Maximizing profits

During the morning session, Tony Malisani of Malisani, Inc. in Great Falls, MT, and Vice President of the Marble Institute of America presented the session, “How to Maximize Price Using a Sound Business Plan,” and it addressed the issue of competing with “low-ball” fabricators. “Don’t just get mad when you see shops trying to sell stone for $29 a foot,” he said. “Understand what they are trying to do.”

Malisani went on to outline several price objective factors:

• Consider your business mission statement.“What type of fabricator do you want to be? What do you need to do to be that type of fabricator?”

• Future business plans.“If you don’t have a map of where you’re going, you’re making it harder on yourself.”

• Target market.“Think of who is most involved in selecting a stone countertop. It is usually women aged 30 to 45 or 50, so you have to appeal to them.”

• State of the market. “Think of the industry as a whole. There are certain materials now that are a lot harder to get than they were a year ago.”

• Should be easily implemented. “Your pricing plan should be easy to carry out. It should not be a chore to bid work. The logic is simple: the more bids you complete, the more work you are going to get.”

• Competition. “Watch for people pricing in an irresponsible manner and be aware of what is happening in your market, but don’t directly respond to it.”

The session went on to discuss “closing” rates for commercial sales versus residential sales. Polling the fabricators that were present, an average of 20% of commercial bids are won, compared to 35 to 40% of residential bids. “We call every customer back after giving an estimate, and it has been a huge advantage for us.”

Speaking on specific pricing strategies, Malisani compared “penetration pricing” versus “premium pricing.” “You need to consider what people are willing to pay for, and create a brand that has some value,” he said. “The stone industry has made it harder on itself. The granite guy used to be royalty. It used to be a big deal to get granite counters, and now that isn’t the case. So you have to create a sense of branding and trust.”

The need to create a brand is particularly important for shops facing competition from Big Box retailers. “A percentage of people will walk into Home Depot and pay whatever they charge for granite countertops without checking anywhere else,” Malisani said. “It is all about trust and branding. They trust Home Depot, and they feel empowered. You need to make your customers feel that way.”

Customer contracts and quotes

The fabricators present at the Utah Stone Summit also discussed contracts with their customers, particularly homeowners. “A contract isn’t for the customer; it is for the fabricator,” Malisani said. “It is an opportunity to communicate with the customer and set expectations. This is also where you can account for contingencies. Part of taking care of the customer is saying no, and explaining to them what cannot or should not be done.”

Having a detailed contract in place can actually help maximize profits, according to attendees at the event. “A contract helps you protect yourself when there are change orders,” one fabricator stated. “For us, change orders are when we get paid the most, because we’ve protected ourselves and there’s no arguing the price at that point.”

When providing quotes, the fabricators agreed that a quick turnaround time is critical in effectively closing sales. “You want your quotes to be as professional as possible, and you want them turned around in 24 hours,” Malisani said. “It shows that you get things done quickly, and it sets that expectation of service.”

One fabricator offered specifics on how turnaround times have led to increased sales. “We changed to a mandatory 24-hour turnaround time for quotes two years ago,” he said. “Since then, our closures have gone up 10 to 15%.”

Understanding costs

Another key for fabricators is understanding their costs. “You have fixed costs, which do not vary according to the volume of production, and variable costs, which vary directly in relation to production,” Malisani said.

To help fabricators understand and track costs, Malisani showed examples of standard Job Reports and Job Cost Sheets. “Job Reports help you understand what processes were done on a particular job,” he said. “They travel with the pieces, and the time spent on each step in the process is noted, so you know exactly what the costs were. Job Cost Sheets are filled out by office personnel. They track items like material costs, job hours, labor costs, variances and change orders.”

The morning session also addressed the issue of customers who have already purchased their slabs and are asking for fabricators to process and install the material. “It depends on who they are and where they bought it, but if it is a contractor/builder, we will say yes,” stated one fabricator.

A number of attendees who process pre-purchased material said that they will factor in a greater profit margin for such jobs. “They’re really not getting a deal, because we are upcharging the fabrication costs,” one fabricator said. “We make sure that we are comfortable with the material, and then we price the job with a margin built in as if we supplied it.”

The possibility for end users to directly purchase slabs is another example of a continually changing business landscape. “The stone industry now is where the tile industry was 25 years ago,” he said. “There was a time when you couldn’t buy tile unless you were a tilesetter, and now you can buy it in your local retail store. The stone industry is changing. How many hotels are fabricated in the U.S. now? You don’t have to participate in these changes, but you need to adjust to them. It goes back to being prepared and knowing your costs. If someone has 10,000 square feet of material to fabricate for a housing development, are you going to walk away from that?”

Increasing sales

The fabricators at the Utah Stone Summit had a mixed client base of contractors and retail customers. Almost universally, attendees said they rely heavily on referrals and word of mouth for future business, and several said they’ve adjusted their image based on their targeted clients. “A few years ago, we changed our look to appeal to the high-end design market and move away from contractors, and it worked really well for us,” stated one fabricator.

Speaking on advertising, the fabricators emphasized that having a specific, sustained marketing plan in place is critical. “We do call tracking numbers, so we can understand what works best for us,” stated one attendee. “We want consistency in our advertising. We don’t just advertise just once and hope it works. You need to have a plan.”

Malisani added that there are a number of ways to identify potential customers in the local community. “You want to target certain groups of people,” he said. “Think of groups that have disposable incomes. For example, what is the most expensive sport for kids today? It is hockey, and parents of hockey players have disposable income, so maybe you should sponsor a local hockey team. People buy from who they know, so get involved in your community. Be a good steward, and people will want to do business with you.”

Fabricator Forum

Following a tour of Arizona Tile’s extensive slab warehouse, the fabricators gathered for an open “Town Hall” forum, which allowed attendees to raise issues they are currently facing in their operations. The forum was moderated by Malisani, and it featured the following panelists:

• Dan Nelson, Global Stone Inc., Orem, UT
• Roland Scherbel, Accent Surfaces, Murray, UT
• Alan Jorgensen, Bedrock Quartz Surfaces, West Jordan, UT

What is more profitable — residential or commercial fabrication?

Jorgensen: It really depends. We’ve had profitable commercial jobs and other commercial jobs that weren’t so profitable. The same goes for retail. Both can be profitable, but one of the main benefits [to doing both] is keeping your work volume up to your capacity.

Nelson: You really need to define what “commercial” fabrication is. Doing the counters at a bank isn’t really all that different from doing residential work.

Commercial work should make you more money because you are risking more. We have two separate companies — one for residential and one for commercial. I didn’t want the same people doing both.

We had record years from 2007 to 2009, and it worked out for us because the commercial slowdown came later than the residential slowdown. But for commercial work, you really have to be prepared. To “win” on a commercial job doesn’t just mean getting the project. To really win, you have to know how to make money on the job.

About 90% of our work is commercial, and I would say that those jobs are easier to manage. You have estimating and procurement teams for that type of work.

Scherbel: Accent Surfaces was purchased by Fetzer [a large-scale architectural woodworking company] specifically to do commercial work. The risk is much greater. For example, we are doing work for the San Francisco 49ers new stadium in Santa Clara, CA. If my team misses a drawing, we could lose $100,000. That’s not the case in residential work.

The scheduling for commercial work is also more complicated. You might get a call from a general contractor two days before install that they’re not ready for you. You have to be prepared to work on a compressed schedule then, because the end date of the job isn’t going to move.

What is the biggest challenge for a fabricator today?

Nelson: Cash flow. People want to grow their business, thinking that it will end their cash flow problems, but it isn’t that simple. In reality, Walmart has cash flow problems; the U.S. Government has cash flow problems.

When I started in the stone business, I was out there cutting stone, and I stepped back and said, “What do I want?” and then I started to think about how to get there. I pay attention to growth patterns, and I also do a lot of backpacking. When you’re backpacking, there is a point when you rest and a point when you climb. The accidents never happen when you’re resting; they happen when you’re climbing. So you need to make sure that the amount of resting you do has you prepared for the climb. In business, you need to know when you’re at a plateau, and when you’re “climbing.” You want the climbing to go as quickly as possible, and that happens when you have enough cash flow.

Scherbel: I agree.We are in a growth period now, and it is an important strategy to know when you’re ready to grow. You need to meet your customer needs while also maintaining your reputation. That even comes down to small details, like making sure there is enough parking at your building to handle an increase in customers.

Jorgensen: Changing from one scale of volume to another is a challenge. We pulled back during the recession, and now that we are growing, we need to manage that growth and changing volume.

Where are you finding employees?

Audience Member: I’ve been lucky to have people that have been with us for five or six years. We always look to promote from within. Our truck driver moved on to fabrication, and from there, he moved on to estimating.

Nelson: Once you find a good employee, do everything within reason to keep them. A good employee is worth twice as much to you

Scherbel: Unemployment is going down, so you need to make sure you keep your people happy more than ever.

Nelson: Money is not the top motivator for keeping employees. You need to create an environment where people want to be, so keeping your shop dust free helps. Know what your employees want, and understand them.

What are you doing about dust mitigation?

Nelson: As you get into more advanced machinery, there can be less of that, but we make sure that everyone is wearing masks and safety glasses when that’s an issue.

Audience Member: We did a voluntary OSHA inspection, and they did thousands of dollars worth of testing for us for free. They do expect you to fix the problems that they find, but you don’t get fined for it like you would with a mandatory inspection.

Malisani: In Montana, you are given a courtesy call when there is a complaint or a violation charge. In our state, air quality is regulated by the EPA and not by OSHA. That is a big change.

The Marble Institute of America is working on a testing program for silicosis, and the voluntary OSHA inspection is a great idea. You have to fix what they find, but if they come in on their own, you’re going to have to fix it anyway, and then there will be a fine.

We test new employees for their hearing and respiration. If you ever have a claim, this will more than pay for itself. Also, employees want to know that you care about them. One of the ways you can do that is to show that you care that they are healthy.

We purchased an Omni Cubed all-terrain cart, and our employees appreciated it. It cost us less than $1,500, and it has already probably saved us $10,000 in material breakage.

No matter what equipment you have, your employees are still your greatest asset. Do production meetings; allow people to vent. When you see multiple employees quit at the same time, it shows that they’re talking to each other, but not to you. Encourage feedback from your employees. We are a family business, and we want our employees to feel like they are part of the family. It may not always work, but that is the goal.

What about safety during installs? How are you making sure people aren’t cutting corners on the jobsite?

Scherbel: Jobsite safety is the number one place where we have had OSHA-recorded incidents. Last year, we had a total of eight OSHA-recorded incidents, and six of them came on the jobsite. There were back injuries and even a couple of ACL injuries.

We talk about it, because safety is an awareness issue. Even having the glasses on serves as a reminder to be safe.

Nelson: It is all part ofthe training process and continuing to train your employees. You need to make sure there is one person in charge. On a commercial job, there is a project manager and a superintendent to make sure there is safe, quality work being done.

On a retail installation with two guys on the site, if neither one is the boss, then you will have an issue. You need to have a lead installer, and you need to make sure the person in charge understands their responsibility. Give them power, and they will want to do a good job.

How do you identify who your leaders are?

Nelson: Sometimes it is someone with the most experience, but it is also people who are proactive. A leader may not be the best polisher, for example, but is someone who can lead. When you empower someone, it validates them.

Scherbel: You have to be looking for who your future leaders will be two or three years from today. You need to think of who your lead installers will be. It isn’t based on the time they’ve been there or even on skill. Leadership is a totally different characteristic.

Malisani: We have “empathy training.” We will have the sawyer do the polishing, for example, and we will have other workers changing tasks around the shop. It may seem like a game, but it’s not. People will understand each other’s jobs, and how the quality of work that they do affects their co-workers.

How much cross-training do you do at your shop?

Audience Member: We do it as much as possible. It gives me back-ups. When we have an emergency where it is all hands on deck, everyone is ready to do whatever they need to do.

We also have a “no bosses” structure. Every area of the shop is assigned for someone to manage on their own — inventory, tooling, etc. It helps avoid people feeling that they’re entitled.

Jorgensen: We don’t want people to feel that they are untouchable because they’re the only one that does something. We asked our CNC operator to cross-train someone, and even that alone was an eye-opener. We want redundancy in our machinery and redundancy in our staff. That way, even when someone goes on vacation, you’re covered.

What kind of benefits are you providing for your employees?

Nelson: I know a chiropractor, and I set up a plan where, for $50 per month, they can get an adjustment and a massage. We also help our employees find catastrophic insurance plans.

Scherbel:We pay for 100% of the employee [health insurance], and they can add family members at their cost. We also offer health screenings. Vacation time is earned over time.

We also do other things, like a quarterly barbecue for the employees. We sponsor an indoor soccer team, which allows the employees to come together outside of work.

Jorgensen: We offer health insurance and access to dental, along with paid vacation and holidays.

Audience Member: You need to respect your employees like human beings. That comes before bonuses, health insurance or anything else. Don’t curse at them when things go wrong. Nothing good will come from that. I have employees that have been with me for 15 years, and that’s because I show them respect.

Dave Jorgensen, Bedrock Quartz Surfaces: I walk around the shop a few times a week and talk to the workers. I ask them about their lives; about their families. We have a working kitchen in our showroom, so we bake cookies on a regular basis. I walk around and give them to the workers. I know it may sound funny, but they really appreciate it.

On commercial jobs, what kind of interaction are you having with your site supervisors and project managers? I’ve seen them get incredibly abusive. Why should I send my installers someplace where they will get abused?

Audience Member: I’ve actually called site supervisors and others who have been abusive. I keep it professional, and I insist that they talk with respect, or I will talk to their boss. Project managers tend to be more reasonable. Site supervisors are tougher.

Scherbel:It comes back to relationships. There are some contractors where we won’t bid on a job. It is, in essence, firing a customer.

Nelson: There was a time when jobs out there were limited, and you worked for anyone, but that’s not the case anymore. But overall, it is a matter of communication from the very beginning. If you are using salespeople to manage your jobs, the communication needs to come from them.

What sort of quality control do you have in place for receiving materials or pre-fabrication?

Jorgensen: We have Slabsmith slab imaging software, and every slab is photographed. We pre-locate any fissures and scratches by hand, and we mark them before the slab gets to the saw.

Scherbel: It is every person’s responsibility throughout the organization. We build quality into every part of the process — from the point of unloading the slabs and continuing from there.

In my experience in manufacturing, if you have one person in quality control, then everyone else will think they have a safety net in place.

Nelson: It starts with the guy who is unloading the slabs, but it continues from there. In Utah, when you’re receiving slabs, they can be wet or have snow or mud on them. You need to take a look at them after they dry. Ultimately, everyone along the way has to be looking out.

Future educational events

This Utah Stone Summit was just one session in a year-long Stone Industry Education Series from the Marble Institute of America and Stone World. Future events include:

• June 11 - Boston, MA
• June 25 - Columbus, OH (new date)
• July 18 - Seattle, WA
• September 19 - Dallas, TX
• October 17 - Atlanta, GA
• November 7- Pompano Beach, FL

For more information regarding future Marble Institute of America and Stone Worldeducational seminars, visit www.stoneindustryeducation.com.