President

Scott Sedam, president of TrueNorth Development (www.truen.com), spends most of his time working in the trenches with builders, suppliers and trade contractors. His Lean Builder blog appears weekly at HousingZone.com. He welcomes your feedback at scott@truen.com.

Higher Growth/Lower Margins ... "It's Happening"

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One of my “guilty pleasures” – you know, things that you should be embarrassed to admit you love – is the John Travolta movie, The Phenomenon. It is a sweet and sappy but scientifically intriguing yarn about an auto mechanic who has no idea why but suddenly finds incredible brain power that first astounds, and then frightens the local townsfolk. Robert Duvall, playing the country doctor, tends to Travolta as overzealous government agents try to steal him, while his girlfriend Lace tries to comfort him. Toward the end, he realizes the moment that his life is beginning to slip away and declares to Lace, “It’s happening.”

That’s what came to me yesterday when an industry blog came out, citing several large national builders with sales up in 2015 and margins down. The blog made it sound like everyone was surprised. I guess I could feel badly about that, because it shows they either do not read my monthly column in Professional Builder or if they do, don’t pay attention. I predicted this phenomenon for 2015 and 2016 at the end of last year. It is not genius, but I am pretty good at basic math. If all of your cost categories are rising, and market conditions will not allow you to raise price enough to cover cost, there is only one result – lower margins – unless you do something different. 
 
My latest article in Professional Builder (http://www.probuilder.com/additional-margin-find-it-these-6-buckets) which I titled, “2015: The Year of Building Dangerously” appeared in the magazine as: “Your Bucket List” and yet another title at www.probuilder.com “Find Additional Margin in These 6 Buckets.” Regardless of the title, click here and read where there is at least 20 percent of sales price buried in waste that can be recovered. Some is pretty easy, while some will take years, but it is the one sure way of restoring margins in this strange year of high demand, high costs, and strong resistance to price increases. 
 
If you want the whole picture, send us an email to info@truen.com with the word “Margin PDF” in the title, and we will send you an eight-article series that lays out the problem, helps you understand it and how to fix it. Send us your basic contact info and we will keep you up to date on these articles as they appear. “It’s Happening!”  But if you get on top of this, you can prevent it from happening to you.
 
 
 

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