SWEAT EQUITY: a new approach to marketing

By Wally Lynch Paid Associates

C WEAT EQUITY has been tJ around for years. The concept helped to spawn this nation and in the 1960s generated a retail specialty store called a home center.

Simply put, sweat equity is the part ofan asset one owns because of putting his or her labor into it as opposed to paying for all or a part of it. Sweat equity pays off more frequently and consistently to more people than any lottery, the slot machines in Las Vegas or the New York Stock Exchange. It's a colossal money maker for anyone interested in providing sweat.

Appealing to those willing to furnish the perspiration can be rewarding to the material suppliers. This idea fuels d-i-y marketing.

In this industry, there are three areas where a dealer can foster sweat equity opportunity for a customer. First, he can provide materials for "building a house" from sticks, a kit or by finishing a shell. Second, he can supply products needed for simple projects such as building a storage area, constructing a room addition or replacing a roof. Third, he can offer materials for light jobs such as painting a room, replacing a light fixture or installing shutters.

For our purposes, we will bypass building a house because of its complexities and investment require- ments on the part of the retailer. Both the seller and buyer stand to gain the most with the least investment in the simple project and light job areas.

Opportunities available to the customer and the dealer in the project area are exemplified in a 1986 booklet produced by Rodale's Practical Homeowner, one of several shelter magazines appealing to potential and actual homeowners. They commissioned a survey by Susan Weaver and Joseph Scrapits on how to increase your home's value. The result was a "guide to 20 home improvements: how much they cost, how much they return."

The methodology was to identify 20 popular projects, form a panel of real estate appraisers, establish the cost of each improvement and estimate what its value would be when the house was sold. Project costs, for the most part, were developed from Mean's Home Improvement Cost Guide.

The panel was given a hypothetical house valued at $80,000, representative of the median home value for the neighborhood. Each member reviewed each project in this light. The panel then jointly estimated the potential value of each project at resale. (See accompanying list)

For each project the total professional cost was developed along with the retail price for material only. The panelestimated the recoverY amount at resale and the Percent of the recouped costs.

In the case of the highest recovery, for an interior facelift, the project cost $4500, $2025 of which was for material. The resale dollars this

Project Estimated

August 1988 project would generate were jected to $4800, or a l07o/o recovery. jects was $ 1 5 2,842. The total material cost was $69,912. Total appraised gain was $102,055. The total recovery on material costs was 1460/o and equaled $32,143 in sweat equity. On average, material represented about 460/o of the "pro" cost of the improvement.

The worst of the projects in terms of resale value, window and door replacement, cost $9832, $5290 of which was material. Resale value was pegged at $4237 with recovery of 430/0.

The interiorfacelift included "complete repainting of all ceilings, walls and interior trim; new wallpaper for dining room, one bedroom and one bathroom; new carpet for living room and all bedrooms; new sheet flooring for kitchen and both bathrooms; new hardwood flooring for dining room, and contractor's fee."

Consider that the population in this country moves at a rate of about 200/o per year and thus totally relocates itself every five years. As a market, an interior facelift is totally reachable in every trading area. It also is a sizable demand segment worthy of serious pursuit by almost any retailer.

Recent research by the Home Center Research Bureau on 150 top home improvement projects revealed additional facts on sweat equity. Their key frndings were: r Pros do home improvement projects less than 250/o of the time. r In-store services (how-to-clinics, workshops, etc.) play a minor role in project execution. r Hot stores of the future will offer project advice, one stop variety and quick check out. as they have expressed it. Imagine a gambrel roofed storage barn. In the Dallas, Tx., area, this 8' x 12' building is advertised installed on your lot for $695. Let's assume that $45 is the delivery cost and the balance, or $650. is the installed selling price.

. 600/o of the people surveyed asserted that they could do home improvement projects as well as a professional.

. Those using a professional generally do so because they lack the tools necessary to do the job properly.

. 352,000,000 d-i-y projects were tackled in 58,000,000 homes in l 987.

Implicit in the study, as shown bY the recovery percentages, is that after real estate sales commission (70lo), none of the projects makes money. In fact, most are losers but provide other compensations such as emotional satisfaction, use of the improvement and reduced utilitY bills.

But if you consider sweat equitY, the picture can change in terms of recovery percentage. For example, in the hypothetical interior facelift, the materials cost $2025 and the recovery estimate at resale: $4800. This can become a recovered cost of 2220/o instead of 1070/o if sweat equity is substituted for the professional labor cost of $2475 ($4500 minus s2025).

Of the 20 projects, all but three recovered more than the material costs at resale time in the opinion of the panel of experts. The three with negative sweat equity were window and door replacement, swimming pool and landscaping. The total professionally done cost of the 20 pro-

Story at a Glance

Opportunities for selling "sweat equity" . . how to develop marketing plans advertising tips. ways to reach three levels of customers.

Although the benefit of sweat equity to the consumer is obvious, how does the dealer capitalize on this potent force? First, combine in Your mind the parts of each surveY as described here. Second, make uP Your mind that you're going to have to communicate with your customers' Third, get ready to serve the customer.

Only 250/o of the customers hire pros. About 60% feel theY can do the job as well as a pro, These are the people who want in-store Project advice.

Let's talk to the customer's needs

From this information, if You want to sell projects, you're going to have to merchandise your ads to meet the customer's needs. Consider the following:

8' x 12' Gambrel Roof Barn installed on your lot $695.00

Kit Form (sweat equity : $326) w/No.4..... ...$369.00

Materials (sweat equity : $376) w/No.4..... ...$319.00

Instructions, Plans & MaterialLists.. ...$5.00

This example is purposely simplistic and overtly identiltes sweat equity. Obviously a plan must be drawn, a bill of materials worked up, a kit assembled and an installation program developed. The end result is the dealer solves the problems of his customers and capitalizes on the needs of the majority with an offer of huge savings for sweat equity.

Plan 1 takes care of the 250lo who want it done professionally. Plans 2 and 3 take care of 600/o of the customers who want to do it themselves. (Plan 2 might have some dimensioning and pre-assembly and Plan 3 just the necessary materials to build the project.) Plan 4 covers the l5o/o who might be induced to learn now and buy later.

Another way to hook the sweat equity customer is to base your price comparison on installed pricing. Promote "Buy a light fixture, install it yourself and save 600/0." This will help both you and your customer identify the real value of what You sell. The implied saving is more potent stated thusly. Pricing wars also fade into a demonstrable value'

Next month Wally Lynch will discuss light jobs and sweat equity - ed.