How to Start a Lumber Yard

Part 1 - How to start a Lumber Yard business - Background

A lumber yard sells construction materials to building contractors and property owners for renovations or new building structures. As the owner of a lumber yard you will stock a wide variety of wood cut down into popular sizes. Other materials you may stock include wallboard, hardware, roofing materials, and fencing. You will likely offer services to cut wood down to required lengths for your customers and make deliveries to job sites.

Our guide is in 3 parts:

• Part 1 - How to start a Lumber Yard business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a lumber yard?

This project requires a sizable upfront investment. You will need to purchase or lease a warehouse/store situated on at least an acre of land, although more space will permit you to stock a greater variety of lumber. Heavy-duty equipment needed will include forklifts, commercially sized saws, storage racks, pallet jacks and a complete retail store setup. There are also the initial orders to fill your shelves with lumber, hardware, and assorted supplies. If you offer delivery services, vans and trucks will also be part of the initial investment. Start-up will require capital from 500,000 to a million dollars.

What are the ongoing expenses for a lumber yard?

Your largest regular expenses will be payroll and maintaining inventory. Building maintenance, licensing, safety inspections, and marketing are other costs associated with doing business. You’ll need to keep your vehicles maintained and safe. Business insurance should also be kept updated.

Who is the target market?

Busy general contractors will be the meat and potatoes of your business, buying large quantities of materials from the yard on a consistent basis. You may offer them a wholesale discount price for their continued business. Homeowners and property managers will provide the more consistent business that helps to attract more customers, but they will not be spending as much as the contractors.

How does a lumber yard make money?

The more lumber you sell, the more money your business will bring in. For a lumber yard, numbers and volume will drive the bottom line. If you stock a greater variety of products, you will build larger sales as contractors use you as a one-stop shop for all their building supply needs.

How much can you charge customers?

A single nail can be sold for just a few pennies, while selling enough lumber to build a house will cost thousands. Your retail manager will constantly compare prices among your competition to ensure you are not pricing yourself out of business.

How much profit can a lumber yard make?

You can expect to see a profit margin for much of your lumber stock in the 15 to 20% range. Hardware and accessories have a much higher margin and require less manpower to stock. A small lumber yard can see a net profit of $50,000 to $100,000 while a large yard in a busy area can see a million dollar annual profit.

How can you make your business more profitable?

Careful management of your inventory will help to raise your profit margin. If a product does not sell and spends time taking up space on the shelf, remove it from your regular inventory. Make sure you don’t run out of popular products during the busy building seasons, and add new products on a regular basis to keep your customers interested and involved.

Day-to-Day and Growth

What happens during a typical day at a lumber yard?

• Placing orders to keep all varieties/sizes and accessories for lumber stock on hand

• Filling orders placed by customers

• Assisting customers in selecting the right materials for their projects

• Taking orders over the phone for clients

• Delivering orders to large job sites as scheduled

• Answering questions on practical applications of your different available materials

• Maintaining and training staff to work in the lumber yard

• Maintaining a safe working environment/ensure inspections are completed of lifting and cutting equipment per OSHA standards

• Balancing your books

• Completing all payroll responsibilities

• Learning about new products

• Maintaining active marketing campaign to attract new customers and clients

What are some skills and experiences that will help you build a successful lumber yard?

• Knowledge of popular building materials, sizes, accessories, and their application

• Solid understanding of business management

• Good personal skills

• Ability to establish positive relationships with contractors and DIYers

• Good ability to geographically dissect demographics to be able to respond to changes in the local market

• Knowledge of OSHA standards to provide safe work environment and training for your staff

• Basic knowledge of construction techniques–although not necessarily required

What is the growth potential for a lumber yard?

Communities that are actively expanding offer the greatest opportunity for a new lumber yard business. This is one industry where starting small is the short line to failure. Once your yard is well-established with contractors stating that they wished you were located closer to their sites is an indication that you would profit by expanding to multiple locations. If you are looking at a small store front in an urban setting, a hardware store might work better as lumber inventory requires massive amounts of cubic footage for storage and sales.

What are some insider tips for jump starting a lumber yard?

Choose your location wisely by completing an in-depth survey of local construction, average household income, and other competition in the area. Establish a relationship with local lumber mills to determine what products you might be able to offer to your customers that cannot be found at other yards. This might include rare lumber, custom millwork, or flooring. Work some home shows in order to kick start your relationships with a variety of contractors who might need to use your yard on a regular basis. Personal interactions will be far more beneficial than ads on the local media.

How and when to build a team

As soon as your funding is in place, you’ll need to start building your team. You will need a person responsible for preparing the physical lumber yard, one for maintaining inventory, another for hiring and training staff, and at least a fourth to begin your marketing campaign. On opening day, you will have a staff between 30 and 100 people ready to service your neighborhood.

Part 2 - Is a Lumber Yard business the right fit for you?

Part 3 - Action plan to launch your Lumber Yard business in 90 days