscapers to plumbers, the continued slowing of the housing economy has been the source of much heartache across all residential home building industries.

In fact, The Washington Post recently reported that the housing economy is starting to weaken demand for staffing services; trucking, shipping and other transportation services were off in Ohio and surrounding states; and not only did weakness continue in the residential sector, but it also could spread to commercial real estate.

But despite the gloom-and-doom headlines about a potential recession, you can’t get discouraged. “The first place a recession occurs is between the ears of the contractor,” says Matt Michel, CEO of Service Roundtable. “You have to decide to be aggressive during a downturn. It’s your recession; it’s my opportunity.”

Granted, residential new construction plumbing jobs have dipped with housing, but the service side of the industry has been shouldering its fair share, according to Charlie Wallace, executive director of Quality Service Contractors (QSC), an enhanced service group of the Plumbing-Heating-Cooling Contractors-National Association (PHCC).

And that’s where plumbing contractors should be looking for the time being, if they want to keep their businesses in the black as much as possible.

Switching to Service
In response to a lackluster residential new construction market, many plumbing business owners who focused solely on new construction have added a service element to their businesses.

But be warned: If you are one of these companies, realize that residential service or commercial new construction and service are different from residential new construction (RNC). With the slowdown in RNC, many RNC contractors are jumping into residential service and commercial to stay busy, Michel says. Many of these contractors are underbidding and underserving in the residential service market, but they should charge more and raise their level of service. With commercial work, the estimating process differs. Contractors have to watch their cash flow to ensure they have enough cash on hand to pay suppliers, employees and substitutes while waiting for payment from the project general contractor, he says.

What You Can Do
Despite the downturn, Wallace believes it has not been for the worse. “We need a correction every now and then,” he says. “Election years tend to cause some uncertainty in the economy. But that helps some business owners plan better, and if they weather it OK, then they’re stronger for it. It also helps weed out the weaker businesses.”

Although it's a bit too late to prepare for a downturn now, it's never too late to learn how to prepare for the next economic slump. “My favorite saying is: 'Work on your business, don’t work in it'”, Wallace says.

Get help when you need it and wherever you can find it. Consult with your local Small Business Development Center (SBDC) or contact the Service Corps Of Retired Executives (SCORE).

Even if you only get involved in your local chamber of commerce, you can network with people who can provide guidance or assistance with your business. Continue to educate yourself and your employees, and attend business seminars or classes that will help give you insight into your business and how to plan for the future.

“Smart contractors will shore up their capacity but also start to build upon their employees’ skills so they can be more productive,” Michel says. He also suggests that you consider recruiting during the slow times because a recession eventually ends. “This allows the company with an established service base to set the stage for the future explosion in job sales."

Add-ons
If you are going to offer service contracts full-time—whether for residential or commercial work—then consider adding new products, like water softener installation, and energy-saving products.

Michel says simpler steps to increase add-on sales can make a dramatic difference to a company's bottom line during slow periods. Adding a steel washing machine hose, installing a water alarm to a customer’s water heater or checking lawn sprinkler heads in the spring can do wonders for a company's average ticket, he says.

And don’t forget to add a company sticker, complete with contact information, to each product you are offering. In case one of these things is damaged, the customer will know whom to call, Michel says.

Don’t Stop Marketing
As a last bit of advice, Wallace encourages plumbing business owners and contractors to continue to advertise and market their companies. You may cut down, but do not cut it completely, he says. The last thing you want is for potential customers to forget about your company once the economy picks up again. Eventually, they will need work done and you want to your company to be the one on call, he says.

If you must cut the budget, narrow your marketing area to better target your clients and save money on gas. “The only person making money on windshield time is the employee. Nobody makes money spending time in the car,” Michel says.