The Business Plan: Sales and Marketing

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A key component of a company's business plan is the sales and marketing plan, which describes how the company will market and sell its homes. This section should include the following components:

• Economic analysis
• Customer analysis
• Competitor analysis
• Lead generation
• Product analysis

Economic Analysis
Critical to a builder's success is an understanding of its market. Ask the following questions when performing an economic analysis of your marketplace:

• What is the current economic state of your market? Is it healthy or declining? What are the short- and long-term economic outlooks for your market?
• What economic factors might impact your market? For example, are large employers moving into or out of the area? Are tax incentives granted to build certain types of housing? Are lumber costs rising?
• Has the population been increasing, decreasing or remaining steady in your market?
• What are the major companies that your buyers work for? How healthy are those companies? Have they announced any layoffs or plans for expansion?
• How are your market's demographics changing? Are more couples having children? Are more multigenerational families living in the same households? Are more people employed by large corporations moving into or out of the area? Are more people working from home? How do you think your market's housing needs will change in response to these changing demographics?

Customer Analysis
Identifying your customers is a necessary step in choosing your product line and the features and options to include in your homes. Analyze your past customers. Assess homes closed over the past several years and identify who your customers are, looking at things like what they do for a living, average household income, age and family make-up. Examine the profitability of your homes by these criteria. You may be surprised to see some trends that help you identify your best customers.

Another critical area is to understand how many potential buyers are in your marketplace. Analyze basic census data, which is readily available through www.census.org [2].

Understanding how your homes fit your customers and potential buyers in your marketplace can by done by answering the following questions:

• What customer needs/wants/desires will your homes satisfy?
• Are your homesites in desirable locations?
• What lifestyle choices do your homes satisfy? Are they in convenient locations? Are they in a good school system? Are they close to recreation areas?
• Are your homes the best size and design for the market?
• Are you a price leader or a value leader?
• What features -- extra bedrooms, entertainment rooms, upgraded kitchens -- do you offer that your customers want?

Competitor Analysis
Do you know as much about your competitor as they know about you? How often are you shopping your competition? Knowing your competition will give you an edge when it comes to pricing, marketing and sales. Take the time to analyze all of your competitors and ask the following questions for each:

• What are their mission statements and/or company goals?
• How many homes or communities did they sell in the past year?
• What types of homes do they sell?
• What was their average sales price?
• How many homes did they sell within each community?
• What was the average sales price within each community?
• What are your competitors known for within your market?
• What do your competitors do better than you?
• What do you do better than your competitors?
• Did any of your competitors go out of business within the last year? If so, why?
• What can you learn from your competitors, including those no longer operating?
• How do/can you differentiate yourself from these competitors?

In addition to understanding competitors building new homes, it is also important to understand the resale market. How many resale homes are on the market within your price range and how many days are they on the market? Are the listing and closing prices the same, less or more on resales? It is worth the effort to compare county records with Multiple Listing Service (MLS) information?

Lead Generation
Do you know where your customers are coming from? Do you know how many prospects you had last year? Do you know where your leads came from? It is important to understand the answers to these questions so you can analyze your sales-to-leads ratio by advertising/marketing source. Divide total sales by total leads to determine this ratio. For example, 5 sales divided by 100 leads results in a 5% conversion ratio. Once you know this number, it will help you to develop a marketing plan that will get you the best "bang for the buck." Questions you should ask in developing the lead generation portion of your sales and marketing plan include:

• What can you do to attract more qualified leads?
• What will it take to sell and close your current and newly generated leads?
• What can you do to increase your sales-to-leads ratio?
• Who sells your product? What can they do better?
• How can/will you work with brokers and Realtors?
• How does your referral program work? If you don't have a referral program, how will you implement one this year?

Product Analysis
What do you build? What is your justification for building each type of product (e.g., presales, specs, remodeling, etc.)? How do you price your homes? Where do you build and why did you choose these sites? Do you plan on offering any new plan types? If so, when do you plan on offering them?

List all the communities/subdivisions where you are currently building and are committed to build in the future. For each community, supply the following information:

• The number of available homesites available to your company. How many homesites do you own, option or need to take down?
• The plan type of your model in each community, or what plan type your model will be within future communities.
• A list of other builders in the community. If there are other builders in your community, it's imperative to complete the competition analysis each month.
• The number of homes you offer in the community.
• The price range of homes.
• The sizes of homes.
• A typical buyer or projected buyer profile.

With this and all of the other information within your sales and marketing analysis, it is now time to develop your sales budget. When developing your sales budget, make sure to consider production capacity, home site availability and even flow-process timing. Your sales budget should identify the number of homes that you plan to sell by month, by community.

Next installment: Production Plan