How do I assure customers I'm not going broke?
Ask FSB's tips for reassuring customers in a jittery home-building market.
Gloria Jarvis, St. Louis
My husband and I own a small real-estate development and home-building business. We focus on high-end, green construction in a new subdivision in a high-demand area, and we have little competition. Our customers are not affected by the current credit crunch. Our build time is 16-18 months, which reassures our buyers that they have some time for the market to recover to sell their existing home. Yet our customers are scared to buy because they hear that every builder is going bankrupt! In our case, this just isn't true. We recently signed with a joint-venture concern that ensures our surviving the housing crisis. I am sure there are many small and medium-sized builders/remodelers that are experiencing market resistance now, but we are not in that category. How can I convince our prospective buyers that we are not going broke – short of showing my balance sheet? Suggestions?
By Lenora Chu, Fortune Small Business contributor
Dear Gloria: Fortunately, you’ve taken the important first step of recognizing what’s holding your customers back, the experts say.
Alleviate their fears by tackling them head-on, says Spencer Tyler, owner of the Los Angeles branch of the small-business growth services company OneCoach.
You could retool your sales and marketing approach to address your customers’ reservations. Tyler suggests as a new slogan such as: “When you build your home with us, your money is never at risk.”
Support that headline with customer testimonials, state the number of years you’ve been in the business, and reiterate the depth and breadth of your experience. Also include the name or logo of your joint-venture partner, Tyler recommends.
Another Tyler strategy is an 18-month buy-back guarantee – made to match your typical build-time.
“If there is a fear in the marketplace, eliminate the fear by taking all the risk out of the buyer’s decision,” Tyler says.
Other consultants suggest you insure your work – in the interests of alleviating your clients’ fears. For example, you could obtain performance bonds to help assure that the work will be completed – whether by you or another builder who steps in should you go bankrupt, says Jim McKeen of the Stow, Ohio-based construction consulting firm Strategic Marketing Associates.
Why not approach your joint venture partner about insuring the homeowner’s investment dollars? “If the risk of bankruptcy is truly minimal, it’s in the best interests of the joint venture partner” to assuage the concerns of the homeowner, McKeen says.
Yet another strategy? Placing the client’s money in escrow, to be disbursed by an independent third party upon completion of the work, says construction management consultant Mike Gartenberg of Creve Coeur, Miss. However, remember that while this assures buyers you won’t be paid until the work is completed, it does require them to advance the funds before the expenses are actually incurred, Gartenberg says.
You should also obtain a letter of credit from your bank so you can show customers that a financial institution supports your commitment to perform the work, Gartenberg says.
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