Tire Kicker

During Spring selling, traffic through sales centers and model homes is a measurable most companies rely on as a proxy--albeit imperfect--for strength in demand.

Companies pay big money to generate traffic to their active communities, through media advertising, promotion through Realtors, human signs, grand opening parties with food trucks, etc.

One company we've talked to spends about one-in-ten revenue dollars on sales, general, and administrative expense, and of that 10% SG&A, upwards of 35% goes to customer acquisition costs, which include those marketing, advertising, promotion, and sales support tactics mentioned above.

The results of all those dollars spent normally get measured for effectiveness based on the volume of traffic that correlates with the respective campaigns and efforts.

Conversion rates are another matter all together. The percentage of traffic that actually converts to sales falls, for most marketers, into the realm of dark science.

Thing is, with all the pressure--both in input costs for lots, labor, and even some materials and manufactured products--on margins, customer acquisition costs stand out as a big "opportunity area," not only for reduction, but for increased effectiveness.

This is a classic "do more with less" imperative, and it's just one of dozens of operational areas where home building and development firms need to make structural changes, not only to their practices, but to a series of fundamental assumptions that led to those practices in the first place.

Let's go back, for a moment, to traffic. If you pay $1000 to generate 40 units of traffic and one unit converts to a sale, your customer acquisition cost for one sale is $1,000.

What if you, instead, pay $750, and it generates just 25 units of traffic. You may think, "there, you see, our marketing and customer acquisition resource is shrinking and you can see it in the results." However, upon a second glance, you note that from those 25 units of traffic, you've generated not one, but three sales conversions.

So, instead of paying $1,000 per customer in customer acquisition, you're paying $250.

How does that math make sense?


Traffic is no longer traffic, you see. There's traffic and there's qualified traffic--supercharged by web analytics that filter out tire kickers and funnel in ones who seriously want, and can put together the resources to have, what you're selling.

Customer acquisition costs can be reduced even as customer acquisition efforts holistically become accountable for more sales conversions.

You can't do that by doing things "the way we've always done them." Data is the way. Enough said.