14 ways builders can win in the sluggish economy

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Successful builders obsess on sales conversion ratios, tracking key metrics, hiring the right people, and knowing where they stand in the marketplace, writes Bob Schultz in his latest column. Schultz offers 14 ways builders can win in the sluggish economy.

December 05, 2010

Not so long ago, the housing market was so hot that people were lining up to buy. Now the market is in such a mess that the entire economy is suffering. What happened? How did we go from an incredible market to being in the bind in which we find ourselves now? And what can we do about it?

In 2001, the fed lowered interest rates in anticipation of a recession. The government mandated that banks make loans. Financing was abundant and cheap. We enjoyed the lowest interest rates, on average, in 50 years. Baby boomers moved through the market in abundance. A huge influx of new immigrants needed new homes. We began to live in a “connected” society, allowing people to purchase homes without concern about proximity to their office. Construction and land costs increased rapidly, causing a sense of urgency. Investors and “flippers” moved from the stock market to real estate.

The economy was good, and people perceived it as such. Demand began to outpace supply, and the press incessantly touted a “hot” housing market, further driving a great sense of urgency. All of this created “irrational exuberance,” to use a term coined by Alan Greenspan in reference to the late ’90s tech stock craze.

Many in our industry became wrapped up in the grand euphoria. As long as sales were coming in — and they were in abundance — it didn’t matter if salespeople had a process, if builders were getting maximum ROI, or if profit and revenue were being squandered because of inefficiency. In the wise words of Bill Gates, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” And now it all does matter because we’re faced with an inflated market, a foreclosure crisis, and negativity all around.

The good news is some factors that drove the hot market are still in place — interest rates remain low, baby boomers are in abundance, legal immigrants are still arriving, and we live in a society that is even more connected than just a few years ago. Some builders have developed mindsets and engage in activities that provide them with a foundation from which they can grow their business, even during hard economic times. Here are 14 ways builders are winning in the down economy:

1. Don’t be confused. In this market, buyers, builders, salespeople, and the market itself are confused. You cannot be confused. Stop worrying about the things you can’t control and learn to control the things you can control.

2. Relentlessly strive to increase revenue, while simultaneously reducing unnecessary costs without sacrificing integrity, quality, or sound business practices.

3. Assess where you are. Evaluate your sales organization as to attitude, knowledge, skills, and habits. Just one bad apple can have a negative effect.

4. Hire right and retain only the best people. Use a methodical process of elimination, not instinct, intuition, or feelings. Always top-grade, build bench strength, and never be “held hostage” by someone who won’t play by your rules. And keep this in mind: You don’t find great salespeople. You must create them.

5. Assess your market position. Know your competition and your competitive place in the market. Evaluate your website, marketing, and advertising programs for cost efficiency, effectiveness, and maximum ROI.

6. Don’t overpay for under-performance. Sales compensation should be targeted to sales production goals that are congruent with pre-determined levels of profitability.

7. Provide proper staffing. You are in the retail business, not the real estate business, and you need to be open for the convenience of the customer, not the convenience of the company.

8. Establish and maintain a culture of continuous sales education and training with high accountability. Set criteria, implement with a passion, and hold salespeople accountable. Remember, transformation does not take place overnight; it takes place over time.

9. Inspect what you expect. Implement role-play, mystery video shops, customer-in-process analysis, and diligent follow through, with high expectations and accountability. Be willing to be “unreasonable” in your expectations.

10. Don’t go crazy with buyer incentives. There’s a difference between a discount and an incentive. Don’t follow the herd with a knee-jerk reaction to the marketplace. Incentives should always be strategically structured and create a sense of urgency. If you must provide incentives, create them through a solid strategy.

11. Develop a passion for the critically important business numbers as if they were about your favorite team or athlete. You can’t manage, and therefore can’t improve, that which you don’t measure.

12. Improve your sales conversion ratios before anything else. Before you invest precious dollars in attempting to drive additional traffic, take a hard look at what you’re doing with the traffic you already have. Are your conversion ratios as high as they should be? Doing what you’re doing, the way you are presently doing it, how many sales and how much revenue are you missing? Spending more money on advertising and promotions to provide more traffic to salespeople who do not consistently demonstrate a proven sales process, and in the absence of pre-determined expected conversion ratios, only gives them more chances to fail. This is a very common and extremely costly mistake.

13. Study the resale market. Your biggest competition is the resale market. With the excess of foreclosure sales currently on the market, you have more competition than ever before. Know your competition, and know where you stand in your market.

14. Take action. Know what you must do and put an action plan into place, constantly monitoring your progress and making adjustments as necessary.

In order to succeed in this market, you have to keep in mind that the way you see it might not be the way it is, and what we did to succeed through the boom times will not get us where we need to be now, or in the future. Commit to a course of transformation, and remember, hope is not a strategy, wishing is not an action plan, and success is not an accident.

Bob Schultz is president and CEO of Bob Schultz & The New Home Sales Specialists, a full-service management consulting and sales company based in Boca Raton, Fla. Schultz is the author of two best-selling books, “The Official Handbook for New Home Salespeople” and “Smart Selling Techniques,” and was named a Legend of Residential Marketing by the NAHB in Jan. 2010. He can be reached at [email protected].

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