Last year, you told us that, in terms of income, you did better than most Canadians. But last year we surveyed you during one of the most active building cycles in North American history. This year’s survey saw you in a different economy altogether.

Who you are
The `Who-you-are’ part of this survey lays down our basic understanding of who exactly is answering our questions. There were fewer of you this year but more than responded to our 2003 survey. We received many more responses from Alberta and B.C. but many fewer custom homebuilders. We also saw a change in regional representation that we think actually causes our numbers to reflect more accurately the distribution of renovation activity across Canada. Ontario’s over-representation of last year and Alberta’s under representation were corrected a bit (See table above). The rest of the provinces show their percentage of respondents at about the same as the percentage of renovation activity, except for Quebec. That province is still under represented with 21 per cent of national renovation activity but delivering only 4 per cent of our respondents.
Last year, we claimed that the survey responses showed you to be “An august group of hardworking businessmen that know as much about the renovation business as any people on the planet.” Then, well over half of you declared more than 20 years in the business. You are even more “august” this year. From last year’s 58 per cent, the number of you with 20-plus years of experience jumped to 62 per cent, and the average number of years of experience you claim has gone from 22.4 to 23.3. Two additional questions this year asking for your level of education and your age put the exclamation point on our impression: 55 per cent of you have a graduate or post-graduate degree and almost half of you are over 50 years of age (48 per cent). And you remain mostly independent. We asked if you had membership in an association related to your business and 59 per cent of you said no. That’s virtually the same as last year (60 per cent.) There is one number that we think reflects not so much the general population of renovators in Canada as a change in the respondents to our survey. It’s an important shift to keep in mind when reading the numbers or comparing them to last year. Last year, the largest group of our respondents fell into the $250,000 to $499,000 gross sales category (20 per cent). This year, the largest group is in the $500,000 to $1-million category (23 per cent).

How you build It would be natural, of course, to ask such an experienced and successful group how they are surviving the worst downturn in economic history. Some of the answers came through in this survey:

You’re above ground…
The underground is such a contentious issue in this industry that we thought it important to deal with it head-on, and trust that you would tell us the truth about doing cash work. You did last year, when 37 per cent of you said you did some cash work. That squares with studies done on the underground in Canada in all industries. This year, the percentage is 29. The drop seemed to come almost entirely from the group that last year claimed to be collecting up to 10 per cent of their revenue in cash. That number was 30 per cent in ’08 and is 20 per cent this year. By contrast, 41 per cent of the responders in our ’03 survey said they did some cash work.
Of course, the decline could also be an indication that our readership is becoming more sophisticated and legitimate as time goes on. We can’t say anything on that for sure, but we can say that homebuilder or trade association membership seems to have a legitimizing influence. Of the respondents that said they were members of an association, only 19 per cent said they did cash work. For non-members, the number was almost twice that (33 per cent). That’s in sharp contrast to the numbers a year ago, when joining an association didn’t make that much difference. In ’08, 34 per cent of association members did some cash work. The number was 39 per cent for nonmembers. Even more telling, this year non-members were five times more likely than members to take 10 per cent or more of their income in cash (9 per cent v.s. 1.7 per cent).

…but still skate the edge
Another key indicator of underground activity is how you pay your hourly employees. When you have a bunch of guys working a full 40-hour week but you pay them by invoice, you are definitely pushing the legal limit. It means you are not paying their WSIB coverage, payroll deductions and vacation pay when you probably should be doing all those things.
Last year, 40 per cent of you said you had at least one hourly employee paid on invoice, and that hasn’t changed significantly this year (42 per cent). What has changed is that more of you have one or two (23 per cent last year, 29 per cent this year) and less of you have three or more (14 per cent last year, 12 per cent this year). It looks like no difference in terms of the principle, but those who pay hourly workers by invoice have had to let a few guys go.

You know the importance of supervision
There may have been layoffs among hourly, nonemployee workers, but your site supervision ratios show you are keeping your key guys. There are 36 per cent of you that have no site supers (35 per cent last year), 35 per cent that have one (36 per cent last year), 17 per cent that have two (15 per cent last year) and 9 per cent that have three to five (9 per cent last year also).
We matched the number of site supers with the number of jobs. The results indicated no difference from last year. The long and short of site supervision is this: For the most part, you supervise up to three jobs yourself. Between three and six, you gradually add one or two supers until, at six jobs, only 4.6 per cent of you are on your own. However, it is worth noting that one respondent claimed to have more than 25 jobs on the go and yet had no supervisors. We think he is either a handyman or a superman.

You use the Internet
There was a time not so long ago when it was unusual for any builder to spend much time in front of a computer. That has changed dramatically. Now, 71 per cent of you claim to be active online and half of you have websites (49 per cent). That is fantastic progress, but there is room for improvement. Of those of you who have sites, 80 per cent update them less than once a month. Only 25 per cent of you use social media, and of that, only 26 per cent actually use it as a marketing strategy. The Internet still can’t seem to trump referrals as the bread and butter of marketing in the building business.

You have the same problems as last year, but fewer worker headaches Last year, we asked where you encountered the biggest challenges in running your business. Your choices were: accounting and finance, project management, customer relations, employee and subtrade relations, estimating, marketing, and finally, administration. We asked you to rate your difficulty with each, from 1 (little difficulty) to 5 (a lot of difficulty).
There are small changes from last year, but probably too small to be significant. Customer relations and project management scored well in the “above the middle” rating (86 and 77 per cent respectively) but this time so did employee/subtrade relations (78 per cent). As last year, accounting and finance and marketing were scored “below the middle” more often than others on the 1-5 scale (13 and 16 per cent respectively), while employee relations edged out estimating for a place in the bottom three (9 per cent “below the middle” for employee relations, 8 per cent for estimating).
The change in the employee/subtrade catagory is reflected in your answer to our question regarding worker retention next year. If we can put it this way, you seem to feel that hanging on to good employees and subtrades will be about 10 per cent easier. The number of you who thought you would have “a lot, or some, difficulty” next year retaining good workers dropped from 38 per cent to 27 per cent, while the number that thought you would have “not much or no difficulty” rose by 13 per cent. That, we think, would reflect what we have seen in the general economy.

What you earn
As mentioned, the respondents this year pushed the bell curve of gross income to the right a little, but we can’t say this reflects a general increase in gross income across the industry at large (CMHC or StatsCan numbers on industry sales for ’09 won’t be out for a while) as much as it reflects who answered the survey. They also pushed the curve where personal income is concerned. The difference in percentage of those who took home less than $50,000 was significant: In 2008, there was 52 per cent of you, this year, we heard from only 33 per cent. By contrast, the number of you that are taking home more than $75,000 has jumped 14 per cent, from 24 to 38 per cent.

What you know and what you earn
Half of you have college degrees, and we expected that when we correlated your schooling with what you earned we would find earning increasing with education. It turns out that our survey showed no clear relationship between the two. One of our problems is the size of the sample, but even within the two largest groups, high school grads and college/university degree holders, there was no trend to show more education means more money. In fact, where the earnings expectation peaked between $50,00 and $100,000, it was high school grads that led post-high school grads (54 per cent and 48 per cent respectively) in their salary expectations. It was the same with take home pay of $100,000 or more: According to the survey, 16 per cent of high school grads and 13.3 per cent of college or university grads expected to make that much.

Tight margins
Though our cohort might not be exactly the same as last’s years, there is one fact we gathered that we believe is consistent across all our income levels and job sizes: You marked up your costs less and you lost less money in your actuals this year than last.
Take a look at the graph above. In both surveys, we asked how much you marked up your estimates to cover your overhead and profit. In both surveys, your markups were consistently smaller as your jobs got bigger. Those markups dropped from ’08 to ’09 at all levels of job size. Your estimated markup for jobs under $10,000 dropped 13.2 per cent from last year. For jobs between $10,000 and $50,000, the drop was 10.3 per cent. For the bigger jobs, the drop was slightly smaller—6.2 per cent. The average drop across all jobs was 9.7 per cent.
Now look at the actuals. The drops follow exactly the same pattern; biggest for the small jobs, then smaller and smaller as the jobs get bigger. The average of the drop in actuals is about 3 per cent.
What does this all mean? In means that in general, you decreased your markup this year to win work. Then, when you did the work, you lost less money. Last year, the average difference between your estimates and your actuals was 6 per cent. This year, it was only 3 per cent. Said another way, the bad news is you had to drop your prices, the good news is that you kept a tighter rein on costs.

The marketplace
Why did you have to reduce your markup? We asked, and you listed competitive pressure as the biggest reason for not making sufficient profit on a job (24 per cent). As if to emphasis your new-found passion for tighter estimates, your second biggest reason was “errors in estimating” (17 per cent). After that, you listed excessive demands of customers (16 per cent). Consistent with your improved ability to retain workers this year, the next category, employee/subtrade problems, dropped from 18 to 14 per cent.

Riches and websites
Do you make more money because you have a website, or do you have a website because you make more money? Whichever it is, those of you with gross sales over $1-million are far more likely (80 per cent) to have a website than those who gross less than $100,000 (36.6 per cent). Overall, the split between those who have websites and those who don’t is 50/50. And those who’s gross sales are between $250,000 and $1-million are as likely to have a website as not. Interestingly, there is no significant corelation between your take home pay and your online activity. The number of you who are active online doesn’t stray beyond 10 percent from the 75 per cent mean across all six take home pay ranges and doesn’t show any pattern up or down as pay increases.

Gloomy future
You might be a richer bunch than last year, but you hold your gross sales lightly. Last year, 60 per cent of you expected to increase your gross sales; this year that number dropped to 50 per cent. On the other hand, in ’08 there was 20 per cent who thought gross income would decrease. This year, that number increased to 30 per cent.
Last year, the survey was conducted just as the first winds of economic change were beginning to blow across the country. No one really knew what to expect, so you kept your hopes high, with 84 per cent of you expecting to earn as much or more than the year before. It looks like some reality has sunk in. The pessimism on gross sales shows up in your expectation of take home pay as well. Now, only 66 per cent expect their take home to either stay the same or increase, while the number who expect their take home to decrease has doubled.
The gale is full force now, with varying opinions on when the storm will blow itself out. But it looks like you are well on your way to battening down the hatches. You have cut your estimates, improved your processes and lowered your expectations. You are ready, it appears, to ride this one out and emerge tougher and leaner. Let’s see next year how it all works out.

CC