Leveraging data and standardization to meet affordable housing needs
As a homebuilder, how many options do you offer your customers? Probably more than you think. And it’s driving up your costs. In many ways, options are an enemy to affordable housing.
Let me explain with a conservative example: Let’s say you’re a production homebuilder, offering just six home plans. Each of those plans has three facade options and two floor plan modification options (add an office, bump-out, bonus room, etc.).
Beyond the shape of the building, you also likely offer options on, at the very least, common finishes: Roofing (three levels, three colors); exterior cladding (three types, four colors); doors (three styles, three colors); windows (three levels, two colors); floor coverings (three types, four colors); interior paint (three levels, four colors); lighting fixtures (two levels, three finishes); plumbing fixtures (two levels, three finishes); cabinets (four styles, five colors); countertops (three materials, four colors); and HVAC (three levels).
This is a very basic list and does not include many other common options like insulation, basement finishing, landscaping, solar, low voltage, drywall texture, bathtub/shower, etc.
Now, how many total options do you have? In the simple example above, you’re actually offering 783,641,640,960 unique permutations of your product. That’s nearly 800 BILLION. As a production builder. If you’re a fully custom builder, your options are effectively INFINITE.
The options fallacy
People may like to consider many options, but when they have to make dozens of different selections from lots of options, they often get confused and frustrated.
I call it “selection fatigue,” and I can promise you it’s costing you sales. Sales 101, and common personal experience, tells us that “A confused mind always says ‘No’” and nothing engenders confusion like too many options.
Besides costing you sales, complexity (another word for options) costs you hard cash, which is worse than costing sales, because if your profit margin is five percent, you have to make $1 million in sales to earn back $50,000 in lost cash.
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Complexity costs you money (which drives up the cost of your homes) in many ways. Supplier management time, paperwork, inventory, training (and re-training), spare parts/samples, mistakes, change orders and accounting are a few areas of additional cost caused by added complexity.
And in the affordable housing market, tons of options simply aren’t necessary. To this target market, price point is far more important than having lots of options and ending up with a “unicorn” home.
“Simplicity is the ultimate sophistication.” – Leonardo da Vinci
Success in simplicity
Ever wonder why firms like Tesla and Apple (two of the most profitable companies on the planet) offer a shockingly low number of options on their products? Because they understand the cost of complexity.
I recently purchased a Tesla, and the online configuration process was startlingly simple and fast. There are exactly five selections to be made (two drivetrain options, five paint colors, two wheel styles, two interior colors and two seating configurations), plus four optional add-ons (a total of 320 permutations). The whole process took me about two minutes to complete. Even with my short attention span, I didn’t come close to getting fatigued.
Contrast that with the typical home buying experience: Several hours (up to several weeks) of decisions, followed by months of discussion, second-guessing and changes to those decisions. A new home is traditionally one of the highest-complexity purchases and it’s also notorious for being one of the most stressful.
If you want to reduce your costs (both hard and soft), increase your sales, speed up your sales cycle and turnover velocity, and reduce your headaches and your customers’ stress, there’s one counterintuitive but simple thing you can do right now: reduce your complexity.
Slash your options. Reduce the number of customizable components of your homes. Standardize where possible. Analyze your sales records and calculate the frequency of selection of each of your options. I’ll bet you a hotdog you’ll find that 20% or less of your options are selected 80+% of the time. (The Pareto Principle strikes again.)
Maybe you can’t get down to 320 permutations like Tesla. But can you reduce your plans from six to four? Standardize your exterior cladding, roofing, doors, and windows (at least by development/area)? Cut back to one or even one interior paint color? Stick with one to two cabinet styles in only two colors? Every simplification will make you more profitable and your homes more affordable. If you remember that every additional option you offer cuts into your sales and your profits, reducing complexity becomes a high-priority exercise pretty quickly.
So take a page from Tesla and Apple and zig while your competitors zag. Aggressively pursue simplicity, efficiency, and unconventionality to set your business apart.
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