When the 2009 International Residential Code arrives, with it will be the requirement for all single family homes to have fire sprinkler systems installed in them. This new code will create market and individual growth potential for residential plumbing contractors. If you, a residential plumbing contractor, are convinced that this opportunity is viable, then what's next?
Certainly questions of capital, resources, training and tools all fill the list. But if you are like me, you are wondering how to sell this. How do you convince an existing homebuilding client that you are capable of providing both services and that it will be less expensive than two separate contractors doing the work?
Most everyone agrees that it should cost less to get everything from one source rather than one thing from one source at a time. A quick glance at the popularity and success of big retail chains such as WalMart or Best Buy will validate that. And while it may seem obvious that bundling services is cheaper than buying them separately, it is harder to distinguish this when the amounts being compared are relatively low.
For instance, you normally don't drive to a specialty battery store to buy AA batteries when you can get the same brand at the grocery store for approximately the same price. The batteries at the specialty store may even be less expensive, however, when the retail price of batteries is not that much to begin with, who is going to drive all over town to save a dollar? And while costs are always a strong part of decision making, the residual savings that you get by not spending the time to make the extra trip to the battery store will most likely outweigh the cost difference between the two stores supplying the batteries.
Now equate this example with those contractors vying for the installation of a residential fire sprinkler system. You have the fire protection contractor acting as the specialty store and the plumbing contractor acting as the all-in-one store. If an average tract home is 2,500-sq.ft., and the installed costs for a fire sprinkler system are $1.50 per square foot, the installation cost would be $3,750. If the average sales price for this size tract house falls into the mid-$200,000, the fire sprinkler system would represent approximately 2% of the cost.
Is it possible for a plumbing contractor to provide this system for less than a fire protection contractor? It is safe to answer this question with a resounding “yes” even though geographic factors such as unions will skew the numbers somewhat. The first and most obvious reason is the combination or overlapping of insurance, tools and resources. It would be very difficult to compete with a workforce that is trained to install toilets and sinks as well as risers and fire sprinklers especially when many of the tools and materials used are the same. A second factor that makes this option even more definite would be if the fire sprinkler system is a multipurpose or combined type system, meaning a system of valves and piping that feeds both domestic and fire sprinkler demand all together. The reduction in coordination issues alone would make this a very attractive choice for any home builder.
The third and not-so-obvious reason reflects the nature of tract housing itself. Tract housing is all about volume and typical construction. This represents profit that is not readily measurable, but is made as the result of “production line” thinking. It could be characterized as savings made from repetitive activities that require very little effort. It can apply to the services currently provided for tract home builders and to their services as well. The typical nature of this type of construction produces less and less supervision with each home built, and I can attest to this first hand. While growing up in the homebuilding industry, I experienced the transformation of our family business from tract housing to full custom homes. Without diverting into a dissertation on the differences, it can be summed up in one word: Volume.
Let's say the average cost of the plumbing contract for our 2,500-sq.ft. home is $15,000, and the fire sprinkler system is $3,750. The total cost for each service without profit is $18,750. If both the plumbing contractor and the fire sprinkler contractor apply a 10% markup, the total price to the client is $20,625. Now, if you are a plumbing contractor, providing both services, it would be reasonable to expect your price to be at least 2% lower than this as your fixed expenses are now spread over a larger amount of revenue. This would put your sell price at approximately $20,210, which is a savings of roughly $415 to the client per house. Now, consider that your 10% profit per house should actually increase as your crews become more proficient with the installation of both systems, along with savings on bulk materials. Multiply that profit over a couple of hundred homes a year, and the decision to expand your services to include fire sprinkler systems becomes much easier.
Do not forget, just like everyone else in the construction industry, home builders are looking for ways to do more or get more with the same amount. If they do agree to pay more money, it has to be towards something that they know will help them stand out from their competition. Tract home pricing is very competitive with margins averaging 8% to 10% at best. So other marketing tools are used. Usually these types of things come in the form of “buyer options.” This is where the buyer of the home may want to add certain options to the basic home such as a refrigerator, washer/dryer or upgraded carpet. The big difference is that these options are not “required” by codes or standards. The fire sprinkler system, on the other hand, is required by code and therefore is a hard cost.
While the builders are looking for bang for the buck, they are also looking for companies that are going to make life easier — fewer coordination issues, no more subcontractors than what they are already working with and someone who can manage work without supervision. By using an “all in one” plumbing contractor for both services, the builders eliminate one more company to go into contract with.
Home builders put a high price on their time and how it is spent. They don't want to deal with coordination problems, issues regarding permits or scheduling conflicts. They just want it done, on time, on budget and with attention to the same quality expected in custom home building. Home builders today are looking for every advantage they can find to either lower costs or provide more value for the same price. If domestic plumbing and fire sprinkler services are packaged up by a single source contractor, builders will take a long hard look at the single source price. With a competitive price and the reduction of administrative expenses, there is real value to the home builder in getting their plumbing and fire sprinkler systems from the same store. If you show the home builder how this works for them with the pricing, I am confident you will be successful as a single source provider.
In the fifth part of this series, Jayson Drake, senior product manager for Uponor North America, will discuss why multipurpose systems are the future of residential fire sprinklers.
Steven Scandaliato is a Fire Smarts faculty member and vice president of business development of Telgian Corp. and has more than 23 years of fire protection engineering, design and project management experience. He holds a Level IV certification from NICET in Fire Sprinkler Layout and serves as a member of the NFPA 13, 101 and 5000 committees. Visit his Web site at: http://www.scandaliato.com.