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How an Efficiency Program Killed My Business

Utility-sponsored rebate programs encourage small jobs — and contractors are discovering that it’s hard to build a successful business on small jobs

Posted on Sep 25 2014 by Nate Adams

Note to Homeowners: This article is primarily aimed at the Home Performance industry. I strive for radical transparency, so I put this in the public sphere for you to read as well.

Energy efficiency rebate programs from gas and electric utilities have become pretty common nationwide. They give rebates for replacing your furnace or adding insulation to your home. While these programs seem like a good idea, they can actually be toxic to small businesses if not designed properly.

One such program from my gas utility, Dominion East Ohio, was a primary cause behind the death of my insulation contracting business. A business that in 2012 was 1 of only 97 businesses nationwide to do more than 100 projects with the Department of Energy’s Home Performance with Energy Star programA residential weatherization program jointly administered by the U.S. Department of Energy and the U.S. Environmental Protection Agency. The Home Performance With Energy Star program connects homeowners interested in improving the energy performance of their homes with contractors trained to assess home performance and perform energy retrofit work. . That made me a Century Club contractor. And now I’m out of business. Here is the story.

First off, let me say the purpose of this is not to whine or to demonize the efficiency programs. I made plenty of mistakes, which I’ll talk about in this article. I’ve gotten over my bitterness.

My purpose is to show the Home Performance industry the far-reaching consequences of designing a program without a deep understanding of prescriptive thinking vs. comprehensive design when it comes to energy efficiency and comfort outcomes.

First, some history

I started doing insulation contracting in 2009. As with any business owner getting started, it took me a while to figure out the value of what I was doing and what to charge. So my projects were often in the $1,500 range for pretty much just blown insulation with very little air sealing, known as blow-'n'-go. (Air sealing is a tough service to sell because most homeowners don’t see the value of it. And frankly there is little if you aren’t measuring and finding air leakage with a blower door.)

I soon met an energy auditor, Karl Balla, who introduced me to the concept of Home Performance and whole-house retrofits. I took a BPI Building Analyst class shortly thereafter, and upped my air sealing game from that day forward.

The Dominion East Ohio Gas program, which offered (and still offers) up to $1,250 in rebates for energy-efficiency upgrades, gave $40/hour towards air sealing. It also gave $.30/square foot for insulation anywhere — attic, walls, ducts, whatever. So now I could get the air sealing paid for by rebates and do a better job. I was thrilled, and my jobs jumped to $2,500-$3,000 while still ending up in the $1,500-$2,000 range as far as cost to the consumer. So it felt like a big win. I figured it bumped my 2011 sales from $300K to $400K, just due to rebates.

But (there’s always a but) trouble lay ahead. My new “big” jobs were in the $2,500-$4,000 range. This size job is still more of a “poke-'n'-hope for the best” project size than a truly systems-based comprehensive project. We were able to do a little more work, but not a lot (because chasing incentives has a cost). Too often it wasn’t enough to do what I really needed to do to actually solve homeowner problems. Incentive design led to what really were small jobs, which led to myriad problems.

Chasing incentives leads to unsolved problems

Chasing incentives takes the homeowner's and contractor’s eye off solving problems and puts it on getting as much rebate with as little out of pocket as possible. This program created "maximize incentive" thinking which takes the focus off designing solutions to problems and, ironically, artificially limits job size. Jobs are designed not to solve problems but to optimize obtaining free money. This in turn led to lots of problems when the job was too small to actually solve the problem I was called to solve. For now, I’ll focus mostly on the business problems it caused for me.

I found that most homeowners were typically willing to spend between $1,000 and $2,500 for attic insulation. This budget range was often set by bid/no spec pricing, meaning they called a contractor who said, “It’ll be somewhere between here and here,” but not actually spelling out exactly what the job was or taking the time to truly diagnose causes of the original customer complaint.

With up to $1,250 in rebates, that basically limited job sizes to $2,500-$4,000 with a traditional sales process.

Small jobs lead to lots of problems:

  • Too much time running quotes
  • Low referral rates
  • Poor diagnosis quality
  • Poor specification quality
  • Mediocre results
  • Market-enforced low-quality solutions
  • Little margin for error
  • Poor crew morale
  • Low dollar margins (even if percentages appear high)
  • Higher break-even point

Too much time quoting

A $2,500-$4,000 project will keep a crew of 3 busy for 1 day. So if you’re going to keep a crew busy with a 50% closing ratio, you have to run 2 quotes a day, or 10 quotes a week.

Running all of those quotes is a lot of work. Getting a job took between 10 and 15 hours of work, which I did most of. Figure 30 minutes on the phone to chat and set up the quote, 1 hour of drive time each, plus 2 hours at the home, plus 1 hour to write it up (my quotes were also work scopes and detailed what the crew needed to do), plus 2-4 hours of emailing/calling back and forth with questions and scheduling, plus 1-2 hours of invoice and rebate paperwork, plus time to create the material list and order it.

Just thinking back on it makes me tired.

This does not factor the usual business admin stuff, writing my blog, doing marketing and so forth. I was working 60-80 hours/week most of the year. I was miserable. It burned me out.

Those small jobs could often be accomplished in 10-20 man hours, so that’s not even a full day’s work split between 3 crew members. It also meant that I had as many hours in landing a job as it took to accomplish. This simply is neither a sustainable model, nor one that encourages or rewards quality results.

Poor referral rates

Because I spent all my time running from one quote to the next, I didn’t really have time to check up on jobs. So a client only saw me once. It was the contractor equivalent of a one night stand.

Early on, when I was intimately involved in every project, I ran referral rates in the range of 30-40% — one job very often led to another. When I was running after continual small jobs, my referral rate fell to less than 5%. Yuck. Not much of a way to build a business, even with spectacular Angie’s List reviews.

Prescription without proper diagnosis is malpractice — or, Stop selling and start designing.

Every house needs diagnosis. I now see it really takes more diagnosis than can be done in a 1-2 hour quote. We take a lot of time getting to know a house and understand occupant problems. But back then I had to rush diagnosis and do a lot of guessing or I wouldn't make the necessary 10 quotes required to survive.

Design should not be part of sales cost. Do good solutions design and specifications, and charge for it. With our new process, clients are free to solicit their own bids or use contractors of our choosing, there is no coercion.

Before, it was a free quote and work scope without the client providing a specification. That’s free consulting, and it lead to my burnout. I simply couldn’t diagnose homes and write the specifications for free — it was too much. Quick or good, you choose. Now we charge for our diagnosis and specification time, and it is much more satisfying and has a far higher likelihood of success because we aren’t rushing and hoping to get the job.

How would you feel if your doctor rushed the diagnosis and prescribed the wrong thing or missed the real cause? That was the position I ended up in. The jobs were too small to do a good "free" diagnosis. That is the position contractors are put in when scope creep turns a free quote into a full physical and surgical plan.

Mediocre results

So my results, while typically OK, were not what they could have been or what I would like them to be. And when I got a call that I didn’t fix a problem, it really hurt me.

It takes the wind out of your sails to hear things like that. How many clients never called me, either not wanting to or not realizing that more improvement was possible? Looking back there were a lot of missed opportunities for much better outcomes.

Program design often unintentionally results in lower quality methods and materials

When rebates pay for labor-intensive methods, you tend to specify labor-intensive solutions. A great example is air sealing with single component gun foam. Two-component, closed-cell spray foam is a far better solution, but it’s fast to install and a much more expensive material. It is simpler to use it and creates an excellent, durable air seal. The $40/hr doesn’t do much for it. Three inches of spray foam would have been lovely for kneewalls, but I only got $.30/s.f. for insulation, so I used fiberglass or cellulose and then did additional air sealing on top of it. My creativity and options were limited by the rebate structure. Looking back with what I know now, I would have adjusted how I did a lot of jobs if I wasn’t hamstrung by the rebate structure.

With my previous methods, a $3,000 job may have qualified for the full $1,250 in rebates. Now a $10,000 job might only qualify for $500. Yet that $10K job will likely save a good bit more energy and lead to a far better result. There is a better way to structure this.

Little margin for error

None of us are perfect. It’s easy to forget a sash lock for sealing a hatch or an extra piece of line for venting a bathroom fan through a roof, other some other little thing. On bigger jobs, you just grab it before coming back the next day.

On smaller jobs, a small detail overlooked becomes a crisis. Often the only vehicle on the job is the box truck with the blowing machine, so you have to disconnect the blow hose, hope that no one needs anything off the truck while you run out to a store you don’t know, hoping to find the part you need, while the crew hopefully continues working efficiently without supervision (it’s usually the crew lead that runs out).

That’s a pain. That hurts productivity. It hurts job flow. With a 2 or 3 day job it wouldn’t be a big deal — but turn many one-day jobs into two-day jobs with a full schedule and you are done. Yes, you can carry more stuff on the truck, and that’s what we ended up doing, but you’re always going to miss something, somewhere. There is little margin for error.

Low crew morale

With small jobs there are a ton of little pressures that add up to low job satisfaction. Every day involves showing up, introducing yourself to a new homeowner, trying to figure out what the sales jerk (me, in this case) meant in his work scope, getting your head around the house and the job at hand, laying out drop cloths and setting up, doing the air sealing, venting bath fans out of the house, fixing attic ventilation if needed, keeping the client happy and chatting a bit with them, showing them what was being worked on, blowing the insulation in, cleaning up, picking up what was needed for the next day, ordering supplies from the supplier, and, oh yeah, having a life outside of work.

This killed my crew lead. It was too much.

But I was doing too much, so I put it on his shoulders. Meanwhile, the other crew members saw the lead chatting on the phone, chatting with the homeowner and so forth, and got jealous that he was getting the “easy” work. (That’s foreshadowing, by the way.)

Since the jobs had to move so fast and I was constantly running quotes, there wasn’t a great deal of time for communication between myself and the crew outside of work. One of my biggest mistakes was not doing weekly meetings with the crew to touch base (because I was too busy trying to keep them busy). Problems festered that could have been easily handled if caught early.

On January 2, 2013, they all got so ticked at each other they told me they refused to work with each other anymore. Talk about a crisis. I had three weeks of work booked at that time. I had been trying for months to replace a crew member that I knew was cancer, but I couldn’t find anyone. Not even one callback on job ads.

So I was stuck. The cancer had metastasized.

On the few larger jobs we ran, my guys loved it. They left off one day and knew exactly where to pick up the next day. Everything was already set up when they got back. If they uncovered a problem and we didn't have supplies for today, no problem — we'll get it tomorrow.

Low dollar margins

I ran about a 20% net (yes, grosses were higher). So a $3,000 job should have a $600 margin. (We’ll ignore the fact that I found larger jobs had substantially higher net margins, which helped offset lower margins of smaller jobs). But $600 is not a lot of room to work with. If a $300 problem comes up, I can't just eat it. So I have to spend time selling it. I would tell the homeowner about it and bump the project cost a bit, likely a no profit upsell. Or worse yet, sometimes that detail would just get skipped and buried under a foot or two of insulation, never to be addressed or seen again unless a problem festered.

And what about callbacks? A callback can easily cost $200-$600, between paying someone to go, the materials, time spent dealing with the complaint before/during/after, and lost productivity on another job. Warranty reserve? Not so much. One callback and the job is tanked.

With a bigger job, say $15,000, you would have room to work with. Room in time, room in materials, room to breathe. Those larger jobs lead to economies of scale from less setup, tear-down, and figuring out what to do (crew mobilization).

Small jobs lead to a higher break-even point

I found my break-even point was about $30,000/month in sales. I could make a little under that, but when I got over $30K things got really good. Especially if there were some larger jobs in those bigger months.

Why are bigger jobs better? There is less time ordering and picking up supplies, fewer emergency midday drives going to the not so close supply house, less time figuring out the job and dividing up work for the day, less setup and tear-down.

Oh, and due to a more involved client who was typically happier, and a ton of other factors I’m sure I haven’t noticed yet.

The jobs are more fun to sell (like selling pieces of art instead of junk). Now I spend more time with the customers, and much less with prospects. The only time I don't get paid for is the 10 minutes we initially spend on the phone.

A happier crew, too. Small mistakes are small. And they often get more working hours on a big job, and they’re paid hourly.

Programs drive small jobs

So small jobs really suck. They carry a lot of little costs that really add up, and those mean that I had to do more of them to make a living. Outcomes are too small to be noticed. They have a high likelihood that everybody will be unhappy and a low likelihood that everybody will be happy — the exact opposite of big jobs. Yuck. Small jobs suck in the Home Performance world.

And every incentive program I have seen drives smaller jobs. So they are inadvertently killing other businesses like mine.

Lots of consequences to the “rebate” structure

At the time, I had no idea that rebate structure was having all of these effects. I only see it now, almost a year after I shut down my contracting business, because I learned the process of true, consumer-focused, design-oriented, consultative sales.

Eating your children: the program is suffering too

I noticed that this year there were no Century Club insulation contractors from the Dominion program. They lost their big dog.

I’ve heard that my competitors, who used to use the program because I always mentioned it, have stopped using it. So the program is suffering from losing me, too. I’ve received several phone calls from very frustrated homeowners who simply can’t get their insulation and air-sealing upgraded; no one calls back. Hmm.

I’ve also heard that the Dominion rebates are primarily used now by HVAC(Heating, ventilation, and air conditioning). Collectively, the mechanical systems that heat, ventilate, and cool a building. contractors for putting new furnaces in. New furnaces that would have been bought anyway, and likely at similar efficiency levels. So how exactly is the program helping to drive energy efficiency? I would argue it’s not.

This is not uncommon. Most programs are riddled with problems as well: I’ve heard of problems in New York, California, Vermont, New Jersey, Massachusetts, and more. Here are three examples: Myron Ferguson discussing disillusionment with the New York program, Glen Gallo refusing to participate in Energy Upgrade California (EUC), and John Craig of Beanstalk Energy saying EUC was like death by a thousand cuts.

Something isn’t working

Every program I have knowledge of tends to drive smaller jobs. Most programs are much more cumbersome than the Dominion East Ohio Gas program1, such as the NYSERDA program in New York, or Energy Upgrade California. Those require energy modeling where mine didn’t. Those also have approved measures lists that can warp project design in ways that really end up harming the consumer. I’ll save those topics for another article, though.

So far, I’ve focused on the problems to the contractor from incentive programs, but they are not beneficial to the homeowner, either. You can’t do much of a Home Performance upgrade to a home for $5,000. Or even $10,000. That’s a furnace and AC. Whoop-de-do. Were you really going to buy an inefficient furnace anyway?

Really fixing houses takes more. And it can be done. With our new methods, my projects are averaging in the $20,000 range and real good is being done. If homeowners take out a loan to pay for this type of work, their costs typically work out to about $75-$150/month when factoring in energy savings. Problems are being solved. I’m not skimping in methods.

All without a program. Common knowledge is, this can’t be done.

I don’t have good financing. Property values in Cleveland are some of the lowest in the country. Utility rates are low. I’m working solo. Everything should be working against me. Yet I’m selling Comprehensive Home Performance jobs. It’s early, I’ll grant you, but I’m selling them.

How to help people like me

In a future article, I'll present my ideas for how to structure programs so that they drive the comprehensive jobs that the programs want to satisfy efficiency mandates, without costing the programs an arm and a leg and without making contractors miserable enough to throw in the towel like I did.

Nate Adams is a recovering insulation contractor turned Home Performance consultant. His company, Energy Smart Home Performance, is located in Mantua, Ohio. Using a comprehensive design approach, he fixes client woes with a market-driven process that he hopes will lead to market transformation for our industry.


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  1. Nate Adams

1.
Sep 25, 2014 9:45 AM ET

Thanks
by Dan Kolbert

Nate - I've already weighed in on this in other forums (fora?), but wanted to commend you again for sharing this very important info in such a courageous fashion.


2.
Sep 25, 2014 12:19 PM ET

Edited Sep 25, 2014 12:22 PM ET.

Nate has said it all
by aj builder, Upstate NY Zone 6a

Small jobs and too many details to hit in a day. Spending 20 hours selling, collecting, discussing, traveling, call backing and only being paid for 20 hours of onsite production

Just did a small one day project, $1200 labor... 6 job visits, 25 email discussions... and much more... and at this point the project is not closed out, waiting for the homeowner/GCs to back fill... waiting weeks.. maybe months.. so another email to ask for a completion date to be calendered.

At least email is quick! Love email also for who said what.
aj

Oh and I have looked into NYSERDA twice... so right about the huge overhead costs for them to "control" uses up more than the rebate money right there let alone doing the "right" work" for the "right costs."

Great blog Martin and Nate.


3.
Sep 25, 2014 12:50 PM ET

How to get the low hanging fruit
by Nick Welch

It's to everyone's benefit to get all the low hanging fruit before we go on to more in depth energy efficiency improvements. But how do we do that? These programs help spur some homeowners into action, but understandably, they only want the cheapest, lowest hanging fruit taken care of. Meanwhile, other homeowners (and landlords!) aren't doing any improvements. There are still a lot of empty walls and unsealed attics/rim joists out there. And then there are the contractors who can barely make ends meet if they're only doing these small, basic jobs.

But the small, basic jobs are important. After all, weatherization work has diminishing returns as you spend more and more on it. It's the lowest hanging fruit that is by far most important in reducing global energy use. If reducing energy use is our goal as a society, then it seems like we need to find a new solution to get more of the basics done. Leave no wall left unfilled?


4.
Sep 25, 2014 6:11 PM ET

Nick
by aj builder, Upstate NY Zone 6a

Nick, the small jobs need to be done without bidding and have to have the program take care of customer hand holding. If all the off site time was eliminated and the job fully written up with material delivered and on site, then Nate could make a living doing the small stuff, the low hanging fruit.


5.
Sep 25, 2014 8:29 PM ET

Edited Sep 25, 2014 8:31 PM ET.

Nate
by Malcolm Taylor

After their business goes south it's incredibly rare to see someone capable of the detachment necessary to objectively analyze what went wrong. In my experience the ones who can end up doing very well at whatever they pursue afterwards. Thanks for the insights and good luck. Looking forward to your next article.


7.
Sep 26, 2014 2:56 AM ET

Reply to Nick Welch
by Nate Adams

Nick, I wholeheartedly disagree about the low hanging fruit. If you don't go far enough, results suck. That happened all too often to me, most often I would cause new comfort problems by reducing heating and cooling loads so the already oversized HVAC was now wildly oversized. I actually just wrote about this as part of my One Knob program design series, check this out and see what you think.

http://energysmartohio.com/blog/one-knob-pt-2-of-4-low-hanging-fruit-fal...


8.
Sep 26, 2014 3:02 AM ET

Thanks
by Nate Adams

@Dan Kolbert - Your commenting is greatly appreciated, thank you!

@AJ Builder - Your experience is similar to mine! WAY too much work to get a job, clients want to nickel and dime for low hanging fruit, then are mad when results don't show up.

@Malcom Taylor - Let's hope you're right and I figure out the business model better this time around. And thanks for not shooting at me like some have. I'm not blaming my failure 100% on a program, but the structure sure sets the industry up for failure. Otherwise somebody out there would be lighting the world on fire with HP.

PS Here is the chart for the Fallacy of Low Hanging Fruit, see what you think.


9.
Sep 26, 2014 8:15 AM ET

Too low margin
by Kevin Ford

I think a huge warning was when the business violated the rule of thumb for sub contractors, where the materials cost should be 50% or less of the invoice price...... In this particular company there just was not enough margin to make it. :(


10.
Sep 26, 2014 11:26 AM ET

Nate is on the right track
by aj builder, Upstate NY Zone 6a

Charging for time is a winner.

Also it is important to grow from being hourly for income to being a capitalist for income. The wealthy business folks own capital, grow capital and live off capital. The hourly folks in construction are working themselves for life to death so to speak. It's a great life don't get me wrong. We all love to build and see our work completed. For me homes planes boats models hang gliders zip lines.. always love to build.


11.
Sep 26, 2014 6:53 PM ET

Margins and time
by Nate Adams

@Kevin - Another commenter read it that way, too. 20% was the net. Gross was 40-60% depending on the job, I found the bigger ones did better.

@aj - Thanks, I hope so! And yes, the capital matters. I was smart enough to squirrel most of my earnings away. Some paid off my house, and some is in my IRA. I may be broke for the moment, but at least I have a little net worth like those fabled wealthy business folks... =)


12.
Oct 1, 2014 4:46 PM ET

Little Jobs
by kimbark smith

Nate, while I understand your premise, I think your assumptions are wrong. I am a small homeowner who is renovating, while I am probably not representative of your normal client as I have tried to become knowledgeable, I always try and go for the best I can afford. For me and I think a lot of others, I will pay for value and even more for responsiveness. Knowledge and customer service is worth a premium in this day and age. Having an energy audit done first, should be a qualifier for you to engage. You then know you have a potential customer who is serious and willing to consider all of the options. A close ratio of 50%?, the standard in all sales is 25%. Yes, there is a lot of hand holding but with email, text etc. it is a lot easier than it used to be. The fact is the biggest market is us little guys.


13.
Oct 1, 2014 6:43 PM ET

Where, exactly, is the problem?
by Derek Roff

Please tell me what I am missing, or misunderstanding. Your first two sections indicate that the rebate program doubled the dollar value of the jobs you describe. Were these your "average" jobs, for your pre-rebate and rebate business periods? Your description implies that they were. You then make a clear case that the size of the job under the rebate program was too small to be sustainable. I'm convinced. What's confusing me is that if $4,000 jobs under the rebate are too small, then the $1,500 jobs before the rebate should have been much worse. Is the problem the rebate program, or just that small jobs are impossible to do profitably?

I'm very glad to hear that you are being successful now. I think it is great that you are selling $10,000 jobs. And this is the nub of my misunderstanding. I am convinced that the rebate program isn't doing what it is supposed to do. I am convinced that small jobs are impossible. I'm just not convinced that the rebate program killed your business. Your article seems to support the hypothesis that you never had a sustainable business model, and that perhaps $10,000 is the smallest job that can support a business. Do you have a smallest dollar figure for jobs you currently consider accepting?


14.
Oct 2, 2014 6:48 AM ET

Response to Kimbark and Derek
by Nate Adams

Kimbark - Actually, you are pretty representative of my clients, I liked well educated ones and still do. An energy audit was done for each client by the gas utility, sometimes before I got there and sometimes after. To deliver results, it takes more than jobs of this size, though. I look at things from a monthly perspective now - $100/mo buys $14K in improvements. If there are $50/mo in energy savings and the client will let me leverage those, I now have a $21K project for $100/mo. Yes, it is easier to correspond now, but it still wasn't worth it. Thanks for commenting!

Derek - You are correct, the original model wasn't super sustainable either. It started with my wife and I doing the jobs, so we kept all the margin and could work for less for the same or better net profit. That's exhausting, though, doing all the sales, marketing and office work, plus the physical work too. Overhead obviously went up once I got employees. Neither option was good, they both worked me too hard. The program ended up capping the upside, though, and so I couldn't continue the trajectory of bigger jobs I wanted to. I built a treadmill that ran too fast all the time for me to stay on it. Small jobs will kill any contractor, they don't take into account all the work in getting them. HP jobs need to start in the $10K range, in my experience, to begin to deliver excellent results. Hence I talk monthly costs. Hopefully that helps!


15.
Oct 2, 2014 11:27 AM ET

You're a hero, Nate
by Gerard Celentano

First, I'd like to thank Nate, and any other contributors for sharing their experiences so that I (and others) can learn from them.
The characteristics you describe should come as no surprise to anyone since they're perfectly consistent with socialism. Any economics class will describe these issues in gory detail. The root problem is the general nature of social programs, which has manifested itself as specific shortcomings of your particular program.
You should be able to run a successful business, work hard and support your family, while still learning and making mistakes. No one (except politicians) should be apologetic because they didn't execute flawlessly.
What's more insidious is how damaging the program is to the overall economy of Ohio. While this program was putting you and other like you out of business, it was costing the consumers an obscene amount of money to do it. These programs demand an army of "energy experts" to run around and take hours to provide mediocre advice to countless consumers. In my state, it's a private company that submits no public filings. They have marketing and sales budgets, and are philanthropic (which I find repugnant, since it's not their money). These experts have managers, dispatchers, trainers, etc. The managers have managers, and all these people are all getting good benefits off the money from the fees that the consumer has to pay to the utility. There are volumes of rules, laws and regulations for the money and programs. The money has to be collected, put in proper accounts, moved and kept track of. Lawyers are involved. Reports are written about the money and the program, and there are countless audits to be sure everyone is following the rules. The auditors are also audited, to be really, really sure everyone is behaving. At the end of the day, the consumer is probably realizing ten cents on the dollar for this program, and we're supposed to shout hooray about how successful it is because it took a million dollars out of the consumer's pocket to deliver a hundred thousand dollars in goods and services. (The actual number is a secret, so it's logical to assume these programs are real pigs.)
These programs do almost nothing to contribute to the GDP of the state or the nation, and as such they are simply a tax. They don't make our economy stronger. They are a burden that we all pay for because people think it's a good idea to give away free products and services.
I salute you for your diligence in making a go at it. I think the millions of guys like you are true American heroes, and I'm sure we all hope your experiences will benefit you going forward. Thanks again.


16.
Oct 2, 2014 11:44 AM ET

About the dangers of socialism
by Martin Holladay

Before we get side-tracked by a long discussion of Gerard Celentano's concern (the dangers of socialism), I'd like to return to Kevin Ford's point: Nate's margin (or markup) was too low.

Nate, if you had tacked on a larger markup -- adequate to reimburse you for the costs of sales and callbacks -- your small jobs wouldn't have hurt.

Of course, it's possible that a fair markup would have scared away many of your customers, and you would have drifted into the business that you now enjoy -- one that focuses on large, profitable jobs. That's OK, too.

Here's my point: plenty of remodeling contractors, carpenters, and handymen have the same problem. They price their jobs too low, and they end up feeling frazzled. This problem is endemic to the construction industry. These problems have more to do with poor pricing practices (and a lack of business fundamentals) than the evils of socialism.


17.
Oct 5, 2014 6:02 PM ET

Good stuff, Nate
by Carl Seville

Although I was never a home performance contractor, I did custom remodeling for 25 years, so many of the issues you raise hit a nerve for me. Selling enough work to keep everyone busy is a big job, and the overhead required to pay yourself (or other people) to do that is significant. The comments about margins are good, and I would argue that for jobs the size you are talking about they should be closer to 65-80% to allow for a reasonable profit, insurance against contingencies, and reward for the effort you put in to running a business. Unfortunately, a combination of consumer misconceptions and people new to the business pushing margins down has always been a problem for much of the home improvement industry. If most clients found out that they were paying 50%+ markup they would likely become unhinged, as there appears to be an assumption that everyone marked up 10% and 10%, the insurance repair standard (that industry is another story entirely). I don't disagree that the incentive issue is problematic. My brief personal experience as an auditor for the local program in Georgia almost drove me up the wall, and I wouldn't even bother doing it on single family homes, although we have some multifamily renovation projects where it is quite viable and a nice bonus, although I have yet to see the incentives themselves actually change anyone's mind about doing specific improvements. Most projects I have seen happen to benefit from something they were planning to do anyway.

Probably my biggest take away from you're post is that when, many years ago, I was invited to work with Southface on developing an early Home Performance program and I declined to get involved as an improvement contractor. I was incredibly excited at the possibilities but I could not see how I could ever fit that business model in with our custom remodeling business. We did design build and spent months developing contracts. HP had to be a very sales driven, as close to one call close as possible program to be effective. I know that I made the right decision for myself at the time, and while there is some HP work going on in my area, like most places, there just isn't as much as there should be. I believe it is a combination of ignorance on the part of homeowners (they don't know that their homes can be more comfortable and healthy), low energy costs (your comment of $75-$150 per month financing costs for improvements after energy savings is telling), and inertia. They can just turn up the heat or AC rather than go to the trouble of taking on a complex project that will mess up their house and cost them money.

I have no suggestions for better solutions. After I read your next post, I may have more to add. Also, now that I am no longer a contractor and just do the consulting end, I am much happier, I don't have the stress of employees, and don't work as hard.

Keep up the good work Nate.


18.
Oct 24, 2014 8:08 PM ET

Trade divisions part of the problem too?
by Keith H

Nate, fascinating story. Thanks for sharing.

I wonder also, though, whether the trade divisions between insulation, hvac, and energy auditing contributed to your problem. It sounds like now you are trying to work around that issue by more comprehensively addressing the issues. I've had a lot of trades in my own home trying to address its poor performance relative to good R values. Everyone wants to take the quick hammer swing at the nail they know how to hit. No one has offered a comprehensive approach. If I knew someone in my area like you, I'd be interested in their services. I have no use for furnace sales guys, insulation sales guys, windows sales guys ....


19.
Oct 25, 2014 6:27 AM ET

Reply to Keith H
by Nate Adams

Keith, I always liked the line in Cool Hand Luke, 'What we have here is a failure to communicate.'

You nailed it, that is the problem. The insulation, furnace, and window Gus aren't responsible for results, so they don't happen. I'm now trying to bridge that gap. It's still hard. I end up in a, well, discussion on every project. My specs aren't followed unless I watch. Until performance and results are rewarded, this won't change. The One Knob program design will accomplish this, I hope you read on.

Hopefully someday soon I won't be one random guy adding this, but one of many in a robust industry. Thanks for commenting!


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