Value Versus Reduction

The easiest way to close a sale is to offer a discount. Telling a prospect that if he or she signs a contract this month they'll receive a 3, 5 or even 10 percent discount creates urgency to make a decision.

When you discount, you undermine the value of the service you are offering. Most home builders are focused squarely on the home as a product. A product it is, but home builders also deliver services.

It is the service component that often gets left out of the value equation. There are obvious services that you must build into your cost structure; builders, though, do much more for their clients than just build a house. Receiving remuneration for that work is essential to create a successful business and establish a clear value equation.

Consider the world of remodeling. It is often said that remodeling is a service business and not a product business. That fact is so ingrained in the industry that many remodelers have dual mark-up systems: they mark up materials at a different percentage than they do labor.

To bear this out, Harvard University research presented at the Joint Center for Housing Studies shows that contractors can most affect their bottom line with these three attributes:

• Higher margins
• Greater customer satisfaction
• Improved land assembly strategies

The least effective actions:

• Savings on building materials
• Reduction in construction costs
• Reduction in cycle times

The research proves that it is easier to drop money to the bottom line by adding value than it is by reducing costs. Only in a business with a value equation leaning strongly toward service is that true.

The way to improve the bottom line and make it more resilient to the ups and downs of the economy and the regulatory market is to increase the value of what you deliver.

Discounting may move your prospect to a decision, but it undermines the very essence of your business. It also tells your new customer that they can dicker over price with you because there is room for negotiation.

Cost control is essential to operating a strong business, but adding value delivers more bang for the buck.

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