There is a veritable geyser of data tracking housing today. From existing-home sales, to house prices, to new-home permits, to starts—housing metrics abound.
Setting and Monitoring Sales Benchmarks Helps Home Builders Succeed
Knowing your traffic-to-sales conversion is a great start, but the best builders focus on the subtleties of the home-buying process and agent activities to measure sales success and pinpoint problems.
As it relates to capturing added new-home sales, success can often be traced back to those willing to measure and manage the many subtleties of the home-buying process, while failure is often the result of oversimplifying the entire process into a single measurement — say traffic-to-sales conversion. For many builders, solving today's sales problems can be overwhelming. Some refer to it as the “too” phenomenon: too few customers, too few qualified buyers, too little urgency, too many competitor discounts, too little followup and even too few outstanding new-home sales professionals.
With so many problems and so little money to go around, determining where to focus your efforts and getting the biggest return for your time are absolutely critical. Sales benchmarks and measurements will help formalize the review of your business and act as an essential way of managing strengths and weaknesses in your sales process. They provide builders a roadmap with which to highlight the flaws in their current systems and early-warning signs that can be remedied for greater sales and productivity. Here's how to get started with eight essential measurements.
Sales measurements are simply slices from the sales funnel: how many walk-in customers you need for a sale and how many prospects you need for each walk-in customer. Begin by reversing the typical sales funnel — in other words, rather than starting at the top with “how many leads” and working your way down to sales, start at the bottom of the funnel with “how many sales,” then work your way up to leads. The goal should be, “To get to this many sales, I need this many leads to make my budget work.” Don't shortcut the process by simply starting with the number of prospects needed. Metrics need to include analyzing the demographics of the target market.
Rick Mildner, general manager and chief operating officer of Tributary, a master-planned community in Atlanta, says, “Every sales analysis should begin by knowing the number of targeted households that can afford to purchase in your anticipated price range.” Mildner adds, “With the significant shift to lower-priced homes, many builders will quickly realize that they have an unrealistic market share computed for their higher-priced communities.” Analyze your market capture within your price points and your geographic submarket. Once you think you know the number of potential home buyers, determine your fair share of the market. And remember, as the overall market either strengthens or weakens, you need to update your success based on share of market. Many builders are quick to blame poor sales on a market decline, but then ignore lost market share in a rising market.  Look for changes in leads vs. walk-in traffic.
Once you determine the number of potential home buyers, don't simply make the jump to counting walk-in sales traffic. “An important measurement that is often overlooked is tracking the ratio of leads to your walk-in traffic,” says Kathi James, senior vice president and chief marketing officer for Beazer Homes in Atlanta. While an entire article can be devoted to lead generation and managing the metrics it creates, it suffices to say that leads come in many forms — from phone calls and proactive Web responses to social-media interest and traditional advertising, such as direct mail.
There is no “right” leads-to-traffic ratio. Variables such as e-marketing budgets, money spent on mailing lists, awareness marketing, location of the community and builder reputation all impact this ratio. Knowing the trend is what makes this such an important measurement tool. If leads are rising but your walk-in traffic is flat, are your sales professionals working the leads funnel to their full advantage? Do they understand that the goal is to convert a lead into a walk-in customer, not try to sell them a home by phone?
With marketing budgets tighter than ever, agent-generated sales traffic is a measurement every builder should monitor. It's certainly true that sales agents aren't responsible for placing ads or developing a Web site, but that doesn't mean they can entirely abdicate ownership of traffic in their community. A general theme is to divide your sales traffic into thirds:
- Traffic you provided to sales agents (includes print media, Web site, public relations and direct mail)
- Traffic you helped provide to sales agents (includes traffic from signage, special events and prior builder customers)
- Traffic generated by sales agents (includes traffic from realtors, customer referrals and social-media contacts such as blogs, Twitter and YouTube).
The age-old industry discussion which begins with “I could sell if I only had the traffic” requires a new paradigm: “How can I, as a sales agent, self-generate more traffic for myself and my community?”
“Knowing how many people visited your sales office is not nearly as important as knowing how many prospects experienced your community,” says Gary Sandor, vice president of product design for Reed Development in Bluffton, S.C. “Our traffic-to-sales conversion is about 10 times that of a typical walk-in customer if we can get them out in the community to experience what we have to offer.” Tom Richey, the iconic sales trainer, is famous for the quote, “If you site 'em, you will write 'em.” Those words are as true today as they were when he coined the expression nearly 20 years ago. Some builders now require sales agents to tour a minimum of 50 percent of traffic through their spec homes or available home sites to qualify for commission draws. It's tough love, but these are tough times.  Spotlight completion of customer qualification sheets.
Today, first-time buyers make up the largest segment of prospects in new-home sales centers. Many of these buyers are less than clear about what's required to own a new home. Even move-up buyers are often not aware of the more onerous mortgage and downpayment requirements. “We track the number of qualifications each sales associate completes every week,” says Diane Morrison, vice president of regional sales and marketing for Ryland Homes in Atlanta. “It gives us a good idea about the depth of the presentation and relationship between the customer and the sales professional.” It's true that many sales professionals are resistant to initiating qualification discussions and completing basic qualification sheets. But it's also true that tackling the issue upfront allows the sales professional to quickly understand the viability of each customer's home-buying situation.  Know the appointments set for the upcoming week.
A proactive approach to knowing the next step for prospects is a key to today's sales success. The best Monday-morning sales meetings include an agent-by-agent discussion of appointments set for the week. Not only does the discussion give the builder a good idea of sales activity for the coming week, but it sets the expectation for new-home sales agents that they must take control of getting interested prospects back to the sales center. The key is to get specific — i.e., names of customers and the purpose of the appointment — and hold agents accountable for those on the list. Management also needs to go over the prior week's list and discuss what transpired. The point is not to embarrass an agent in public. It's OK for an agent to say, “The Smiths never showed up on Thursday, and I've called them twice but haven't received a return call.” But it's simply not acceptable for an agent with four appointments in the prior week to show up at a sales meeting with no sales and no explanation of what happened to the four prospects.  Monitor how many prospect obstacles were resolved each week.
Most builders rate their prospects “A,” “B,” “C,” etc., usually based on the likelihood of purchasing (for example, “A” = ready, willing and able). But it's not enough to know what stands between your top prospects and homeownership. Top builders measure the ability of agents to work with their customers to assist in removing obstacles. Examples include remedying a credit or downpayment issue or solving a house-to-sell problem. By not simply measuring followup but following up with purpose, smart builders are able to turn unqualified prospects into buyers.  Track and recognize referral sales.
Top new-home sales professionals have one thing in common: they receive more than their fair share of referral sales. Don't think of referrals just as those attributable to previous home buyers. Referrals include customer referrals from realtors, referrals from previous customers, event referrals and homeowner referrals. Recognition of sales agents who achieve high referral sales, rather than complicated referral programs, has proven to be the best way to stimulate sales.
As time-consuming as sales measurements are to develop and maintain, the alternative of “wait and hope,” or more typically “blame the market,” are not suitable substitutes for good information and better sales practices.