CRITICAL MANAGEMENT SERIES PART 2

This three-part series details the critical data and reports upper management, sales managers and production managers should watch to run a successful company.

Salespeople must rely less on hype and more on delivering affordable products that today's homeowners are seeking. Sales managers and industry consultants say that the key to a successful and effective sales force often lies in the data and reports that a home builder generates.

From external information such as MLS listings and local employment numbers to internal data such as traffic reports and conversion rates, home building sales executives can use data and reports to improve their sales efficiencies.

From the latest interest rate cut at the Federal Reserve and information on consumer confidence to local hosing data or the relocation of a major local employer, external factors and indicators can have a major impact on sales for home builders. Sales managers must observe not just their market and median incomes but indirect actions and events that can affect home buyers. A change in interest rates, a downturn in a local industry or a glut of foreclosures coming on the market can all affect the future of a home builder's inventory.

At Dewey Homes in Pennsylvania, senior vice president of process excellence Glenn Gleason tracks not just national indicators but MLS inventory and job data for the local area. The local economy is gauged not just on its strength but by its consolidation or diversity of industries. While a city with diverse industries may have a solid economic base, towns that have high concentrations of one particular industry — such as military or oil towns — can be severely impacted by economic downturns. Gleason says that home builders need to look at comprehensive external factors and track them accordingly to look for trends.

"When you look at external signs, you want to be looking at everything from a national level to down on a local level. We look at some very particular analysts and researchers for economic data to see what's happening on the macro level and with [big builders]," says Gleason.

Gleason notes that it is also important to take a close look at competing home builders in the local market. At Dewey Homes, the marketing department helps compile regional and national statistics and data, and the sales staff tracks the doings of competitors in the market. By looking at their competitors' own Web sites and the MLS data, sales managers track how many home sites they have left, how many they sold the previous month and what their pricing was.

Doug Wilson, a consultant with Next Solutions, says that in many markets, builders will likely face increasing competition from both new and used foreclosures. As the subprime crisis continues to unfold, the trend will likely continue, and he says that up to 50 percent of the sales in some markets could be of foreclosures. In the first quarter of 2008, RealtyTrac reported almost 650,000 properties in some form of foreclosure, representing a 23 percent increase from the previous quarter and a 112 percent increase from the first quarter of 2007. Foreclosure activity in the first quarter also increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation's 100 largest metro areas. In many markets, sales managers will increasingly have to keep an eye on foreclosure filings and monitor foreclosure inventories, which will likely have a substantial selling advantage because of lower list prices.

"You should keep track of not only the notices of default but the actual posting of foreclosures. Know what that number is and know how you are going to compete against that," says Wilson.

Nanette Overly is vice president of sales and marketing for Epcon Communities, an Ohio-based developer and franchise operator of single-story residential condominium communities. She says her sales managers look at traffic reports on a weekly basis and receive daily updates. Overly says traffic reports are not just important to find areas for improvement but to determine what marketing efforts are working or why traffic is being driven to a particular community. Traffic reports have the ability to tell sales managers what is working.

"That is really what our department lives and dies by, those traffic and sales reports. It is critical because if you don't have traffic, you don't have sales. It is a critical report that you have to react to instantly," says Overly.

Traffic, sales and conversion reports are also important tools for improving sales staff productivity and performance. Overly says that expected conversion rates can vary per community but can range from 1 in 20 in a presale community to 1 in 5 for inventory homes with a strong closing consultant. A cumulative look at the reports on a month-to-month basis allows her to measure sales staff performance and redirect resources or attention. Overly judges salespeople not just on their closings but also tracks their percentages of self-generated traffic. Detailed traffic reports should not just show number of bodies coming through the door but where the traffic originated.

"By the time they have been with us six months, I want to see that 25 percent of their traffic is self-generated. I expect them to generate 50 percent of their own traffic when they have been here for a year," says Overly.

At LGI Homes, executive vice president Mike Snider says that tracking the traffic and conversions against their marketing efforts is one of the most important reporting aspects of a home builder's operations. Specifically targeting renters and first-time home buyers, LGI relies heavily on direct mail and sends approximately 39,000 mail pieces per week for each of its three subdivisions. Snider says that brings in approximately 100 leads per office, which results in an average of 15 closings per month per subdivision. LGI tracks their traffic through a self-developed PTS (performance tracking system) where every lead receives a number and is tracked in the system through the entire process. Having to make every number count, Snider says traffic reports can almost predict all other operations at LGI Homes.

"Our three most important numbers are incoming ad calls and leads, how many appointments each week and how many sales. Those three things give us the end result, which is the number of closings each month," says Snider.

Wilson adds that in today's market, sales managers need to direct their teams toward entry-level buyers and with the emotions of buying instead of renting. Wilson says that as market speculators and move-up buyers have been flushed out of the market, approximately 70 percent of the buyers in the near future will be first-time home buyers. Understanding the mindset of a renter takes careful tracking of the local apartment marketplace including rental rates, vacancies, lease arrangements and amenities. Sales managers in those markets should use apartment associations and their own research to report on what is happening with the rental market.

"The sales manager has to focus the sales team around this entry-level buyer and tweak your sales presentation around the emotion of owning versus renting," says Wilson.

Traffic reports should also show conversion rates to determine what sales people and communities are closing. The rates can also show when a market is softening or when certain salespeople need coaching or improvement. Sales managers should also track all traffic data and the conversion on traffic to maximize the efficiency and effectiveness of their marketing and advertising operations. Other data to track includes cost of incentive dollars per sale, sales velocity, traffic volume, return on advertising dollars and other forms of outreach dollars. Industry consultant Chuck Shinn says that sales managers in tough markets should also look at the number of contingency sales, cancellation rates and the reasons for those cancellations.

Experts say that all the data in the world is useless if it is not compiled and analyzed at monthly or quarterly intervals and compared to previous quarters and years. While most builders track their financial ratios and information in their accounting programs, external data is often aggregated in a variety of formats that usually come to a head with an executive summary. At Dewey Homes, Gleason compiles the external findings in Excel and PowerPoint. Financials are then calculated in Builder NT and Builder 1440 and then reviewed across every part of the business. Gleason says that careful and regular analysis and review is critical to spot trends.

"If you get too caught up at one point in time, you could miss something. You have to look at the data on a month-by-month basis because you have to be able to spot the trends and patterns," says Gleason.