Here are some techniques home builders and sales professionals use to manage the process and sell upgrades:
No Allowances — No Surprises
Home builders have traditionally given buyers stipends for certain things to build flexibility into their budgets. But some now feel that allowances are best reserved for kids — not customers.
“We stopped using allowances (for product categories) because some customers would pick out two or three pricey items and blow the budget for the rest of the house,” says Barry White, vice president of sales and marketing for St. Louis-based Taylor-Morley Homes. “Now we have a standard lighting package that allows customers to pick out lighting for the entire house and upgrade individual fixtures, if they like.”
Two years ago, On the Level, a Chaska, MN-based design/build custom home company, changed its selections process. The company tries to have all the selections (even wall colors) picked out before it sends plans for bid to trade contractors. Customers make selections during design — not afterwards. They stay involved in the process and there’s no lull in the excitement of having their home designed and then picking out their products and finishes.
“We’re trying to get away from the surprises and extras that people might not expect in the home building process,” says president Chris Thompson. “A couple of guys in my Builder 20 Club were talking about this new way to do selections. They said, ‘You should try it, because selections and change orders can be such a pain in the neck.’ ”
At first, Thompson thought the new process might scare customers away because it requires them to make a substantial deposit to have a house designed by On the Level. The company used to collect $5,000 from customers when it started design. Now, because it puts much more work into the process before construction starts, Thompson collects a deposit of $25,000. The money is credited towards the purchase price once construction is underway. Thompson keeps the deposit only if a prospect has his plan built by another builder; On the Level retains copyright and grants one-time rights to use the design.
“So far, the response has been great,” says Thompson. “People understand and like the idea of knowing what the final price will be upfront. There are no allowances at all, if possible. And no surprises, either.” No one’s ever balked at paying the deposit.
Some additional benefits of the upfront selections process; “It makes the pricing more accurate,” says the builder. “And I think we get better prices from trade contractors and suppliers.” It also cuts down on paperwork since it practically eliminates changes in the field.
Provide a Schedule and Stick to It
Often, the customers’ excitement drives them to pick out products when they’re supposed to. But sometimes they need a push.
“I tell them they can take as long as they want to make selections, but I won’t start construction until they do,” says Brad Camposo, who heads up sales and marketing for Payne & Payne Builders. Like On the Level, the Chardon, OH-based design/build custom home company does upfront selections. It gives customers a budget, designs the house (and copyrights the plan) and prices it out before contract signing.
Once they’re aboard, customers pick out products quickly. If they take a while, there is always another customer in line who has finished making selections and is ready to begin building. Payne & Payne doesn’t lose any sleep — or any time.
Taylor-Morley Homes built in time frames and deadlines to improve its selections process efficiency. Customers have 30 days from the date the contract is signed to complete all their selections in the company’s design center. They get 10 “free” hours to make selections with one of the company’s three designers and must make appointments with the designers. If they go over 10 hours, they pay $150 an hour. This puts value on the in-house designers’ time. Besides, “we don’t want customers to go over their appointment time and intrude on another customer’s time,” says White.
If it’s not possible to have products picked out before construction starts, peg selections to significant construction milestones. Nikles uses this approach and writes it into his contracts. Customers agree to:
- Select all exterior colors and products, fireplace and plumbing fixtures before construction starts.
- Select all interior products (except lighting fixtures and appliances) by the time the foundation is complete.
- Select lighting fixtures and appliances by the time the framing is finished.
- Pay a $50 late fee for every item picked out after the designated construction phase.
Alternately, you can build an incentive into the price of the home to encourage customers to stay on schedule. If they make all their selections by a certain date, they get a credit of, maybe, $5,000 towards options and upgrades. If they don’t, they loose the credit and must pay for the options and upgrades.
“It has to be all or nothing or it doesn’t work,” says Erika Geiser, vice president of sales and marketing for Las Vegas-based Christopher Homes. “Don’t give a customer part of an incentive if they pick out a couple of things on time but are late on other selections. Otherwise, they’ll say, ‘Well, I got that for free, so it doesn’t matter if I have to pay for that.’ ” And they’ll still hold up your schedule.
Show Business
Some enterprising builders allow customers to do selections online. But most believe in the sensory power of seeing and touching products to help customers decide what to put in their homes. “It’s a matter of showing them all the options,” says Thompson.
Whether you use a design center, a model home garage, a corner of your office or a sample book for selections, display items according to the market you want to sell to. Separating products by price point within their categories lets buyers make quick, budget-based decisions.
If you want to upsell, organize products by color, style or finish. For example, you can put all the browns together in the carpet display and all the antique bronze and brushed nickel together in the hardware display. “That way people are looking at appearance, not just price,” says Geiser.
Big-ticket items like flooring and countertops should be organized by price point. “We don’t want customers to go over budget and then we can’t reel them back in,” says Geiser. “If they’re off by a price point, it could be their whole budget.”
Some Successful Upselling Strategies
The way items are displayed has a big impact on perceived value. Upgraded plumbing isn’t very sexy sitting on a shelf, but show it in a cutaway under a sink in a bathroom vignette or model and it will garner a lot more interest.
Packaging and pre-pricing items speeds up the selections process and saves on paperwork. It also helps sell upgrades. Nikles sells six to eight sauna packages a year that consist of framing, seating, heater, thermometer and even a bucket and ladle. “One reason why we package it is to close on one price instead of several,” says the builder. “We can say, ‘Here’s the price and here’s what it includes.’ ”
Seventy-five percent of Taylor-Morley Homes’ buyers take its upgrade packages, which the company started offering last February. To help move them, “We price packages at a better value than if customers bought the items a la carte,” says White. Customers pay $5,000 for Taylor-Morley’s “Stars” package, which includes R-38 insulation, a bath rough-in in the basement, a smooth-top range, a super-quiet dishwasher and upgraded carpet padding. The products would cost $7,200 if purchased separately. The company also offers a “Stripes” package and some patriotic buyers take both.
To sell more upgrades, “get the selections process out of sales,” advises J. Gary Hill, vice president of sales and marketing for Greensboro, NC-based Westminster/Fortis Homes, which has 32 communities in the area. Customers used to spend a lot of time with salespeople in the company’s models picking out lots and deciding on bump-outs and other details. Then they did selections.
“Five years ago, we said, ‘Let’s not have them do selections during the sales process,’ ” says Hill. The company built a design center that’s centrally located between its communities and staffed it with designers who work on commission. These days, salespeople help customers make design center appointments after they’ve ironed out all the details with their home sale. “They’re still excited about the process, but they don’t have to do everything in one long meeting,” Hill points out.
As a result, customers buy $15,000-$60,000 of upgrades while making selections. Before Westminster/Fortis built the design center, they spent about $2,500 on upgrades.
Touchstone Homes in Lakewood, CO, upsells by capitalizing on historically low mortgage rates. “With rates the way they are, we tell customers how little it costs now to add things to their home,” says president Robert Short. “They can buy $10,000-$20,000 of upgrades for a fairly nominal increase in their mortgage payment.” Touchstone emphasizes that approach over adding items later, when prices — and rates — will likely rise.
If you’re thinking of changing your selections process to make it go more smoothly or to enhance product sales, bear in mind that it takes quite a bit of upfront legwork. You’ll need to poll your customers, staff, trade contractors and suppliers about what you can do better, evaluate your product offerings, rework or fine-tune your systems, implement the new ones — and then wait several months to gauge results.
But it’s more than worth it. Managing selections wisely yields a better process and profits for builders, fewer headaches for the people they work with and a better experience for customers. Everybody wins.
Customer Selections Guide and Selections Forms Available From BuilderBooks.com
A customer selections guide and selections forms are available from BuilderBooks.com in "Home Builder Contracts & Management Forms on Disk" from NAHB's Business Management Department. It includes 93 essential contracts and forms that will help you systematize your business, build more productively and manage more efficiently. The documents are in the following categories: sales and marketing, conctracts and agreements, trade contractors, construction management, and walk-through and warranty. To view or purchase this publication and accompanying CD online, click here, or call 800-223-2665 to order.
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The NAHB University of Housing offers a course on business management designed to help builders improve their business and profitability. For a list of current offerings, click here. Search keywords: “Introduction to Business Management.”
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