After more than 25 years in the production end of the home-building industry, building semi-custom homes for the past four, it was time to break out on my own. Carlson Homes in Scottsdale, Ariz., has been active in the custom design/build industry since 2002. In that time we designed and built more than 45 homes in the Phoenix-metro area between $1 and $3 million each. While our process in design and construction was yielding good results for our customers, we found the selection of finished surfaces and other design elements was lacking in giving the customer a quality experience.
Customers often were confused by the enormous range of selections they could make, and having to determine what was right for them. This often resulted in the customer making selections that did not perform or look as good as expected when they moved in. We also recognized that in our market the number of custom homes that will be built is going to shrink over the next few years due to shrinking vacant land inventory and the resulting significant increase in costs. As the number of homes dwindles, surviving companies will have to look at offering more services than the competition to stay in business.
After interviewing several customers and performing a thorough review of our processes, we concluded this “under performance” was caused by the buyer’s lack of confidence in making certain decisions due to their lack of knowledge and an uncertainty of how they should best proceed. Our buyers showed they were also reluctant to admit they felt they needed more help in the selection process, and they were intimidated about the cost and time that an outside consultant such as an interior designer or lighting consultant would cost. Of course, we also were concerned when a customer brought in outside consultants because they could disrupt months of work, as well as our relationship with the customer.
We decided the best solution was to integrate more services into our design process by adding interior designers to our team, and incorporating the cost into our pricing of our homes. This way, we could give the customer a quality experience resulting in the coordination of all finishes, furnishings and window coverings while still having control over the process. We also have found that this has produced another profit center by adding furnishings and window coverings to the list of items we sell.
Finding the right designer
Our customers reported in interviews that they avoided using designers for three reasons. First they were concerned there was no added value for the fees a designer would charge. Second, they were concerned a designer would “book up” the overall cost of the home in order to feather their own nest. Third, they were concerned the designer would impose a design the customer did not want, ultimately causing dissension. By incorporating the designer into our corporate umbrella and providing design services within our basic pricing structure, we were able to alleviate these concerns and have found that the customers are relieved to have someone help them.
Making the interior design process work is simple. We hired two designers from two separate backgrounds. One worked with a public home builder running their design center and merchandising their models. She brought an understanding of construction at a production level and also understood that she needed to operate in an environment that was builder-friendly. The other designer was an award-winning ASID designer who has done many high-end custom homes around the country. His experience allowed him the ability to design outside of strict budgets, and he has an architectural degree so he added experience to our existing design team. We had become close associates by cooperating on “How to build a custom home” seminars sponsored by the furniture company he worked for. When I presented my idea to him, he immediately volunteered to come with us.
When a customer signs an agreement for a design contract, we match them to one of the designers we feel will meet their needs. During the design phase, the home designer works on the floor plan and elevation issues, and the interior designer concentrates on the furniture placements, case goods and lighting plan. Clients are consulted on window sizing and placement, and designers start discussions with the customer in a general sense about design. The designer begins a process of selecting finishes and other items that might be of interest to the client. The goal is to have everything picked by the time we are ready to pull the building permit, so clients will stay involved until the home is complete.
We are able to design multiple-use rooms much more effectively because the designer is able to articulate the best use of space by showing an overlying furniture layout onto the floor plan. The customer can immediately see the benefits or make editorial comments that make the home better, and by extension, he becomes more committed to us. We also found that the time needed to finalize selection is greatly reduced because the customer performs an editing function rather than makes all the selections himself.
Paying for it
We had to determine how to pay for the designers without raising prices. So we raised the funds in three ways. We have salespeople on staff who, as part of their commission, were required to monitor the selection process through our subcontractor base and make sure the selections were timely, properly priced and understood by the client. They gladly gave up a portion of their commission to have someone else do this work and allow them to do what they do best — sell homes.
Our vendors had people in place to help our clients make their selections, but since they oftentimes were busy with other builders’ clients, we were able to convince them that our designers would free them up as well and they gave us concessions. This money is transferred as a fee to the designer. The designer receives further incentives by earning a portion of the profits on items we would not normally be involved in such as furniture and window coverings. They also help our profitability by getting the customer to understand and accept bold and unique materials. And by getting the choices made on time, we can keep construction delays to a minimum.
We hope to turn Carlson Design Group into its own profit center. We also feel we will see additional benefits as time goes by. First, after move-in, the customer might wish to purchase additional furnishings or other items for the home. We believe they will come to us with another contact and a stream of revenue that did not previously exist. Second, the home will be visited by friends who may be in the market for a new home or are interested in design services. To market the service, we are developing a series of ads that will run in various lifestyle magazines. If we do our job right, we should be able to count on the referral. After all, building a custom home is all about the experience the customer has and how well he enjoys the home when he moves in.