Lesson Learned: The Perils of Sales Success aka Luxury Car Alert!

The market bottom is clearly behind us, and this is validated by three very reliable indicators.  First, annualized home starts have more than doubled from the Spring of 2009.  Second, consumer confidence (and therefore builder confidence) continues an upward trend, and for regular readers, you know these are good predictors of sales activity for the next 6-9 months!  Third, and my favorite market turn around indicator, is that the Salesperson Auto Indicator (SAI) has turned positive.

In my travels across the country, I get to see a lot of new home builders and their communities.  From 2008 through 2011, I noticed that a lot of new home salespeople were driving American made mid-level cars and SUVs, which was quite a step backwards from their luxury brands from 2004-2008.  It seems that many of yesteryear’s successful salespeople left the industry once the market declined and their sales backlogs dwindled and took their luxury cars with them.  In 2009-2011, the new crop of new home salespeople had yet to see the big commission checks that our industry can produce.  

Welcome to 2012 where the new home sales increase and resulting commissions have apparently raised the transportation tastes, based upon the observed SAI.  For example, in last month’s market tour, I noticed a new BMW, a new Jaguar and a new Lexus all within three communities.  As builders, we are all happy when our salespeople are cashing big commission checks, but there can be a downside.

Let me hark back to a real life example during a prior market rebound.  Our home building company needed a salesperson and hired a young family man with no new home sales experience.  This person, let’s call him Dave, went through an extensive 3 week sales training program to ensure he was well versed in the builder story, location benefits, product line, customer service expectations, etc.  Dave was a natural salesperson and took right to the sales task.  He had been taught it was critical to get prospective customers out of the sales office, into the community and onto homesites in order to create urgency and sell more homes.

Dave understood the value of these community and homesite  tours and combined his own brand of customer service, by outfitting his family passenger van with a cooler loaded with drinks, snacks for kids, coloring books, etc.  He was very successful in getting prospects into his van and out into the community and thus created great one-on-one time.  In short order, Dave was on track to set several sales records for the builder, until one month his sales dropped off and continued to decline over the subsequent two months.  Dave had been so successful in his first six months that his Sales Manager pretty much left Dave alone to do his sales magic, but after  two down months of declines the Sales Manager visited Dave.  The root cause of Dave’s decline in performance was immediately evident.  Dave had used his new found discretionary income (the big commission checks) to “get rid of the old van” and buy himself his dream car - a Corvette.  This Corvette and its two seats meant no more neighborhood tours, less one-on-one time, and a less customer focus.  In fact Dave’s demeanor changed, too.  His self-image seemed to increase commensurate with his paycheck, while conversely his “window of learning” grew smaller.

Dave’s initial sales successes also led to his eventual failure, because in part he was not prepared to handle success.  This story is not unique to Dave as I have observed this pattern countless times.  So, how do we break this “rags to riches to rags” pattern?  Here are a few ideas.

First, how about counseling new home sales people on budgeting 101, and help prepare them for new home sales/commissions ups and downs?  Second, how about capping the commissions payout to a reasonable amount per month (i.e. pay checks of $20,000 per month) to smooth out their income stream?  Third, consider incorporating a small salary into the compensation formula thereby lowering the commissions and reducing compensation peaks and valleys.  Fourth, how about requiring a financial consulting session after a salesperson has achieved a certain annual income?   These may sound like radical ideas, but good intentions are behind the policies – the retention and maturation of good salespeople.

In Dave’s case, his success and failure ultimately affected his family (job/income loss), his employer’s business (decreased revenue) and the customer experience.  Let’s learn from this lesson and not just prepare our sales staff to sell more homes, but also for success.

This week’s management meeting question:  “Do we prepare our salespeople for the industry’s up and down sales/commission cycles and their long term success?”