In order to close the gap between buyers and builders, builders need to think less about how to plug the holes in our boats (the problems that currently exist in our operations) and more about how to find a better boat. With better systems, our companies run better, and we have more time and money available to focus on the customer experience.
The Traditional Way
Production builders are accustomed to a process of providing products that best fit a majority of their consumers with little wiggle room to personalize the home. This process streamlines production flow as if homes were built with a manufacturing mindset. Builders need this operation to be fast, simple, and controlled in order to deliver a product that yields a net return to keep their business healthy.
For years, we as builders have been trained by industry consultants to think like manufacturers, create a process, and stick to it if we want to be profitable. We’ve coupled together multiple types of software hoping that technology will help us operate more efficiently and pick up percentage points lost to new construction regulations, rising land costs, and increased material/labor costs.
Whether the customer has a satisfactory experience is predicated on the builder having solid operational processes in place. Have you thought about how much an operation that demands constant interaction, data entry, and information hand offs really costs your company? Do you have a true metric for the total cost? Probably not. Let’s explore the backend operation to fully understand the impact on our business.
Personnel:
Salaries + indirect employee cost + bonuses + office space + personnel managers
Third-party contractors:
Research + design + renderings + plan stamp/liability
Software:
Home plan creation/management + option database + architecture modification tools + purchasing/estimating tools + sales/marketing tools + document storage + project management
Time:
Meetings + waiting + interest/carry cost + opportunity lost
Variances:
Errors & omissions via hand-offs + incorrect plans/details + managing multiple documents
It’s painful to think about how heavy and bulky the backend operation really is. The cost for many builders can amount to nearly 10% of their overall business. Imagine what your business might be like without the errors that are inherently created because of manual data entry, lack of process, and miscommunication between staff.
An automated process
What if the intelligent people in your organization could spend their time focused on proactively solving problems and enhancing the customer experience rather than handling mundane tasks. People get bored and distracted when they do the same thing day in and day out, which can result in incidental mistakes. These mistakes, aka errors & omissions, show up on our books as variances.
Studies and homebuilding consultants tell us that losing about 1 to 3 percent of your gross profit to variances or mistakes is common. In fact, many consultants will advise you to budget 1 percent for slippage because it’s unavoidable. At the same time, we spend less than 1% of total revenue on software. Think about this for a minute. If your annual revenue is $50 million, 20% gross profit would be $10 million. Basically, you’re deciding that leaving $500,000 to $1.5 million (1% to 3%) on the table for sloppy processes is acceptable.
What might a simple, automated process look like? First and foremost, software has to eliminate data entry. It’s just silly that in today’s day and age, we still pay people to key data into anything. We might as well dig our foundations with a shovel too.
Next, it’s critical to have flexibility that morphs to the company’s needs. It’s not likely that one solution will bridge all the gaps, so it better have the ability to communicate with the other tools you are using. There’s no time to reach out to the architect to manually draft job-specific plans from a master database or to convert files to be shared with a rendering company to generate marketing documents. One update at the front-end should automatically produce construction documents, take-offs, estimates, and accurate customer floor plans/renderings within the sales contract.
Finally, everything needs to be done in a web browser where anyone can access it at any time, and provide accurate data that drives strategic company decisions. If it doesn’t have the bandwidth to manage daily operations and help you make data driven decisions as a company, it isn’t a true solution.
We need to look to the successes in the retail, e-commerce and manufacturing industries to help us improve our back-end operations and our overall customer experience. The homebuilding industry has been ripe for disruption for years, it’s exciting to think that our time might finally be upon us.
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