Small- and medium-sized builders can struggle to stand out among large construction companies with seemingly unlimited resources. To maintain a market share, it’s important for smaller builders to think outside the box, while sidestepping common issues that stand in the way of profitability. Here are some tips to help middling builders prevail in today’s marketplace.
Combating Common Problems
While they like to think of themselves as unique, smaller builders tend to face similar issues. For one, they often have trouble gaining access to finished lots or suitable land parcels for development. Most small builders also lack buying power, and have difficulty maintaining adequate, affordable materials and subcontractors.
It’s also not easy for many small builders to create and maintain high-performing sales operations. In turn, smaller builders often find themselves trying to be all things to all buyers. Many small builders ultimately find themselves caught in the custom home cycle, where it becomes more difficult to increase sales revenue, while reducing unnecessary costs.
Some Smart Approaches
To compete with the big players, smaller builders must be agile, innovative and resourceful. Many smaller enterprises have successfully increased their opportunities and reduced unnecessary costs by using one or more of the following tactics.
- Focus on what sells. If you offer multiple floor plans, consider thinning the herd to make things less confusing for buyers. Focus on your five or six most popular plans.
- Steer clear of custom homes. Consider focusing on prepackaged options, instead of one-of-a-kind projects, which have a high probability for purchasing, production and estimation errors.
- Develop your sales tactics. You cannot evolve from a small custom builder into a higher-volume enterprise without a rock-solid sales team. Develop interactive scripted dialogs for every possible situation. Then practice, drill and rehearse until everything is seamless and refined.
- Start a land-buying group. See if you can join other small builders to create a mutually beneficial LLC land-buying group that will allow you to purchase more lots. This can open up new opportunities for development, while also spreading liability over multiple building companies.
- Enhance your buying power. Consider combining your material volume with that of similar builders in your group. You can save between 5 and 7 percent, while also enjoying faster responses from manufacturers on product issues.
- Target multiple segments. Focus on creating options that will make a plan versatile enough to appeal to more than just one segment of buyers.
- Refine everything. Hold focus groups that dig deep into why some things work and some things don’t. This will help you create a clear plan that targets what people want, instead of building what you think they want. If you find that you are nickeling and diming your plans to the point where they lose their luster, look for ways to strike a balance between profitability and salability.
While every small builder would love to have a blueprint for success, it’s not usually that simple. To maximize profitability, you will need to develop unique strategies based on your assets, capabilities, financial situation and the market in which you operate. By honestly analyzing every facet of how you do business, you can refine your operation, so you can find new opportunities and maximize the ones you already have.
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