Budgeting Your Marketing Plan

This is the Selling More Homes Podcast, program number 198.

This week, I’m joined by S. Robert August on the topic, Budgeting Your Marketing Plan. And you’re listening to Builder Radio on the Selling More Homes Media Network.

Welcome to the Selling More Homes Podcast, where every week we bring you interviews, ideas, and information to help you sell more, earn more, and achieve more in this challenging housing market. This program is a production of Selling More Homes Media and the Selling More Homes Academy, now serving skills-building information and personal coaching to housing professionals around the globe. Now, grab a pen and paper so you can take good notes. This week’s program begins now.

Hello, everyone, and welcome back to another Monday Morning Sales Meeting. I’m Scott Stroud.

Whoa, what a rollercoaster ride the economy has taken in the past week. Global stock and financial markets have seen huge fluctuations, showing that there’s still an uncertainty and a lot of fear regarding any kind of recovery. The phrase that I hear again and again is lack of confidence in any efforts to bring about a real recovery. On the other hand, just this past week, Warren Buffett went on record as stating that the key to any economic recovery he feels rests on the shoulders of the housing industry. Once the housing crisis is addressed in a meaningful way, and the way is open for those that need homes to be able to finance them, he feels, that that will be the catalyst that will prompt a full recovery. He also stated that he feels that will take place sooner than we’ve been led to expect. Well, let’s hope he’s right. Also this past week, Builder Radio held a special webinar with real estate social media expert Ross Hare. The program was absolutely amazing. In fact, I felt that this program would be so important to our listeners that I made it available for free without the normal $37 charge. And the comments I’ve received from those that attended have made me glad I did. I’ve had several emails and phone calls thanking me for this information.

And telling me how much they got out of Ross’ presentation. If you missed it, I’ve posted the video recording and you can access it from our blog page or from the home page of builderradio.com absolutely free. Now this week, S. Robert August returns as my guest. Robert is the president of North Star Synergies, a full-service marketing, management, sales, and consulting firm based in the Denver area. Robert has published an article which you can download from the Builder Radio blog on budgeting your marketing plan. And he joins us today to discuss that topic. Robert, welcome back. Well, it’s certainly a pleasure to be with Builder Radio and you, Scott. It’s the programs that I continue to listen help me more and more every week. Just as soon as I think that I’ve got everything figured out, I have an opportunity to listen to many of your other programs like those from Bonnie Allfriend and Brian Fluke and Meredith Oliver and Tom Vedder. And I just continue to learn more and more from Dan Levitan and so many people within the industry. And it’s what you and your company provides such an outstanding service to our industry. And I’m just grateful to be a part of it. Thank you so much.

Oh, and thank you, Robert. And for the sake of transparency, I’ll just let it be known that you have introduced us to a lot of those people that you just mentioned and that are really the backbone of the information that we’ve been providing. So I appreciate that. And again, thank you for joining us. And today we’re going to be talking about budgeting and our marketing plans and associating those two or assigning a budget for marketing. I think a lot of our programs, even more than sales, I think we’ve been concentrating on marketing lately. And those are the questions that our audience have been asking us about marketing, particularly digitally. And as things have changed so much in the last few years, moving things online, one thing that I still get questions on is how do we assign a budget budget for our marketing? And you’ve provided us with not only the material for our blog today, but an eight page article that will be downloaded from the blog. We’re going to talk a little bit about that. I just want you to go over with us a little bit. Robert, when we think about budgeting, where do we start? How do we assign budgets and what things should be included in our marketing budget?

Well, the first thing that I was always taught by some of my mentors and coaches, always start from the finished portion of the community or the finished portion of the business plan that you would like to attack. So in other words, if we indeed have $20 million, $50 million, $100 million worth of products to sell within our program, we try to figure out what is the absorption rate or what is the length of time that we can sell X number of products within that given period of time. So for example, within the housing industry and the shelter industry, if we are going to have 300 apartment homes that we have to lease within a year, if we know through our research that one year will take us through that period of time, and then of course, we’ll have fallout and we’ll have to replace those folks. So we have to prepare typically a budget that would be a three-year budget that most of the expense would be certainly within the first year and then we’d have to continue to tweak that budget. Within the housing industry of a for sale product within a new community that is planned or an existing community that we come into and prepare a budget, each of those programs will be different. Of course, the first year of any marketing.

Plan will always be the most expensive because we have a lot of one-time expenses that will be borne, not to say that we won’t be improving upon those products that we will create. For example, to create a logo for the a logo for the community. That’s typically a one-time expense. The likelihood of that logo and possibly a slogan for the neighborhood will be a one-time expense. We’ll also have a website that we’ll create and that website is is typically more costly in the very beginning rather than to continue to tweak it on a weekly or monthly basis with regard to pricing changes, feature changes, even financing changes. And here today, we continue to see the market rate change in a decelerated fashion whereby the mortgages are less expensive today than they were several months ago. So we always, whether the mortgages are going up, they’re going down, or we come up with additional creative ways to finance a home, we need to be able to be able to introduce those changes on the website immediately so that we’re always there with the most current information for our consumers. Yet the cost of updating our website is very, very inexpensive by comparison to creating a new website every three or six months or even a year.

Now you mentioned something there that should be part of the marketing budget that I think that oftentimes we want to skip or maybe we think we know and that was research and the importance even before we go to market with a product or a community or whatever it is, doing research. Explain why, what you mean there and why it’s so important and maybe we can talk about what kind of budget to assign to that. Well, thank you. I think, Scott, when you start to address a situation like that, every community has to be researched before you even dig a hole in the ground to begin preparing that new home community. You have to know the price point that is going to be accepted by the buyers. You also have to know the type of features, standard inclusions that the buyers want. You even have to figure out the optional items that may be more cost effective. For example, we came across another product or two with regard to indoor air quality and it’s becoming more and more the trend, yet not standardized in the form of inclusions within the home.

So there are products in the marketplace, for example, that can eliminate bacteria and viruses in the air and on surfaces. They can also do a tremendous job of eliminating odors and creating just a better quality of life altogether. So as we look at different opportunities and see different trends, we’re going to have our standard features and our optional features. And then there may be features that we won’t be able to include because they’re just too costly at this particular time. We also look at the fact that within a marketplace, how important it is to cooperate with the real estate market, with REALTORS and real estate brokers. And of course, you know, we believe that it’s tantamount to the success of a community. So we also try to determine where the REALTORS are, which offices and how best to attract the REALTORS to our neighborhoods so that they will feel comfortable and ready to help purchase a product as soon as possible.

There’s a quick aspect because we do want to have a formal research study based upon the fact that most builders have to borrow money in order to build homes within the community. So they will need the ability to provide a research program study or feasibility study that will explain the breadth and depth of the marketplace, the ability to sell homes on a monthly basis, and how the homes will pick up and sell as the marketing plan accelerates. So that will be one thing. The other thing is that we do a lot of what I would call guerrilla marketing through the research aspect, where we talk to real estate brokers within the community. We find out what’s selling, what buyers are looking for, why they chose certain neighborhoods.

We learn as much as we can about school districts, public, private, parochial, charter schools. We learn about the proximity to medical facilities and transportation corridors, et cetera, et cetera. So by putting the program together, what we’re trying to do with research is eliminate as much risk as we possibly can when we launch the new community for sale. If I’m a builder and I’m looking at beginning a new community, where do I go to get that research? I mean, that’s something that I think that it’s not what I do every day. Well, there are some outstanding national companies that have offices throughout the country, and there’s a lot of local research companies that just do an absolutely fantastic job. And over the years, you’ve had one gentleman, Jerry Costanzo, who’s been an outstanding presenter.

He’s worked coast to coast and border to border, and has just been an outstanding individual with whom to do research. And I think that that’s another point. Not only when you’re working with a research company, it’s more along the lines of working with like a friend or a business associate that you can ride the river with, as we say out west, that somebody that can be trusted and somebody that will work with you and not just tell you what you want to hear. Somebody and a company that will tell you the black and white issues that are in front of you so that you can deal with them positively and productively and make a difference with your plan of action. Okay. Once we’ve got our research done, then we want to prepare that plan and put it into action.

And what are the items in that phase that we need to consider and budget for? Well, I’m glad you asked that question because it’s the elemental aspect of then understanding the marketing mix. We take the research, and from the research we actually begin to really design the product. We sit down with the architects, the landscape architects, the engineers, to determine the best product and services in order to facilitate the program. And, you know, as a speaker today on your radio program, it’s important for me to also determine what type of brands are most important within your neighborhood. For example, how is Whirlpool accepted versus General Electric? How is Philadelphia carpet accepted more so than Mohawk carpet? We want to know the brands that are accepted in the marketplace.

We have a lot of window companies, national window companies like Milgard and Pella and certainly Marvin, who do a marvelous job. And market to market, each one of these companies has a brand identity within the community. So those are going to be important for us as we plan our budget. And we also have an advantage with the fact that many of these companies will also contribute dollars to our marketing campaigns. So it’s not just about the merchandising aspect or the best price. To me, price is important, but I always look at additional ways that I can bring in additional marketing dollars from other manufacturers, vendors, distributors, lenders, et cetera, in order to help bring my costs down when I’m planning my budgets and yet at the same time give us a bigger exposure as a result of incorporating and participating with these other corporations.

Okay. So still quite a bit of research to do as we assemble our product and the elements that go into our product. Good. And then finally, when we’ve got our product ready and we’re going to market, what are the marketing items that we need to budget for? Well, we look at the entire marketing mix. Again, we look at research, design, branding, packaging, production. We also look at the administrative management, marketing, advertising, public relations, website development, promotions, the introduction or presentation of the product to the buyer, the sales process. We look at the delivery and the customer service. They all become part and parcel to creating an outstanding budget. So let’s start talking more specifically about organizing the budget itself. And I think that that’s also very, very important.

But before we jump into the formal organization of the budget, I would also like to share, you can have a good salesperson or you can have a great salesperson. And the best salespeople that you possibly can hire for the job that you’re going to have and those that can help you deliver the product more quickly will also help you reduce the budget. Just getting a mediocre or a good salesperson is not doing service to the company that you represent because the salesperson can help accelerate the sales. And by accelerating the sales process with sales that will close, we can eventually diminish the amount that we would have spent on a longer marketing campaign by having a shorter marketing campaign and also by learning how to become more effective.

The more excellent salespeople that I’ve worked with over the years, a young lady by the name of Dana Craig was absolutely one of the very best. Steve Garrison, another outstanding trooper. And each of these people would be able to help us more cost-effectively understand how to use our budgets. And I’ll just add this one point, and I’ve shared this with the listeners over the years. The real key is not to ask the buyers, the prospective buyers, how they heard about us as soon as they come into our front door. Typically, we’d like to ask that question more so at the end of a presentation. The buyers are more relaxed with us, will give us more information, and therefore they may give us four or five reasons as they actually happen to help us understand how they got to our community, not just drive-by, not just a referral, but a combination of different aspects that we’ll talk about shortly.

Yeah, that’s an interesting point. And I like that. I’m glad you brought that up, that our customers are much more likely to give us information after they’ve built some rapport with us or we’ve built rapport with them. But I wouldn’t have thought to ask that question. How did you find us at that point, too? And it’s very, very meaningful because it helps us understand how best to use the dollars. I think that, you know, with the constraints of time within our program, I would also share that there are two wonderful programs through the National Association of Home Builders that will help our listeners better understand the marketing process. There’s an Institute of Residential Marketing Program through the National Association of Home Builders. It’s IRM 2 and then IRM 3.

Two gets into research, market plans, organizing the budget, and then three is more or less how to work through the direct disciplines of advertising, public relations promotion, website development, etc. And I’d like to take some time to explain exactly some of these points because a lot of times I’ll walk in and I’ll see a marketing budget that has a mini line item and it will just be advertising, public relations promotion, media placement, printing, photography, signage, contingency, and then the monthly totals. Well, a lot of the details are missing. You know, what type of advertising are we doing? Are we doing electronic like radio and television? Are we doing Internet advertising along the lines with Google and Yahoo and Bing? You know, are we also looking at print?

And a very, very interesting point that I need to share with the audience, Inman, which creates a lot of wonderful research and fantastic articles, recently came out with a study that some of the older forms of advertising are being used again in a more direct fashion, such as print media, magazines, and also newspapers. Radio and television are coming back for real estate, signage, direct mail. And a lot of these reasons are that people are so overwhelmed with the amount of emails that they get that they don’t pay attention to all of them. Yet the imprints of having a buyer understand who we are become very, very important within the marketing mix. And it used to be a point where if we had seven or eight recognition points, we could create more recognition directly for our product.

Now it’s up to 23, 24 imprints in order to get a buyer to really start to think about us. So as a result, we have a host of different things. But let’s start looking at line items that we need to really include. We also had spoken a bit about putting some of these points together, but we need to have the appropriate fees in place for production. We need to know how much an ad is going to cost in a brochure and a direct mail piece. And we need to have a minimum of three direct mail pieces within eight weeks in order to deliver to our customers. We need to also look at the electronic aspects of radio and TV and internet advertising, flyers, logos, signage, outdoor advertising, be it billboards, buses, taxi cabs, bus benches, bootlegs.

And it’s also important, when you put telephone numbers on a billboard or a sign, it’s almost like reading ten different numbers today. So if you have a telephone number like 720-270-2200, each number has to be recognized. And it’s almost like a word, and you may pass that sign too quickly. But if you have a website that you’re putting on your sign, and it’s country homes, people are reading the two words countryhomes.com.net, whatever it may be, they can read that much faster going 35, 50, 60, 70 miles an hour. So there’s a host of different items that we have to constantly look at as we prepare that. The media placement itself is becoming very tricky. We have to understand who our audience is and where they’re coming from.

We did a large master plan community, prepared a large plan community, didn’t realize when we put it together that we were literally ten minutes from a major hospital and the docs and a lot of the nurses and technicians needed to live within a 15- to 20-minute radius of the hospital. As a result, we started finding the local medical society as well as the state medical society from which to advertise, in addition to our daily newspapers and our weeklys within the community and our special papers for REALTORS and other professionals that might be buying our products, our new homes. We also found certain programs we had also in the area. We were close to a number of schools and we found that by advertising within educational newspapers, based on the teachers’ unions, that that also gave us a tremendous amount of advertising uplift with regard to getting more traffic, more qualified traffic for what we were trying to accomplish.

Magazines, very important, whether they’re monthly, bi-monthly, annuals, very, very, very helpful. What was helpful for us too with this media placement was that it gave us the ability to get right to the parties that we wanted to visit with. We also started speaking at the trade associations and providing programs and seminars and workshops about related information that these folks needed, and it opened up a door where we started using our promotional capabilities to further promote our products that we had to sell. So the electronic side is very important, radio and TV. A recent study just was published this past week noting that Google has approximately two-thirds of all the people who are searching for real estate go to Google, but surprisingly the ones that Yahoo and Bing are more successful in taking their folks that are looking at their sites more directly into the real estate for sale and for lease opportunities.

You need to advertise on all three, Google, Yahoo and Bing, and make those search engines work for you. You’ve got categories also like printing with regard to stationery and brochures. You still need a print brochure. Never assume that your electronic brochure through your website will be the only facet that works. There will be opportunities when you can drop them off at REALTOR offices or go to trade shows and drop them off, or go to corporations, chambers of commerce, and a host of other areas to integrate those pieces. Direct mail is becoming even more critical as we pointed out. There’s less mail today than there’s ever been in the history of our country over the last 80 to 90 years. As a result, the mail that we do get we pay more attention to.

So those of you who are listening, start thinking more direct mail. Business cards, photography, signage, promotions. There’s a lot of different promotions that we can plan for. Just basically an announcement of the neighborhood that’s going to be built. A pre-opening party, a dusty boots program, a grand opening. Maybe there’s a new model. Maybe there’s a new standard feature, a new product that’s coming to the marketplace, like Uvarix and this product that eliminates bacteria and virus in the air and on surfaces. Each one of these, as soon as we have something that’s new and special that’s helpful. If there’s a product that recently has had a survey prepared or research completed by the National Association of Home Builders Research Center for Housing, those are things that can give you more pull into your neighborhood by marketing those points.

Promotions might be jog-a-thons, walk-a-thons, REALTOR rallies, seminars for consumers. All of these things have to be budgeted appropriately. We might have charities that we’re getting involved with. And, of course, there’s memberships into all the organizations that we spoke about previously, from Chambers of Commerce to Economic Development Councils to Board of REALTORS, Home Builders Associations, and other secondary areas like League of Women Voters. Maybe there’s a really strong soccer association within your trading area that many people look at. So there’s a host of different things. And, of course, we have other expenses that we have to allocate for with regard to sales training, management training, and then we have merchandising consultants that we put together for the merchandising of all of our programs. And I think that as you start to break down the merchandising, there’s a host of different percentages that we can share with you that will add value to putting the budget together.

But the budget itself, the cost of putting the budget itself together is very, very important because marketing in one neighborhood, or rather in one city, is different from marketing in another. For example, what takes place in Atlanta may never take place in Denver. What may take place in Denver, you might have in Colorado Springs, but your costs may be different with regard to print, with regard to electronic. And there are different premises that you should only spend 1% on advertising, public relations, and promotions, and website development. In many markets, you will have to spend more. And you will also have to understand that of the beginning of the budget, your first six months to a year are going to be more costly in a three-year budget than year number two and year number three.

The more the buyers become involved with you and you do obtain buyers, you can also create incentive programs for these buyers to become ambassadors of goodwill and salespeople for you and your company. So as you break down a number of these disciplines, there are some percentages that I’d like to share with you. For example, we like to use for a sales center approximately one-half percent of the total build-out of the marketing budget for this particular area. And this includes the entire decoration, furnishings, even the construction of the site. You may have a temporary, or a trailer rather, or a part of a home. Maybe it’s a two-car garage, three-car garage that you’ve converted into your sales center. And, of course, we need flagpoles and flags, signage, displays that we’ll have.

We need the appropriate music, supplies, phones. Of course, we’ll also have the equipment such as computers and copy machines, phones, et cetera, that are necessary in order to put together the program. You may have an audiovisual program or a series of CDs that will also convey the excellence of the model. The model decoration itself, we typically gear 1% to 2%, again, of the total build-out of the marketing budget, depending upon the model. And that would include the decorator, design fees, wallpaper and build-ins, furniture, alarm system, et cetera. And you can typically get 100% of all of your expenditures back when you go to sell. Many people will consider that a capital expense instead of a marketing expense. So, again, you’d want to pay attention to that point and address that with your specific accountants.

Model landscaping. We look at one-quarter to 1% of the total build-out of the marketing budget for the model landscaping, including the landscape architect fees, the plants, the lawns, the sprinklers, the flowers. And the flowers have to be updated. Everything has to look perfect all the time. And whichever landscaping company that you choose, you need to make sure that they’re going to be there, possibly daily, weekly, at worst, in order to maintain, you know, the aesthetics and make sure that the ground, the land looks absolutely fantastic. So, through that, you’ll also have one-quarter to one-half percent that will be necessary for the maintenance of the sales center, but also the community itself. And you may have additional items that you have to replace, so we include that within the process.

Also, even though the rates are as low as they are, if we can sometimes save some money, you know, and put that into our budget where we can buy a rate down, that may also be beneficial to us. And we’ll look at different programs through the preferred mortgage companies that we’re working with, which we also encourage you to participate with whenever possible. And then throughout the process, we spoke earlier about some sales costs by working with outside REALTORS. The normal co-op commission nationwide for an outside brokerage fee dealing with a real estate brokerage company is 3%. Most builders in this country only pay 3% of the base price. We recommend to pay 3% of the gross price. REALTORS have different products from which they can choose.

So, if they’re going to sell, have a buyer buy a home and spend $400,000 total, and they only spend $325,000, their buyer only spends $325,000 for a new home, why would they take the buyer to a new home when they can show them an existing home at $400,000 and earn that extra 3% on that $75,000 worth of home site premiums and upgrades? So, keep that in mind as you prepare your budgets and prepare to do business with REALTORS. We also have, as we put the cash flow together within the budgets in order to work the appropriate numbers in place, one of the things that we’d like to do is spread out the entire period of time. And we look at three different items when we’re putting together the cash flow.

We look at projected sales on a monthly basis, projected closings on a monthly basis, and projected revenue on a monthly basis. And by aggregating those numbers and figuring out how they’re going to be based upon the past and what you anticipate that the future will be, you can then appropriate the numbers as they come into the scheme of things. So, for example, in an example of delivering 100 homes over two and a half, three years, you know, you will break it down on a monthly basis so that you’ve got an aggregate of a total for the first 12 months, the second 12 months, and so on until you’ve sold out that last home. And as you and I all know, we are not going to sell exactly three homes per month.

Some months we’ll sell two, some months we’ll sell three, some months we’ll sell six. And at the same time, we’ll have projected closings that will vary based upon the sales performance. And also, if we are able to build speculative homes versus just pre-sales, that’s going to make a difference for us to move more quickly through our budgets. The projected revenue will be applied against the projected expense, and that will help us understand how we can best handle the situation. We also like to have a plan of action integrated with the critical path charts so that we can see the total picture of when items are going to be needed for expenditure. So, for example, if I’m preparing my research, and from the research that’s going to take me two months in the initial budget, I may only have that to work with.

But once I find my research and have that completed, then I would go into my logo, my business cards, stationery, signage, et cetera, things that I can prepare right away to start to get integrated into the budget. Another quick point that I would like to share with all of you, so many times the landscaping, which is, again, a capital expense, not a true marketing expense for the entire perimeter of the land and also the common areas. Put that in, install it as soon as you know that you’ve gotten approvals from the jurisdiction with which you’re working in. As soon as you can put your landscaping in, it will add value to the property, and it will also tell your buyers, your prospective buyers, that something is happening.

And that sign right away will tell people that you’re an action-oriented company. And at the same time, by putting in the landscaping, by the time that you’re ready to open up the sales center and begin construction of your first homes, your landscaping will look beautiful. And with each season, as you go through this initial process, you’re going to be adding more value to the land so that when people actually begin moving into their homes, the perimeter and the common areas that you’ll be able to landscape will look absolutely fantastic. Scott, we’ve covered a lot of information in a very short time. I wanted to share many of these points with our listeners today so that they could begin thinking more directly about how to integrate the overall budgeting of their marketing plans and put them into action or tweak them as quickly as possible in order to take advantage of many of the points that we shared today.

Well, there were a lot of points there. And if anybody was trying to take notes, they got overwhelmed about five minutes in. But don’t worry about that. We have all these points in an eight-page article that Robert has prepared for us that you can download directly from the blog. So it’s all right there. Robert, great points. And you’re right. We think about budgeting and we often don’t think about some of the details of our budgeting plan or the research that went into it. We’ve been speaking with S. Robert August with North Star Synergies. And Robert, once again, thanks for being our guest today. It’s a pleasure. Keep up the great work, Scott. And thank you very much, listeners. It’s been a pleasure. And go get them. That was Robert August of North Star Synergies.

You can download the full eight-page article on how to create your marketing budget from the blog, hosting this podcast, or from builderadio.com. Well, that’s our program for this week. For my guest, Robert August. For Don Grandy with Builder Radio Canada. And Jerry Rouleau. I’m Scott Stroud. And thanks for listening to Builder Radio on the Selling More Homes Media Network. The Selling More Homes Media Network.