It’s been well over a year since the housing bubble burst, and most builders are still struggling to adjust. “People forget that it’s a multifaceted issue,” says Al Trellis of Home Builders Network (www.hbnnet.com), itself a multifaceted industry consultancy in Mount Airy, Md. “They want a quick answer or solution, and it just doesn’t exist.”
Trellis tours the country speaking, advising, and (hopefully) energizing builders to respond more aggressively to adverse market conditions, reduce obvious risks within their operation, alter their sales compensation packages, and look for ways to balance costs with the highest-value designs and products. “Doing nothing means you aren’t accomplishing anything,” he says. Consider the following summary of his advice:
Vary Compensation. Trellis advocates a bolder approach for in-house associates by offering a base salary, such as $30,000 a year, with a variable commission structure and incentives based on exceeding sales targets. “They’ll make more money on the last house than on the first house, encouraging them to sell more effectively,” he says.
Another strategy is to offer a higher salary with no commission until the sales agent reaches 80 percent of his or her sales target and only provide a commission on the last 20 percent of sales. When they go over 100 percent of their target, says Trellis, reward them with an increasingly higher commission per sale.
Alter Your Product. Trellis is a big fan of making smart design alterations to suit a more discerning market of buyers, which will, in turn, provide a fresh look, invigorate the sales staff, and fend off criticism from past purchasers. “Previous buyers can’t complain when you cut the price of a new home because it’s not the same house you sold them,” he says.
Part of a comprehensive analysis of a plan’s size, features, value, benefits, and price is finding what Trellis calls a “fatal flaw” in your current plans and fixing it—and then renaming the plan. He also advocates incorporating special spaces (think wine cellars and craft rooms) that few, if any, of your competitors offer at the same price point, and providing multiple storage options for a buying public that increasingly has more stuff to bring to a new house.
Determine Flash Value. Trellis advocates taking a hard look at new-home features with highest (to lowest) perceived value and market distinction and determining which ones have the biggest bang for the buck—their flash value.
That analysis starts with knowing your base costs to build a standard house and honing that down as far as possible. It’s then up to you to determine the cost–price ratio of each hot button item. The higher the ratio of the price you can charge divided by what it costs to provide, the better its flash value. Then, says Trellis, work with your suppliers and subs to gain discounts for volume purchases to help reduce costs even further—which may allow you to add another item to the mix.
Achieve Sustained Value. Eventually, special spaces and flash-valued hot buttons are bound to be copied by the competition, especially if your sales pace picks up. Before those knock-offs appear, says Trellis, you should already be ready to launch the next wave of innovative thinking into the market.
An even greater sustainability tactic is to create a culture that is not only distinctive in the market, but also more difficult to replicate. Being loyal to the customer, the craft, and the company, Trellis says, as well as streamlining the sales and mortgage loan processes and delivering consistently great customer service, is far more sustainable for long-term success than a limited-offer discount or giveaway deal—no matter the market conditions.