Where's the Profit?

A bonus room is a nice perk to offer, but how much happier could clients be, and more profitable builders could be, if the room was wired for conversion to a home theater? With a little planning, extra wiring and minor expense, a boring bonus room can become a showpiece for homeowners and a profit center for builders.

Home theaters contain more product and therefore more opportunity for profit than an extra bedroom, so why not lay the groundwork? Plenty of other builders are doing it, according to the National Association of Home Builders, which reports 34 percent of home builders now offer structured wiring packages as standard or optional amenities. In addition, 22 percent of U.S. residents have a home theater system in their homes, according to research firm Parks Associates.

“Home theaters and whole-house systems are the easiest sells and what everyone wants,” says Jenny Thomas, design services manager, Custer Design Group, part of Custer Homes in Harrisburg, Pa. “We stay out of the component sales part of the business, but anything else electronic that’s installed in a home, we oversee and make a profit on.”

The key to selling home technology is believing in its value, says John Cioe, who owns Lusso Homes of Distinction in Scottsdale, Ariz., with his brother Rob. “People are willing to pay for what their builder thinks is worth it. And unfortunately many builders haven’t built up their electronics subcontractors as the experts they truly are. Builders should be saying to clients, ‘Sure I could get you a cheaper technology guy, but this guy is the best; he’s an artist. In my home, he’s who I would go with and you should too.’ The reality is most clients are looking for their builder to tell them what are the most important elements in the house. So if a builder doesn’t believe in technology, the client won’t either.”

Home builders should have a working knowledge of everything going into the homes they build, Cioe says. “Builders must have sold themselves on what they’re capable of before selling themselves to others. Your job is to sell yourself as an expert, and that ‘this house will be the best if you do it this way.’ Once your customers believe you’re the expert, they’ll buy anything from you.”

Of course, clients can’t buy something if they don’t know about it, so builders must first offer technology before a homeowner will buy it. Thomas believes, “We have a responsibility to show the clients everything they can have: the best. Clients’ eyes open up when we educate them about technology that’s available to them. Then they decide what they must have and what they can live without. If we were to build their home and not offer everything, and afterward they say we never told them about something, we would not have done our jobs.”

Making the Margins

As a full-service design/build firm, Custer Homes handles everything from design through construction, and builds margins into it all, including home technology. “We try to have a certain profit margin built in no matter what the technology is,” Thomas explains.

Technology such as a simple distributed audio system provided the highest margins for Cioe as a build-to-suit builder, he says. Those profits wouldn’t exist, however, if it were not for laying structured wiring, the backbone of any home’s technology systems.

“I didn’t lose money on structured wiring; I provided that as a commodity. You just have to do it, but I didn’t make big money on it. There’s too much competition for that,” Cioe says. “So things like distributed audio, lighting control, HVAC and security, those were the value-added items I made money on. About 70 percent of clients added to the basic technology package I offered, and 100 percent of clients upgraded on electronics.”