Tuesday, November 17, 2020

Refilling the Dwindling Ranks of Custom Modular Home Builders is a Must

For years after the housing recession of 2008 the modular home building industry was stagnant. Then homebuilding began an upturn and houses once again began flowing off the production lines at factories across the US.

Economists, city planners, housing experts, Architects and the media began telling everyone that modular and prefab was the future of not only homebuilding but hotels, hospitals, affordable housing, ADU’s, highrise apartments and even housing for the homeless.

Then in March of 2020 COVID-19 hit the US housing market and many in the modular housing industry thought the bottom was going to fall out of market that that was finally starting real signs of life.

Guess what! Not only did the bottom not fall out, the modular industry begin eating Popeye's spinach and it's stronger today than anytime in the past decade.

Many wood based modular factories added commercial structures to their lineup and projects started sprouting up all across the US. Hotels discovered the cost and time savings of modular. Hospitals and assisted living facilities are now following their lead. Hundreds of projects are on the books for modular factories.

Modular hasn’t been this strong in quite some time. Of course there are those pesky problems that keep popping up like the skilled labor shortage, transportation restrictions and over zealous code officials but all things considered, it ain’t too bad!

However, there is one part of our industry that gets almost no attention and will not see any improvement in the near future and that is the “New to Modular” home builder.

I did a very stealth survey over the past couple of years asking factories from North to South, East to West and all points in between how many new builders they brought into their company and if they had a training program.

The results make me wonder if there will be a modular home builder anywhere in the country in 20 years.

I found only two factories that offer any training program when a builder joins them and not one that has an active “New to Modular” acquisition program. Let me make this clear. Having an advertisement asking a builder to visit your factory is NOT a recruitment program. Acquiring a builder from a competitor doesn’t count as an acquisition, it simply moves the same number of new homes around to another factory.

Asking factories how many ‘new’ builders they brought in over the past two years yielded about 4 per factory with most factories telling me that none of them are buying today. Zero for Four! Not a good statistic. Not at all!

Some factory owners told me they do not accept “New to Modular” builders simply because of that statistic and that don’t want to invest in a training program. They prefer to ‘acquire’ builders from their competitors.

A couple of factories have a training program but it revolves around how to work with the factory and who the builder should be talking with about different parts of the project. Very little or no training on how to become a successful modular home builder.

Since 2016 there have probably been less than 20 successful “New to Modular” builders joining the ranks of modular builders across the entire US. NOTE: a manufactured home dealer taking on modular homes does not count as a new builder and neither does a developer filling a community with homes or townhouses as they usually hire Project Managers familiar with modular construction.

Why aren’t people looking to become modular home builders? It’s not like becoming a site builder where you should work your way up the ladder before building your first home for a customer. No, an executive let go from a big corporation with a nice severance package really only has to know the fundamentals of construction to become successful as a modular home builder. 80% of the work is done by the modular home factory, the delivery and set crew, the excavation and foundation people and all that is left is the finish work which can be easily subbed out.

That executive probably knows marketing and possibly sales and I’m sure has taken accounting courses in college and might have had many people working under them at their last job. They know how to take charge. They like structure.

Lots of these recently laid off executives with big severance packages look to franchising to meet their needs for structure and training, neither of which is available in the modular housing industry.

Please don’t get me wrong. America’s modular housing industry is great. We produce some of the most energy and cost efficient modular homes in the world. Our degree of customization is unmatched anywhere. Our production workers are the best. Our factories are working at or near capacity trying to keep up with the new demands from the commercial side of our industry.

Our only downfall is a lack of acquisition and training to attract “New to Modular” people that don’t even know we exist when they begin looking at either changing careers or moving out of ‘site building”.  

Now let us take a look at Jim and Jane Smith, a young couple where one of them was laid off from their corporate job and they decided to look at franchising a Dairy Queen in their town. After inquiring and learning that a Berkshire Hathaway’s Dairy Queen (same people that own Clayton Homes) was appropriate for the town, they decided to jump in.

Neither of them had ever worked in a fast food or any type of service business so this would be a totally new experience.

The first thing they learned was the franchise fee for a Dairy Queen restaurant is $25,000 to $35,000. The total estimated investment ranges from $382,000 to $1.8 million, with liquid cash available of $400,000. A 4-5% royalty fee on gross monthly receipts is paid to the company.

The next part required Jim and Jane to go through an extensive training program.

There are currently four required components to initial training:
  1. The Management Training Readiness Assessment (MTRA)
  2. SERVSAFE certification
  3. The American Dairy Queen Corporation’s training program (three phases): Phase 1, Product and Equipment Training; Phase 2, Systems & Management Training; Phase 3, People, PRIDE and Profit Training.
  4. A cake decorating and certification course

The franchise’s designated manager and two assistant managers are required attendees for the first 3 components. Only one person is required to attend a cake decorating certification course. Prior to attending the franchiser's training program, the required attendees must pass the MTRA, which is administered at a location designated by the franchiser. The MTRA measures leadership, customer service, decision-making, prioritizing and business math, and may be modified by the franchiser at any time.

The franchise’s controlling owner (as defined in the franchise agreement) must, at the franchisee’s expense, attend all meetings the franchiser holds or sponsors in their area or region including all DMA or other marketing area meetings, and all meetings relating to new products or product preparation procedures, new DQ system programs, new operational procedures or programs, training, restaurant management, financial management, sales or sales promotion, or similar topics.

Here are the required expenses before the doors are opened for the first time:

  • Initial franchise Fee $35,000-$35,000
  • ALTA Survey $0-$5,000
  • Initial Training Fees and Costs $1,125-$11,825
  • Travel And Living Expenses for Training Programs $23,000-$38,500
  • Building Construction and Leasehold Improvements $550,000-$900,000
  • Construction Consultation Services $0-$7,500
  • Building Plans, Design Intent Plans and Architectural Seal $15,000-$45,000
  • Equipment (Including Signs and Point-of-Sale Systems) $390,000-$530,000
  • Training Inventory $5,000-$15,700
  • Opening Inventory $8,300-$38,900
  • Utility Deposits, Business Licenses and Government Charges $4,000-$17,000
  • Attorney's Fees $1,000-$8,000
  • Additional Funds (3 Months) $51,000-$198,000

ESTIMATED TOTAL $1,083,525-$1,850,425

But Here Is The REAL Bottom Line:

The average Dairy Queen Franchisee makes $70,000 a year!

Here is a better alternative!

Now let’s look at what Jim and Jane could have made if they had chosen to go with a modular home factory that offered a training program.

The average small builder makes $86,000 a year.

If Jim and Jane had invested $50,000 for training and assistance on marketing, selling and building their first modular home, they would have made an average of $16,000 more without all the hassle, fees and red tape of being a Franchisee of a major company like Dairy Queen, 7-11, Taco Bell or Jiify Lube.

Why doesn’t this happen in our industry? Until recently there hasn't been any way for someone, especially people without a lot of construction knowledge to enter the world of building modular houses. No path, no school, no training...nothing.

This morning I was able to sit down with Ken Semler, the owner of Impresa Modular Franchise and talked about the barriers our industry has put up to impede young people, retired executives, Realtors, Vets and many others from getting into the modular home building business.

I was absolutely blown away with what he and his franchise team have put together to help new franchise open and operate a successful new home business.

If being part of the great modular housing industry intrigues you and you don't know where to turn to for help, please take a few minutes to explore Impresa Modular Franchise.

The modular housing industry needs you!

Gary Fleisher, the Modcoach, publishes Modcoach News and Modular Home Coach blogs for the modular industry professional and Modcoach Connects for construction consultants

email me at modcoach@modcoachconnects.com

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