Builder Budgeting in 2013: Rearranging the Numbers

Builder Budgeting in 2013: Rearranging the Numbers

October 30th, 2012

In difficult times like these, we often murmur that life was once much easier. That’s true when it comes to budgeting as a builder or developer. Historically a good builder budget was 5-8% of gross revenues. Five years ago it broke out like the chart below. Bearing in mind that this is only typical for someone doing 15-20+ home sales a year, but the proportions basically apply.

I realize this chart is too simple, but I only have a few words here.

Today, there are new variables in the budget equation that have changed things: challenging sales and buyers leaning toward Realtors and the Internet. I’ll try to avoid percentages and talk more from a theoretical perspective so you can apply it to any sized company.

The key to sales is traffic and the key to traffic is marketing!

My job as a marketer covers many things: branding, image, Internet, point-of-purchase displays, social media, and PR syndication just to name a few. But the rubber meets the road with traffic. If my marketing efforts don’t deliver warm bodies, then it’s useless. What the sales department does with those warm bodies is for another article. Let’s focus first on traffic; most statistics suggest up to 90% of new home sales begin on the Internet, and I am convinced that is absolutely true. Let’s assume you typically spent 1-3% of your budget in an attempt to generate traffic (see Media expense above). I recommend that you spend at least 50% of that on the Internet, SEO and your website. Print isn’t dead yet, and I still advocate the use of print in the right situations. But no longer can you afford to spend the bulk of your media budget on print.

Side note: Your website is without question the most important marketing tool you have today. Making sure your website gets found is the second most important marketing effort.

After you invest $5,000 – $35,000 into a great website (that should last you 1-3 years tops) the thing that most builders need today is search engine optimization (SEO). Simply stated, SEO is a series of online processes (PR, e-blasts, copywriting & editing, back linking, blogging, social media, etc.) designed to help bring your website up in a search engine’s organic results. Having a website today is only the beginning; your website must be found among thousands of others. A simple Google search for ‘homebuilders Frederick Maryland’ brings up 142,000 results (#2 of which is our client, Advantage Homes). SEO’s job is to make sure that you come up on page one. A builder can purchase a simple, beginner SEO campaign for as little as $600 per month and see improvements in your SERPs (search engine results pages) in 4-5 months or less. A comprehensive campaign can cost $2,500+ per month and should never be less than 6-months. You must understand that any SEO campaign worth investing in is first and foremost about keywords. If someone tells you they will optimize your site for 250 keywords for $100/month, they are pulling your leg. The first question you must ask about your SEO campaign is: What keywords are we optimizing for? Include money in your budget for SEO, a website rebuild/refresher and portals or other online marketing tools. If your website is more than three years old, it’s time for a new one or a serious freshening up.

You cannot talk SEO today without talking social media. Google has made sure the two must walk hand-in-hand. I believe in social media, but only if it is social. Most social media is the equivalent of your sales team sitting in their office talking to pictures of their clients and hoping that is enough to improve sales. If social media doesn’t create legitimate and ongoing conversation, it’s digital hot air. Social media is much more than an occasional Tweet, blog post or Facebook entry: you need to take the time to create a strategy and execute it. My experience is that an effective social campaign will cost you in the range of $1,000 – $2,500 per month.

Where finances allow it, you should have a model with a sales center. These are still your most effective emotional closing tools. Again percentages vary depending on your volume, but if you hope to sell 1.5-2 homes a month include 1.5-2% in your budget for the model and a fully merchandised sales center with an 18-24 month shelf life. Please don’t keep a model for three years and wonder why something isn’t working. Budget for it and plan to change it.

Realtor co-ops matter! Agents historically controlled up to 80% of all home sales in a given market; today that number has climbed to 84%. In my opinion every builder should co-op with Realtors at the local going rate, which is generally 2-3% of the home’s contract price. The number of co-ops you sell will vary from 20% of your total sales in rural areas to as high as 80% in urban centers. When you budget for co-ops, think this line item through carefully, because if you budget for 35% of your sales to be Realtor co-op and it turns out to be 50%; your budget will take a huge hit. That co-op money has to come from somewhere and it likely will come from your media budget or your profits. You should include co-op money in your budget and it will typically be .75-1.5% of your gross revenue depending on your market location and price range.

When budgeting for sales commissions and sales management, your market sets the pay scales. If a top producer in Phoenix is earning $80,000, then to get a top producer in Phoenix you will need to be in that range. But builders have some additional leverage today because many sales people are out of work. You should budget enough to hire the level of sales persons you want and can afford. Be careful when considering the afford part – paying less often means you get less sales. The only way I know how to do this is to simply back into the salary/commission rate you have to pay.

Since most customers eliminate builders online today, collateral material has slightly less impact on the sale, but not too much less. When someone visits your sales center or model, they are more like a 2nd or 3rd visit than a first visit. They’ve done their homework online and have probably eliminated the competition and narrowed their choices to a handful of builders. Collateral brochures should perform the same function as usual, but also reflect and direct people back to the website. Only budget enough to design, create and print 6-8 months worth of most brochures due to limited shelf life.

That said, your sales center point-of-purchase displays are more important than in the past. You should have considerably more money invested here than in print materials. The prospect has eliminated your competition and you’re still in the running. Make sure they are greeted with displays and product materials that validate their decision to visit you. There is no room for cheesy marketing here. Nowadays, consumers expect vibrant imagery and interactive abilities. This is where the deal gets closed so budget enough to purchase a few high-quality displays.

Additionally, consider using some interactive touch-screen technology. As you know, rarely do home shoppers come to your model in neat packages. They often show up in groups after church or after lunch. That means your attention will be divided. Using a self-guided touch-screen will help you manage visitors without losing their interest or attention while you help others.

Talking budgets is complicated due to the fact that every builder’s circumstances vary significantly. Focus your dollars on the Internet and the sales center today. At Power Marketing, we’ve helped builders create new home marketing budgets for years. If you want help creating your budgets, contact me.

Best of luck in 2013!

Repurposed from Builders Digital Experience, Posted on Oct. 29, 2012 at 2:02 p.m.