Information, news, articles and suggestions concerning the kitchen, bath, design and construction industries as well as developments in the law that impact Kitchen & Bath companies and Design professionals.
A new report from RICKI – the Research Institute for Cooking and Kitchen Intelligence – identifies key kitchen and bath trends and future remodeling activities as seen by kitchen and bath designers and dealers. Based on a comprehensive survey, the 39-page report addresses topics inclulding:
>Kitchen Remodeling Trends
>Kitchen Budgets in Next 12 Months
>Consideration of Environmentally-Friendly Kitchen Products
>Key Growth Segments for Kitchens
>Kitchen Features/Amenities in Greatest Demand
>Bath Remodeling Trends
>Bath Budgets in Next 12 Months
>Bath Remodels Involving Change in Footprint: Current & Future
The deadline to submit your best projects to be considered for the 2014 National Kitchen & Bath Association’s Design Competition has been extended to Sept. 10, 2013.
Projects need to have been completed within the last year and should be accompanied by well-composed photos, a design statement, elevations and a floor plan to scale, as well as a completed entry packet, which is available online at NKBA.org. Submissions are $75 per entry and must be postmarked by Sept. 4, 2013.
Six room categories and ten specialty awards will be recognized through national media attention, cash prizes and awards presented at KBIS 2014 in Las Vegas.
NürnbergMesse North America has announced the launch of the Residential Construction and Remodeling Expo (RCRE), to be held October 7-9, 2014, in Atlanta. The trade show will serve the horizontal product offerings of suppliers wanting to reach home builders, architects, designers and remodelers on the east coast of the U.S.
“We are bringing together the very best talent in all areas of show management, residential building, remodeling and education serving this industry,” said Dirk Ebener, CEO, NürnbergMesse North America. “This team has significant experience in every aspect of the residential construction and remodeling market. Our supplier and buyer advisory boards will be announced in the next few weeks, as will be our major sponsors and media partners.”
The event will be held at the Georgia World Congress Center with support from manufacturers, distributors and retailers. Frank Poe, executive director of the Georgia World Congress Center said, “Atlanta is the business capital of the Southeast and is home to many Fortune 500 Companies who serve this industry, such as Home Depot, Georgia Pacific, UPS, Shaw Carpets and many more. RCRE has the full support and endorsement of the GWCC and the entire business community is looking forward to hosting this event.”
LG Electronics USA is playing a key role in the Proud Green Home project that features techniques, products and design to create a sustainable home for the future. The project, a design-build collaboration located in the sustainable community of Serenbe, Ga., is sponsored by LG Electronics and other partners focused on sustainability. Luis Imery, founder of The Imery Group and designer/builder of Proud Green Home, is making Serenbe the home of their net zero project.
According to Imery, the Proud Green Home at Serenbe required the most energy-efficient systems to make the net zero goal a reality. Starting with heating, ventilation and air conditioning (HVAC), LG's new Multi-V Mini ductless system ensures minimum energy consumption but maximum outputs for comfort.
"Building a net zero home is more than sustainable products; it takes a collection of like-minded companies with a goal of energy efficiency to bring all the right products together," said Imery. "The LG HVAC system is the perfect foundation for this project as much of a home's energy usage can be attributed to the heating and cooling. The LG system maximizes occupant comfort while providing the control to make it as energy efficient as possible."
Energy-efficient appliances and electronics from LG Electronics complement the company’s Mono X solar panels and HVAC system in the project. LG appliances include the Energy Star-rated, large-capacity, three-door French Door refrigerator, a steam dishwasher, a built-in double wall oven, a professional-grade 36-in. gas cooktop and a countertop microwave.For the laundry room LG's 4.0-cu.-ft., ultra-large-capacity steam washer with the companion clothes dryer and a 7.3 cu.-ft. ultra-large-capacity model were specified.
The Proud Green Home at Serenbe is opening this month, and there are plans to monitor the usage of the home once the family moves in, providing the developers with information on the project’s efficiency. This data will impact future building projects that aim for increased sustainability as the focus on net zero homes continues to grow.
When it comes to running your kitchen and bath firm, one of the most important things you need to do is calculate pricing in a way that ensures your projects will be profitable. There are two primary ways to approach project pricing: Cost Plus (where you negotiate specific markups with a client for work to be done) and Fixed Price (where the price of the project is set, subject to changes to project scope). In either case, it’s necessary to generate a certain amount of gross profit or margin to cover your firm’s general overhead and operating expenses.
This month, we’ll start with a discussion of how to divide up your costs between fixed costs and variable costs.
Fixed or Variable
Any discussion of fixed and variable costs must begin by acknowledging that there are few totally fixed or totally variable costs. Rather, we define a fixed cost as one that will remain the same month to month over the short to medium term. Examples of such fixed costs would be building rent, utility bills and office staff. Variable costs are generally those that are associated with production of a company’s product – in our case, a remodeling project. Such costs include job labor, job materials and subcontractor costs.
Although selling expenses and commissions are often seen as part of the office staff costs, they are usually variable costs, since most salespeople are paid a commission based on a percentage of the sales price of our projects. Once we have identified our fixed costs, we can perform some calculations to determine what sales volume we will need to cover these. This is referred to as a “break-even” point: the amount of sales required to just cover fixed costs.
Mark-up and Margin
When product is sold, the first element to identify is the direct cost of the product. If we sell one more item of a particular product, what is the cost of acquiring that product? In most instances, this will consist of the price we pay our supplier, plus the cost of having the product shipped to us. The difference between this cost and the price we charge our customer for the product is our gross profit, or gross margin. If our cost of a product is $100 and we sell it for $150, there is a $50 gross margin.
Let’s pause here to make sure that we clarify the difference between mark-up and margin. We can look at our example below to help us clarify the difference between the two:
Mark-up, on the other hand, is an expression of the relationship of sell price to the cost we have paid for a product. In this case, we would use a mark-up of 50% on our $100 cost to determine a sell price of $150. The danger comes if someone setting pricing knows that the company guideline is to maintain a 33% gross profit and then marks up cost by 33% instead of 50%.
Calculating Your Break-even Point
Let’s begin by creating an example of a medium-size remodeling business.
If we assume a gross profit percentage of 45%, we can determine the break-even point by dividing the fixed cost total by 0.45. So we can see that sales of $1,533,333 would yield $690,000 of gross profit. Likewise, the markup required on our costs to achieve a 45% gross profit can be calculated using the formula: 1 / (1-.45) = 1.81818.
Using this information we can do some “what if” scenarios to see what happens when you feel that a price reduction is necessary to beat the competition or help sell that really big job. If we reduce our sales price by 10%, it reduces our gross profit from 45% to 35% and will raise our break-even point over $400,000 to $1,971,428. If you’re convinced that lowering prices will generate enough additional volume to produce the required gross profit, then it might be worth considering. Keep in mind, however, that this increased volume may cause some of your “fixed” costs to creep up, i.e. more office help, additional equipment, etc.
Some Lessons
Understanding the relationship between mark-up, margin, overhead and break-even will allow you to manage your selling strategy in order to maximize profit. Too often, the focus within a business is on the raw sales volume that the business is doing instead of the profitability such sales produce.
Keep in mind that a big part of what we are selling is our unique design abilities and the expertise our firm can bring to a customer’s project. The cost of a project is therefore much less price sensitive to our customer than if they were buying a product such as a refrigerator, where they could make an apples-to-apples comparison of prices.
We cannot ignore the necessity of controlling overhead costs. While we may have a good deal of leeway in pricing, containing our costs will increase our bottom line profit and allow us to increase margins without having to raise prices. We should not ignore the fact that there are competitors who will work hard at controlling their cost of doing business.
One consideration that does not lend itself to a calculation is just how large an organization you want your company to become. More sales volume will normally generate more gross profit, but it will also lead to more employees, more equipment and separation of duties and responsibilities. In developing your sales and pricing strategy, you need to consider how large and complex an organization you want to have.
Make sure that everyone within your business understands the relationship between pricing and cost. In most of our businesses, nearly everyone will be involved at some level in setting the pricing on contracts, products or change orders. You don’t want them using your company’s target margin percentage as the mark-up when they price these.
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