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HBS FEATURE IN PROSALES

How to Sell Installed Sales
ProSales, July 2002 Install Indicators
Recognizing a market opportunity to offer installed sales is the first step to establishing a successful program.
By Rich Binsacca

Ray Reinhard had no choice. Tired and frustrated with calls from angry homeowners and builders about the installed performance of the windows and doors he sold in his position as vice president of H.B.S. Inc. in Vero Beach, Fla., he decided to take matters—and installation—into his own hands. “We needed to do the installs to give our customers products that worked correctly,” he says. “It was preventive maintenance.” Reinhard and H.B.S. are not alone among building materials dealers. Nearly two-thirds offer installed sales for at least one category, with windows and entry doors leading the trend.

In Reinhard’s case, customers and code issues were the driving factors of H.B.S.’ installed sales program. For others, installed sales offers a chance to boost commodity margins, remain competitive, or relieve builders of a burdensome phase of the project. “Builders didn’t want to deal with it,” says Joakim Wahlstrom, general manager of Hancock Lumber’s installed insulation division in Windham, Maine. “We handle it for them, and it speeds their process.”

For Builders FirstSource (BFS), the key market indicator for offering turnkey framing in the company’s Raleigh, N.C., region was a group of production builders looking for a more reliable, one-stop shop for their framing needs. “Our decision was dictated by the builders in that market,” says Mark Rutter, director of installed sales for BFS’ Atlantic Group. “We needed to offer installation as a way to grow sales and to protect sales [in the region].”

The company also had a five-year track record with installed windows and doors in the area, as well as a nearby supply of factory-built framing components and plans for more capacity in that category. In addition, turnkey framing was already being offered by some of BFS’ competitors, creating a market-share battle among local dealers and prompting the company to offer expanded services to remain competitive. This year, the triad of the BFS’ Apex, Wake Forest, and Hillsborough, N.C., locations will collectively frame 150 new homes.

Just as there are several ways to implement and manage an installed sales program, there are a variety of valid reasons to reach that point. That said, regardless of the product category, the common refrain among pro dealers with installed sales programs is a market that is ready, willing, and asking for the dealer portion of the supply chain to shoulder the labor load, in addition to providing materials.

If any—or several—of the following indicators appear on your local radar screen, installed sales may be in your future.

Builder Evolution
The metamorphosis of the on-site builder into a corporate manager, says Rutter, is at the heart of BFS offering installed sales. “In almost all aspects, builders are removing themselves further from the construction of the house and more toward financing and marketing,” he says. “That’s true in most, if not all, markets.”

As a result, modern builders are less apt, interested, or equipped to manage the daily dynamics of a job site; they also lack an appreciation for the process, which can lead to unreliable in-house supervision and high turnover in such positions. “We can’t always count on the customers’ supervisors, or the quality of that supervision,” says Rutter. For BFS’ framing and window and door programs, therefore, the company provides project managers to protect its interests and liabilities.

Another by-product of the builders’ evolution is a consolidation of subs on job sites—which increasingly includes suppliers. “With us, they just pay ‘X’ dollars and get a finished [framed] house,” Rutter says, thus avoiding the cost and hassle of ordering more material because of theft and product misuse by a labor-only crew, among other bottom-line concerns.

As builders and dealers have evolved, so have specialty contractors. When Goldston’s Building Supply (now the BFS holding in Wake Forest) got into installed window and door sales in 1997, few subs complained. “They didn’t care,” says Richard Ricks, a Goldston’s employee since 1992 who stayed on through the BFS buyout in late 2000 and now heads up the Raleigh region’s installed sales programs. “Windows and doors were a hassle for subs, with a lot of punch-out time and callbacks. They [also] couldn’t offer a one-year warranty to match the builders’.”

Hedging the Market
While Rutter challenges any dealer with an installed sales program to prove its profitability, he and others admit that such programs hedge against market fluctuations and protect—or even boost—commodity sales. “It’s less of a money maker than it is damage control,” says Reinhard. “It’s about keeping everyone happy so they’ll specify the product again from us.”

And as dealers such as BFS beef up their factory-built component capacity, there’s opportunity for even higher margins on materials (and perhaps labor) with more efficient framing systems, including engineered lumber. “We’d prefer to only install our engineered products and components,” says Rutter. “But sometimes the customer demands stick-built.” And when you’re selling product into 15 subdivisions, he says, the customer is always right. Whether it is a profit center or simply a customer service that leverages higher materials margins, an installed sales program adds value to the operation and allows dealers to expand their business toward a more sustainable future. “Installed sales and component manufacturing are the two primary growth opportunities for dealers,” says Paul Marcum, a former dealer sales manager and now a construction industry consultant in Kansas City, Mo. “With the building industry slowing down, offering value-added services will be the difference.”

But the value added by an installed sales program has its limits over time. After being among the first dealers to offer installed window and door sales in the Raleigh market in the mid-’90s, Ricks has seen the service reach commodity status today. “It’s expected now,” he says. “If it’s not installed, you can’t sell the product.”

To maintain some level of distinction for his door program, Ricks and his crews install door pans instead of standard flashing; the resulting dam blocks water from running under the sill and into the house, reducing buyer complaints and callbacks that can harm a builder’s reputation—and wallet. The extra attention to detail not only helps Ricks leverage sales, but also cards up to a 200 percent profit on the pan itself.

Niche Opportunities
If builder demand dictates BFS’ decision to offer installed sales in a given market, other dealers might rely on untapped or underserved opportunities.

Such was the case at Hancock, which opened its installed insulation service in 1998. Back then, less than 10 percent of dealers installed insulation, a share that still lingers under 25 percent today. But for Wahlstrom, the chance to make life easier for Hancock’s builders was too tempting. “They asked if we’d mind supplying the labor [for insulation] instead of them having to sub it out,” he says.

More than most installed sales categories, however, insulation requires careful timing to maintain the builder’s tight schedule. “You are after the framing and rough mechanical, with drywall coming in behind you,” Wahlstrom says. “There’s no room for errors or delays.”

In addition, pro dealers may look to add product categories that are ripe for installed sales, though not without some hesitation. “It takes a huge amount of convincing [internally] to open or offer a new category,” says Rutter, “but not as much to offer installation on top of [an established category].”

Still, Rutter admits that he’s always on the lookout for opportunities to either meet builder demands and/or turn a profit. “We just don’t want to throw labor onto something the builder is already buying,” he says, referring to his belief that labor is a break-even proposition at best. “But if the builders are pushing and we think we can make money installing a new product category, we’ll look at it.”

Instead of a category niche, other dealers have introduced installed sales to the consumer avenue instead of to pros. At Endicott Lumber & Box in Endwell, N.Y., manager Lou Skojec oversees a program that installs windows and doors for homeowners while waiting for builders in the market to come around. “There are no tract builders here, and labor is available,” he says. “Most of the builders are hands-on, so they know how to install the product correctly.”

Until pros start demanding the service, if they ever do, Skojec is content to be the market guru for consumers. “We’re the place to come for answers,” he says.

Code Changes
A building codebook may never make the bestseller list, but it can offer insight into installed sales opportunities. At H.B.S., for instance, Reinhard and his sales and installation teams are the market’s best source of information about Florida’s tough window performance tolerances. “The installation details are so meticulous [in the code] that there’s no possible way for a framer to understand it, much less install it correctly,” Reinhard says.

In addition to being trained on various fastening, design pressure, and shim tolerances for each opening, Reinhard and his team aid builders before and after the specification is made. “You have to find out what the code requires, evaluate your product line, and use only what meets the code,” he says. “It’s the only way to get them through inspection.”

As a structural engineer, as well, Reinhard’s responsibilities include watchdogging new code changes, monthly training for his sales staff on product and installation modifications, and interpreting design pressures per print. “I’m the internal policeman,” he says.

Similarly, dealers in seismic zones may become experts in quake-ready framing and shear-wall construction, while those serving fire-prone areas can sell and apply systems and products that reduce flame spread or other fire risk. “Being the expert gives a dealer an opportunity to leverage sales,” says Marcum. “In time, builders will ask them to ‘walk the walk,’ too,” by adding installation to their code-ready specifications.

Recognizing Opportunity
As obvious as some of these market indicators may appear, the daily grind of supplying product on time and as promised may cloud a dealer’s ability to see an opportunity for installed sales. Marcum advises dealer managers to facilitate the process during monthly sales and service department meetings—and perhaps even the dispatcher—to collect market feedback. “If you hear one builder complain about callbacks or labor or wasted materials, it may not have an impact,” he says. “If a room full of people are all telling the same story, it makes a difference.”

In BFS’ case, Rutter’s hiring as the Atlantic Group’s installed sales guru four years ago created a senior-level perspective on the future of installed sales for the dealer. “If we could sell a product without installing it, we would,” says Rutter, whose territory stretches from New Jersey to Orlando, Fla., to Nashville, Tenn. “In most markets, that’s just not possible anymore.”

—Rich Binsacca is a contributing editor to ProSales.Reprinted from ProSales, July 2002. Copyright 2002 by Hanley-Wood, LLC. All rights reserved.

For more information on ProSales, e-mail ktomasulo@hanley-wood.com.