Diversify Your Sales Revenue: Try Turnkey!
Diversify Your Sales Revenue: Try Turnkey!
ensure prolonged success through more diverse product offerings.
Michael Balliet of Builders FirstSource and Bill Sauder of Holmes Lumber argue that turnkey framing has the potential to significantly alter the component manufacturing business model while providing component manufacturers (CMs) the opportunity to positively diversify sales revenue.
They point out that CMs have for years sold products directly to entities operating directly on jobsites, such as general contractors (GCs) or framers. This one-to-one sales relationship works because it’s driven by simple supply and demand economics. Turnkey framing alters that model by adding services to product sales for CMs. The CM sells both the product and the labor that is currently supplied by framers and GCs.
Following the turnkey framing model leads to diversification on the part of CMs, who sell a wider array of products and framing labor all in one package at a competitive rate. Balliet said the ability to widen the scope of sales is what makes turnkey a successful venture for his company.
“In order to sell products to certain types of builders you’re going to have to do it,” Balliet said. “It’s certainly the reason I do it. My customers want it.”
Balliet explained that in all his years in the industry he had never considered offering turnkey framing until a client asked that it be an option. He soon realized not offering it could cost him clients over time and perhaps paint his business into a corner.
Balliet confessed there are myriad reasons to offer turnkey framing, and each CM may be facing a different scenario. With that in mind, he and Sauder see profitability and efficiency as the main benefits of getting into turnkey. The more products you offer, the more potential revenue streams are contributing to your bottom line. The more direct control you have over labor and its associated costs, the more you can control your profit margins. Critically, in a timeline-driven industry, taking the lead on installation means you can directly manage the production, scheduling and communication that keep a project on track.
Sauder’s experience over the years has taught him that the more these things are under a CM’s control, the more that CM can focus on growing the company. That happens in time, he said, and when one client requests turnkey, others typically follow suit. “If you can widen your offered products, that expands the footprint of your company and creates new chances to gain customers,” he said.
Balliet and Sauder agree the biggest obstacle to success can be the current lack of demand for turnkey framing in a given market. Without an existing demand, this approach can be a little like pushing a rope: impossible. So where is demand be greatest? Regions where the framer is willing to work with the CM, as opposed to seeing the CM as a competitor. In markets where framers work on their own and buy directly from CMs, turnkey framing can be difficult to implement. Turnkey threatens to take business, or at least profit margin, away from the independent framer.
Balliet is quick to point out this dynamic isn’t related to city size, as one might think. “It’s simply because we don’t sell to framers in our market, so we are not competing with our own customers when selling turnkey.”
If the CM isn’t directly competing against its own customer framers, the key to implementing turnkey framing is developing relationships with not only your customer GCs, but also framers who you, as a CM, will hire through subcontracts to handle the installation.
Kenny Shifflett, owner of Ace Carpentry in Manassas, VA, said it must be appealing to subcontractors to work for you. “You have to keep in mind, a turnkey framer in today’s market is a broker, contracting the work and gathering all the research and information to build the product correctly,” Shifflett said. “For it to work, the CM now has to do what is necessary to ensure the subcontractor—the framer—is successful.”
Shifflett said there are so many variables a CM has to be aware of and willing to overcome. Whether it’s ensuring the correct products are on the site or scheduling deliveries, to ironing out traffic control in inner-city jobs or coordinating crane usage between jobsites, the CM must prove to subcontractors that he can be trusted. “If you can control all of that, then more than likely your subcontractor is going to be happy and will continue working with you,” he said.
Turnkey framing will likely grow in popularity because it gives CMs an opportunity to grow in new market segments within the building industry while also answering an existing demand. The CMs who are ready to accept the challenge of pursuing a new process and are willing to tackle the obstacles along the way will learn that turnkey can be an effective way to increase sales revenue and ensure prolonged success through more diverse product offerings.