Russ Stephens is the cofounder of the Association of Professional Builders, a leading coaching company for custom homebuilders.
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The worldwide economy is in a state of flux, and according to the International Monetary Fund’s most recent Q4 report, except for the prior global financial crisis and acute phase of the Covid-19 pandemic, this time is the weakest growth profile since 2001. Inflation is the highest we’ve seen for the last 10 years, and financial conditions across the globe are all a factor in the GDP.
If you’re a homebuilding construction leader, is the picture a total disaster?
Fortunately, no. In this article, I will break down six key trends for homebuilding business development leaders to take into account for the best success in the coming year.
What's the forecast for homebuilding business development?
My coaching company, the Association of Professional Builders, recently published our 2023 "State Of Residential Construction Industry" annual report. Many builders reported signing contracts at record levels during the last quarter of 2022, even as the market softened.
Also, good news: 57% of builders cited that they completed homes on time in 2022 despite material shortages, labor shortages and extreme weather conditions. This is quite an achievement considering the length of the delays builders were faced with for a number of different materials throughout the year.
Here are some actionable strategies to help other leaders currently working within this space.
1. Consider branching out from a fixed-price contract model to include a cost escalation clause.
One recent trend we are seeing is more consumers seeking greater protection by signing a contract that includes a cost escalation clause. This can also provide additional protection for builders. Given the choice of entering an agreement, 95% of consumers in the study said they prefer to accept the risk with a cost escalation clause rather than pay for it in contingencies of a fixed-price contract with a home builder.
2. Carefully document your history and financials—and account for lead time.
Often, consumers are in a hurry to get their homes built. But the best homebuilders are not standing by waiting for their next job; you should be booked out already several months or more before taking on new contracts.
This is a very common best practice, but still underutilized by too many homebuilders. Over half of the builders surveyed (57.3%) are producing monthly financial reports. Meanwhile, 60% said they monitor the gross profit on every job on a monthly basis, best enabling themselves to have their finger on the pulse of every single job.
3. Don’t offer free quotes.
If you have the right strategies in place to be operating profitably, you'll have a good enough grasp of your financials to charge for quotes. Builders we surveyed who did not charge for quotes also did not know their margins; this is a recipe for disaster down the line.
4. Invest in marketing.
Just as we are all prone to buy from brands we've seen advertised, as a homebuilder, it's important to carefully consider how you are marketing yourself. How are you demonstrating your promise of a quality experience? What does your website look like? Can you demonstrate credibility through multiple client case studies?
Builders that neglect their marketing typically neglect other areas of their business as well, leading to a poor building experience for their clients. As Rick Storlie, Chief Lead Converter of Builder Lead Converter, observes in his reflections in the report, your marketing strategy should at least be capable of producing high enough quality leads for you to remain profitable.
5. Advertise your utilization of technology.
As we are seeing in other industries, technology has proven to be a huge driver in business systems and sales. Think about how ChatGPT is now becoming a popular solution for customer service. In the same way, smart builders that consumers are looking to build with should consider including some updated technology in their business portfolio.
Our recent survey shows that 37.9% of builders invested more money into software in 2022, with 26% of respondents expecting to spend more again in 2023. Canadian builders are leading the way, with 32.4% of respondents committed to improving their systems.
6. Establish a strong team.
More than ever, it's important to ensure you have the right talent and team structure in place. Is your customer regularly able to reach someone capable of making decisions and providing solutions? Or are they frequently dealing with message-takers for under-pressure supervisors?
We have seen encouraging statistics. In our most recent report, 27.2% of building companies now have a documented process in place for recruiting staff—compared to 20.7% in 2021.
I hope this piece provides some valuable takeaways for homebuilding construction leaders.
By ensuring you have the right support and strategies in place, homebuilding construction leaders can best equip themselves to remain profitable. In these changing times, it's important to make sure you are considering all components of the organization—from pricing to marketing to tech investments—to remain competitive in this industry.
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