Sawmills operate in a mature market with high, stable demand, although competition is fierce and barriers to entry are low.
If you’ve recently started or acquired a sawmill business, the following guide offers some pointers to building your business and boosting the bottom line.
What is a sawmill?
A sawmill is the name given to both the machines and businesses involved in processing circular logs into square lumber using motorized saws.
Also called lumber mills, sawmill businesses sell lumber on for use by carpenters, home builders, manufacturers and consumers, among others.
From furniture and flooring to pallets and musical instruments, the myriad applications for wood means demand is enormous and somewhat recession-resilient. The US sawmills market is worth a huge $41.9bn, growing 3.6% a year between 2017-2022 according to market research firm IBISWorld.
Ways you can improve your business
Lumber production is a traditionally labor-intensive business but upgrading to more automated, computerized machinery can boost productivity and reduce maintenance and manpower costs – securing a healthy return on your investment.
Light-duty portable sawmills are primarily used by hobbyists, landowners for side projects, or small sawmills for certain applications.
While they’re comparatively inexpensive and portable, they can’t produce dry lumber, process larger logs or cater to the construction industry.
Alternatively, a stationary sawmill is more automated, for example by feeding logs into the machine on conveyor belts, resulting in lower personnel costs.
There are also decisions to make, depending on your budget and needs, between manual or hydraulic, standard or wide, monorail or twin rail options, with other variables including lumber output, customizability and cutting width and depth capacities.
When it comes to cash flow management, blades, which generally cost between $12-$60 each and need replacing frequently, are a significant overhead to factor in.
Strategies to reinvent your business
You could burnish your value proposition by diversifying beyond selling lumber to wholesalers to selling directly to building contractors, retailers or the general public, and introducing direct delivery services. You might even start fashioning products from lumber yourself.
You could also diversify revenues and reduce waste in one fell swoop by processing byproducts into energy sources or other products, such as by processing sawdust into pellets or particleboard, or using it power wood-drying kilns.
Given the potential impact of such changes, it’s arguably worth reinvesting as big a proportion of your profits back into the business as you can afford.
Beware of financing productivity improvements without a viable plan for selling the additional inventory produced. Otherwise you may be left with surplus lumber to store, which might necessitate wasteful production shutdowns, as well as a new debt with no extra income to service it.
Also prevent a build-up of unsold inventory by continually optimizing your distribution processes, and avoid downtime by ensuring a continuous supply of logs through your felling operations or procurement.
You’ll likely have to stick to softwoods or hardwoods unless you can source both locally, with few lumber mills having the facilities to accommodate both.
Market research is imperative
Assess the economic, regulatory and technological climate, and scrutinize your competitors’ strengths and weaknesses, plus potential sources of custom, whether that’s wholesalers, manufacturers or house builders.
Then assess your findings through the prism of your own business – what threats and opportunities do they surface given the pros, cons, latent potential and limitations of your own operation?
This can help frame your plans for further development and goals around sales, profits, market share and more.
Three interesting sawmill industry facts
- Historic milestones include the earliest known mechanical mill – a 3rd century Roman, water-powered stone mill in Asia Minor; hydro-powered sawmills in the medieval Islamic world; and the advent of steam power and the circular saw blade in the 19th century
- The average 2,400-square foot family home uses 16,000 feet of lumber for framing alone, according to IBISWorld
- IBISWorld also revealed that the US sawmill and wood production industry grew faster than the overall economy and all other manufacturing sectors between 2017-2022
Trade shows are a good place to meet lumber buyers. Relevant events include the Lake Home & Cabin Show in Minneapolis; IWF, the trade fair for woodworking and furniture in Atlanta; and AWFS, the trade fair for woodworking and furniture manufacturing in Las Vegas. Take brochures that showcase your facility, brand values, products and pricing.
Facebook, arguably the most effective social media platform for a sawmill business, costs nothing to use and isn’t a particularly time-consuming way to showcase a novel milling process or restoration project.
Instagram might be a good secondary option if your operations offer interesting visual content, such as artisanal goods crafted by your business from its own lumber.
Your marketing strategy should not neglect the basics, such as evoking core values in your branding – for instance by using words lie ‘renewable’, green’, and ‘sustainable’ to reflect eco-friendly credentials.
Rebranding a well-regarded sawmill is perilous, but shortening an unwieldy name can preserve brand-name recognition snappily (for example if ‘The Sustainable Sawmills and Wood Production Company’ becomes ‘Sustainable Sawmills Co’).
Financing growth - some options
If you want to automate, scale up or diversify your operations then it’s worth checking out grants or low-interest loans available from state and federal government. The Small Business Administration, for instance, underwrites loans.
If you have a particularly innovative model that you can argue convincingly will propel rapid growth then venture capital is a potential route to significant investment.
Equipment leasing, meanwhile, can be a cost-effective means of beating depreciation and boosting your productivity and capabilities – thereby enhancing your capacity to meet repayments.
Reasons for exiting the business and what to expect
Deciding when and how you might sell the business can help you improve it now, as well as ensure a smooth transition to new ownership in the future.
Exit strategies can include business valuation. If it yielded a low income multiple due to, for instance, poor productivity, it could prompt improvements to processes, personnel and technology, while a disadvantageous geographic location might persuade you to sell up sooner than planned.
This business plan, in which a fictional sawmill could fetch up to four times earnings in a prospective sale, might be useful.