Home Building's Most Mismanaged Asset - Customers

April 5, 2012

A builder would never build, merchandise, and maintain a model without staffing it, would they?  Of course not - this would be abuse of an asset!  The return on this asset (ROA) would be zero, zilch, nada.  No competent manager would ever allow an asset to exist without some expected return on that asset, right?

Most builders expect their model, community, and marketing to return at least one sale per month and cover the bulk of the costs.  Two sales per month break even, and three sales per month make it a profitable community.  The numbers may vary based on margins, but the basic math and concept are valid.  The most important driver in this success strategy is the expectation for a return on the asset.  In the case of customer satisfaction, it could be the strategy to provide that profitable "third sale" every month!

Builders with high customer satisfaction and a referral sale strategy out perform the average builder by 300+% (15% Referral Sales rates versus 50%).  The difference between a builder generating 15% referral sales and 50% referral sales makes the unstaffed model example look like child’s play.  Top Performing builders seek a return on customers satisfaction – or more clinically stated, “they have strategies to monetize their past customer satisfaction investment.” 

The truth of the matter is that most home builders can not accurately assess their current customer satisfaction, let alone their referral sales rate, thus making it impossible to accurately assess their customer satisfaction ROA.  Why is it that our industry computes pro forma ad nausea on a land deal, but not on the customer satisfaction that often dictates the eventual success or failure of that land deal?

How do you get started in monetizing your customer satisfaction?   There are five basic steps:  1) accurately measure your current customer satisfaction/dissatisfaction, 2) build a clean and complete home, 3) provide a predictable and enjoyable experience by driving dissatisfaction out of the experience, 4) build a referral mindset in your organization, and 5) put in place a referral sales strategy.  Builders who have accurate customer satisfaction metrics, complementing their normal financial metrics, can manage their return on customer satisfaction, improve market share, build brand equity and weather future economic down turns.  It isn’t rocket science, but it still is a science. 

This installment's management meeting question of the week is: "What is our Customer Satisfaction ROA and how do we improve it?"

Charlie Scott has over 30 years of industry experience as a home builder, author, columnist, speaker, consultant, National Housing Quality Award Examiner and Hall of Fame member. Charlie has worked with over 200 of the nation’s best home building companies. He has been through five major industry downturns and during 2008 to 2011 housing depression, he gave away over 1,000 determined donkeys toys as encouragement. He can be reached at Charliescottwos@gmail.com.