Remodelers: Growth Expected in 2023, But at a Slower Pace

Remodeling companies control when they enter or exit the industry, but their financial performance is intrinsically linked to external factors, such as the number and size of their competitors, ease and availability of credit and inputs, or the bargaining power of their customers and suppliers. For this reason, the National Association of Home Builders (NAHB) periodically conducts the Remodelers’ Cost of Doing Business Study – a nationwide survey of residential remodeling companies designed to produce profitability benchmarks for that segment of the construction industry.

The 2023 edition of the study shows remodelers’ gross and net profit margins both dropping between 2018 and 2021. On average, they reported $1.9 million in revenue for fiscal year 2021, of which $1.4 million (75.1 percent) was spent on cost of sales (e.g., labor, material, and trade contractor costs as well as direct costs for single-family construction) and another $389,000 (20.3 percent) on operating expenses (e.g., general and administrative, finance, and S&M expenses, owner’s compensation). As a result, remodelers’ average gross profit margin for 2021 was 24.9%, with a net margin before taxes of 4.7 percent.

“With all the challenges remodelers face right now with labor shortages, product lead times, higher prices, regulations and such, I think not having the education to know how to navigate all we deal with really hampers the success and profitability of otherwise good remodeling businesses,” said Mike Pressgrove, owner of PDQ Construction in Topeka, Kan., and Chairman-elect of NAHB’s Remodelers Council.

“HBAs have the resources to direct members to all of NAHB’s education materials and courses to help them not only navigate and survive all of the obstacles that we run into, but thrive when others struggle,” Pressgrove continued. “Not only can they help with the education, but being a member means you have other members that have and are going through the same things. It has always amazed me how willing fellow members are to help with their knowledge and past experiences. This happens at all levels, local, state and national.”

NAHB believes the remodeling industry will experience growth in 2023, but at a slower pace than in 2022. NAHB estimates a 5 percent gain in 2023 for remodelers and a 4 percent increase in 2024.