In Defense of Margins

In my travels I frequently hear salespeople suggest that if their homes were priced “more competitively” they would sell at a much faster pace. No doubt that is true, just as it would be for cars, jewelry, insurance, or any other product. It’s the price curve in action.

Oh, that it were so easy. Alas, the simple solution comes at a heavy cost: profit margin. Every dollar that comes off a price is a dollar removed from the bottom line. A salesperson might say, “If they lowered my price by just $5,000 I could sell these homes all day long.” Again, that might be true – but at what cost? If your company’s business plan is to deliver 300 homes this year, a $5,000 price drop on each of those homes will cost the company $1.5 million dollars of direct profit!

I know I might alienate some salespeople with this statement, but it is not your job to set prices! There are business considerations that are broad, deep, and not always apparent. The builder sets the price, and that’s just the reality of it.

This is not to suggest that the salesperson should have no voice on this issue; quite the contrary. If the salesperson can empirically prove that the homes are overpriced, he/she has an obligation to make that case. That said, once the case is made the decision to adjust belongs to the builder alone.

Salespeople, advise your builder on the correct price point. Then let it go. Prove that you are doing your job as well as it can be done, and that you are taking every prospect as far as they will go. When you do that, the builder will have no choice but to correct any price discrepancy. Focus on that which you can control – it will save you a great deal of mental anguish!