Scale and Specialization Mean Success in a Booming Remodeling Industry

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The remodeling industry has never been better. Indeed, homeowners now invest more than $260 billion annually in home-improvement efforts like remodels, structural additions, additions, replacements and more—a figure that’s doubled over the past 20 years at a rate just higher than 2% per year, according to the “Improving America’s Housing 2021” report from the Joint Housing Center of Harvard University. Importantly, the amount spent on home improvements performed by professional contractors has also increased over the same period, growing from approximately a 75% share in project activity by dollar volume two decades ago to an all-time high of nearly 83% in 2019, the year for which the most recent data are available. To accommodate this explosive growth, the most successful remodeling contractors are embracing more limited business models, electing to focus on more specialized services that also allow them to maximize their operations’ scale and efficiency.

Larger scale, higher revenue for remodeling contractors

In many cases, however, the fragmented nature of the remodeling industry equates to a greater concentration of market share among only the biggest contractors. Performance rankings of the country’s 500 largest remodeling contractors as determined by Qualified Remodeler, an industry trade publication, are illustrative: In 2001, full-service, design-build and specialty replacement contractors among the nation’s top 100 companies by remodeling receipts took in a collective revenue that accounted for a mere 1.9% of all homeowner spending on professional improvement projects. Yet by 2019, the top 100 contractors almost doubled their share of professional project spending, reaching 3.7%. Conversely, remodelers ranking between 101 and 500 on Qualified Remodeler’s list took in only 1.1% of 2001’s professional market spending, a figure bizarrely close to the 1% share these companies realized in 2019.

To wit, the average remodeling revenue generated by the 20 top-ranked design-build, full-service and specialty replacement contractors who reported results in both 2019 and 2001 climbed more than 200% in those two decades, growing from $27.1 million to $82.4 million. Likewise, national total homeowner spending on improvements nearly doubled during the same period, so larger contractors saw their average revenue grow to more than twice that of the whole remodeling industry.

Specialized services show results

Although size has its advantages, the outsized growth of the nation’s most robust remodeling firms when compared to their smaller counterparts is also due to their embrace of specialization, a strategy that’s gained a great deal of traction over the last 20 years. A more focused project offering typically allows contractors to develop more efficient processes, which not only increases productivity, but also streamlines marketing efforts.

Related: Increased single-family home ownership driving remodeling growth

Specialties in exterior replacement services like siding, roofing, doors and windows, as well as a host of other external projects are among the most popular remodeling segments, representing roughly 20% of all annual owner spending on improvements. Furthermore, exterior replacement contractors appearing on both the 2001 and 2019 Qualified Remodeler lists experienced a 220% revenue surge, leaping from $12.7 million in 2001 to $40.9 million by 2019, and those ranked in the top 100 over the same period realized an even more impressive average revenue spike of 250%.

The importance of specialization grows even clearer when comparing the growth of exterior replacement specialty contractors to that of design-build and full-service contractors. Average revenue for these companies reporting to the list in both 2001 and 2019 grew from $5 million to $9.5 million, realizing a 90% increase during the same 20-year interim. Furthermore, full-service and design-build contractors that ranked among 2001’s top 100 grew only 65% by 2019.

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