Home builders face unique challenges that require proactive solutions. In this article, we’ll explore 12 critical issues home builders must address to stay competitive and thrive in the coming year.
  1. Have 100% complete construction drawings and documents. Builders often think that whatever an architect draws that a city will give them a permit for is enough. The lack of detail cascades problems with customers, estimating, purchasing, superintendents and trade partners. Everything else about the home needs to be clear, too: material specifications, scopes of work, job ready/complete checklists, master agreements, purchase orders, construction schedule.
  2. Make sure there is no waste. We see too much lumber, masonry, concrete, rafters and trusses, slopes and too many corners, ridges and valleys. And this is just for floorplans that appear desirable and efficient. Whatever you call it—performance or value engineering—get rid of the extra material and time/frustration your trades need to assemble it.
  3. Stop moving dirt around. Instead, figure out some root causes and fix them. This cost is often hidden by budgeting for it. This can be costing you at least $2,000-$5,000 per home.
  4. Design for your customers. Make sure that whatever feature your home has, you know your customers want it, need it, and are willing to pay for it—including your margin. If you are discounting your price, then you probably put too much in. If you and your team are buying and living in your homes, then put in them what you want; otherwise, stop spending your customers’ money and deciding for them.
  5. Know what your jobs are. A title doesn’t cut it; in fact, most titles are inflated. Create job descriptions for yourself and everyone who works in the company. These include the results you expect each role to accomplish, not just the activities to be performed, and the authority each role has to accomplish those results. If you already have them, make sure they are current.
    1. Your organization chart is an outline of all of the positions in your company. Make sure you have one for the current situation, one in case you need to layoff personnel, and one in case you need to hire people for new or additional positions.
    2. Each manager should meet with each employee at least once a month, sometimes weekly, if needed. Discuss performance, what is working, what needs to be improved, what support the person needs. Also, learn where the employee wants to take his or her career, what is going on their lives, and what training, development, projects or other things the company can do to help them.
  6. Fine-tune your compensation and leadership strategies. Bonus or other incentive compensation does not substitute for good management, including good, well-followed processes and procedures. Pay people at the market, fairly compared to others, and then manage and lead well. If incentive compensation is appropriate at that point, then consider it. Annual raises at or above the inflation rate will help people stay—but that is only if they are being paid at or above the market for their job.
  7. Take a personal approach with customers. If your sales and marketing program doesn’t include regular, in-person events with customers and potential customers, then you are missing out on the best way to differentiate yourself from your competitors. Social media, email and text messages are all great and using them is important. But the personal touch is lacking, so call, visit, invite.
  8. Talk to buyers in your market. No matter what your role in the company—and especially if you don’t regularly work with customers—call or visit at least one of your customers each week and ask them how it’s going. If they already live in your home, ask them what’s working well for them and what isn’t. Do the same thing for people who bought your competitors’ homes. Do the same thing for people who bought used homes in your price range and area. After you’ve done this for 3-8 weeks, you and your team will know something useful about your product and the way your company interacts with your customers.
  9. Use the right metrics. Mortgage interest rates will remain high and volatile if inflation doesn’t drop, and home affordability will remain low unless land and construction costs drop. Only about 1 in 5 families can afford a new home. While economic forecasts are useful for planning your business, your traffic and sales, and the listing, pricing, supply and sales of existing homes in your specific markets are much more useful in telling you the state and direction of your market.
  10. Keep a journal. Try writing the issues that face your company (or department/function) and your decisions and actions about the business in a journal every day. Each week, summarize them and monitor the results. Each month, summarize the results of your decisions. When you do quarterly or annual planning, you’ll have a much better sense of what to do.
  11. Watch your closing volume. discounting and buyer incentives. Set your overhead based on your volume, and pay attention to that at least quarterly. Anytime you discount a house a substantial amount, say 5% or more, realize you made mistakes and find out what they were so you can avoid them in the future. Remember that if your net margin is 5% and you regularly are discounting homes 5%, you are either out of business or trying to keep people as long as you have cash.
  12. Focus on margins. We tend to think in terms of markup, not margin. A markup of 20% sounds good, but it is only a 16.67% margin. If you regularly markup your direct construction costs by 20%, you are probably losing money or just barely getting by.

Shinn Group is here to help. We have a team of industry experts who help builders implement proven strategies to address problem areas, reach higher levels of success, and become the Builder of Choice™ in the eyes of their employees, trades and customers. Contact us at 303-972-7666 or info@theshinngroup.com for details.

Jim Weigel is a senior consultant at Shinn Group. He specializes in helping builders implement effective management systems with a focus on disciplined leadership and performance excellence to increase revenue. Jim’s areas of expertise include management, marketing, sales, finance, quality, valuation, owner transition.