Monday, July 27, 2009

Big-Box Installed Services, Part II

Last month I explored the issue of a labor-only relationship for a big-box installed service program, and how a standard markup percentage would leave you far short of the earnings necessary to justify your time and effort. The retailer had also requested us to provide them with a catalogue of pre-designed components (deck platforms, railings, stairs, benches, etc.) that their inside salespeople could mix and match; and a unit pricing schedule that would enable them to quickly produce a quote from their assembled “designs.”

But in my experience, very few customers want a cookie cutter solution – they want a custom design that considers the aesthetic, functional, site and budget variables unique to their situation. And given the probability of customers wanting something off-list and the tendency of salespeople to promise anything to avoid the hassle of solving a problem they aren’t equipped to solve… well, I probably don’t need to finish the sentence.

The biggest problem is the impact of design efficiency on cost, and hence prices. Given unlimited options, how could we teach the retailer’s salespeople enough about deck design and construction for them to accurately adjust the pricing as design changes alter design efficiencies?

In spite of my recommendation that the party best suited to design and sell the project was us – the contractor – the retailer insisted on pursuing their model. So if I wanted the opportunity to capture a new market segment for our franchisees, I should come up with a solution. This is a rough summary of my proposal:

Platforms. Each pre-designed deck in the catalogue must be offered at a minimum size/cost, so the only change option would be a size increase, and I would be able to provide square foot pricing for that. Additional options requiring variable pricing were decking material (PT vs. composite), decking direction (parallel vs. diagonal, or w/parting board), fasteners (screws [stainless or galvanized], nails, or staples), site access, elevation, attached to the house or freestanding, and so on.

Railings. While the price could be increased or decreased on a linear foot basis, there would be a minimum price (the most-stringent local code may not require railings around a platform up to 30” elevation, but would require them on our minimum-size stairs – see below – since they had more than two risers). The style of the railing also affected the labor rate (standard picket railings are more efficient to build than Chippendale railings).

Stairs. Stairs would also have to have a minimum cost based on a minimum size (three risers/two treads). Additional stairs would be priced on a per-tread basis. For some reason that still escapes me, many customers love flared stairs. So in spite of their much higher price due to the much lower efficiency to build, I felt obliged to provide them as an option. Also, the height of the stairs introduced additional design/cost variables (no flared stairs above eight risers, landings on long runs, etc.).

Other variables that would have to be considered in the final pricing schedule were: Designing around existing site conditions (a tree through the deck, for instance), demolition, architectural review, accessories, and so on. I proposed to develop a pricing wizard to ensure that their sales personnel would cover all the key variables and price them to reflect local costs of materials and labor.

This column doesn’t do justice to the detail that I had to spell out in my proposal. But even after doing that, I had to raise another list of issues that would have to be addressed if we were to get this program off the ground. Next month I talk about “oh yeah, another couple of things…”

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