The cover story of Time’s July 14 issue is a 39-page special report, “The Smarter Home.” Naturally, I had to read it.
Building Bench Strength in Sales
Too often, the right people in the wrong jobs make it hard for builders to work efficiently and profitably. To run an effective team, managers need to examine the entire system by which they hire, train, manage and reward their players.
Last November, the Philadelphia Eagles suspended All-Pro receiver Terrell Owens indefinitely amid a public flap over his already-signed contract and his criticism of teammates. "The Eagles have a system, and he didn't fit in," says building consultant Bob Schultz.
New-home sales coaches can't harbor superstar egos that don't fit in, either. Too often, the right people in the wrong jobs make it hard for builders to work efficiently and profitably. To run an effective team, managers need to examine the entire system by which they hire, train, manage and reward their players.
They need to go deep.
Schultz, founder of New Home Specialist Inc., has his own philosophy for doing so. Of course, the industry is bristling with qualified experts who don't all agree on the same system. But few can argue with one of his key tenets: that every sales organization must be based on "sound management principles and processes."
Some small builders rely on outside real estate agents to generate leads. There are plenty of outside agents with a knowledge of the local market, and they don't require any up-front investment. But as a growing builder takes the plunge to bring the function in-house, he or she gains the benefit of presenting a consistent public face to the customer — from image and message to policies, procedures and product knowledge.
Research suggests that a builder needs one salesperson for every 40 homes of annual volume, consultant Lou Csabay, vice president of The Sharrow Group, says. "But so much depends on the size and type of builder, homes and market." Some builders boost that number past 100 as hot projects draw long lines and grand opening campouts. Aside from the question of under-pricing, this turns salespeople into order-takers. "This isn't really, truly selling," Csabay says.
"The market has been so hot for the last couple of years that, in most places, if you just showed up and didn't screw up too badly, you did okay," Schultz adds. He says builders ignore their own "irrational exuberance" each January when news hits of a new industry sales record. They fly down to the International Builders Show to "pat each other on the back ... and they give out all these great sales and marketing awards [that] aren't based upon sound principles or processes."
Maybe management has grown complacent. And maybe today's sales employees weren't around to experience the housing market of the early 1990s. But it's time for the industry to get back to basics.
Every sales manager has stories of superstar sellers whose egos seemed bigger than the rules. But even superstar athletes need constant reinforcement or they'll miss scoring opportunities.
There are scores of training opportunities in the industry, from NAHB's Institute of Residential Marketing to consultant training. Just as important as those formal training opportunities are informal ones, such as the Monday morning sales meeting, where actual versus budgeted traffic and sales numbers, for example, reinforce objectives and accountability. Other meetings, such as those with construction superintendents and design studio employees, further reinforce knowledge of important processes and details and fall into the method of Management By Objective.
Additionally, sales managers must utilize the practice of Management By Walking Around, which was popularized by Wal-Mart founder Sam Walton. Schultz says sales managers should spend 70 to 75 percent of their time face-to-face with the salespeople coaching, teaching, mentoring, role-playing and watching post-game replays of mystery-shop videos. Managers, too, must reinforce the adherence to the actual process of making a sale. (See sidebar below, Blocking & Tackling.)
"Our salespeople are specifically trained to take people through the home and point out its features," John Luhn, co-owner of LifeStyle Homes in Melbourne, Fla., says. "And as they're doing that, they're also trained to talk about who LifeStyle Homes is, our role in the community, what we try to give back." Luhn tapped consultant Bill Webb for enhanced basic training as well as to have people sell "in a way that best exemplifies who we are."
Webb, owner of William N. Webb Company in Amelia Island, Fla., says the best buying experience is one that "lifts customers out of their reality into a dream [and] creates such a good experience that it becomes very difficult to turn away." His benchmarks are BMW, Rolex and the Ritz Carlton, which can command $400 a night for a hotel room because the hotelier treats customers like royalty.
How builders treat their internal customers is another matter. Opinions differ on the best compensation strategy. Options range from full commission to full salary and all points between.
LifeStyle Homes' co-owners "came up as salespeople," says Luhn. He likes the ability "to pay a higher rate" to his exclusive, independent contractors who work on commission against a draw. "We like people with that kind of entrepreneurial spirit working for us." The company sold "in the low 200s last year," and trends indicate LifeStyle Homes will top 300 this year, even if much bigger builders are setting a trend away from this type of plan.
But you don't have to be a Giant. BT Homes in Santa Fe, N.M., with 136 sales last year, pulled the plug on a seven day-a-week commissioned representative who "didn't want to share the pot" with a second rep. So BT Homes broke-off the relationship, took the function in-house and saw sales rise 65 percent the first year. That was 2002. Profitability has risen 41 percent since, though a new design center and a new business plan share credit. Beth Meyer, sales-managing executive vice president, says commission "creates an atmosphere of unhealthy competition, burnout and greed."
Another "targeted compensation" model — Schultz's term — fits the bill for Keystone Homes in Augusta, Ga. Last year, the company replaced the area's most prominent real-estate company with in-house employees. Sales rose 36 percent as the company sold 86 more units than the prior year. Traffic conversion is roughly one in six, and "our gross margins are as high as they've ever been," says Lamar Crowell, company president. Builders brag about closing one in 10 sales.
Likewise, Jagoe Homes of Owensboro, Ky., is riding high with a 1–4 traffic conversion ratio and uses a Schultz-inspired compensation model. Over a modest base salary, the company pays employees $1,000 for the first 32 homes sold per year (more after that), another $1,000 for meeting a monthly quota, and cumulative thousands more for doing so month after consecutive month. Executive-level pay is attainable, motivation remains high and the system "eliminates peaks and valleys" to smooth construction starts for the company's slot-production program, David R. Crowe, regional sales manager says. The system eliminates "phenomenal spikes in sales" that used to plague construction starting schedules. A prior compensation plan had sales employees blitzing to close deals at the end of each quarter.
Connected to this debate is whether to pay commissions and bonuses based on the price of the sale or number of units sold. Traditionalists believe a salesperson who risks the extra time to develop a higher-ticket sale deserves a higher payday. Schultz warns that with a price-based model, "it's possible for a salesperson to make $100,000 and the builder not break even.
"This isn't brain surgery and it's not about holding hands and singing Kumbaya. It's a simple retail business plan," he says. Whether it's retail or real estate, commission or something else entirely, is up to the builder. Each can, however, take a first step toward greater sales and profits by reviewing budgets and comparing plans for new opportunities on the path toward greater goals.