In today’s competitive real estate market, new home builders constantly seek innovative ways to differentiate themselves and provide exceptional experiences for buyers. One such solution that has gained significant traction is the virtual design center. But is it worth the investment? In this blog post, we will explore the ROI potential of the virtual design center for new home builders and examine real-world numbers that showcase its value.
Cost Savings and Efficiency
In addition to improving the home shopping experience for buyers, virtual design centers help builders save significant costs by reducing or eliminating the need for physical showrooms. For instance, our clients spend from $500,000 to $3 million on a traditional design center for initial setup, inventory, staffing, and maintenance. Immediate savings can be achieved by eliminating or reducing the physical size of the design center and the required staff. And if you are a spec home builder, you can also use virtual design centers to reduce the need to build expensive show homes. This, in turn, leads to savings on carrying costs, including interest, taxes, and maintenance.
Here are some additional cost savings that are easily achievable and we will explore in more detail in future articles:
- Reduce pricing errors by using extended pricing;
- Eliminate dependency errors, like forgetting to sell a gas line when someone purchases a gas stove;
- Reduce construction errors by posting rendered visuals in the home. One of our clients shared an example where an installer stopped themselves from installing carpet though the house when they saw hardwood and tile flooring on the images. These visuals have helped stop many installation errors regardless of any language challenges.
Related reading: How a Digital Design Center Can Help Builders Sell Spec Homes in a Slow Market
What if you’re looking to use a virtual design center to enhance your physical showrooms? What financial advantages are there for you?
Upselling Opportunities
Virtual design centers enable buyers to visually explore a wide range of finishes and upgrades, ultimately increasing the likelihood of upselling. By showcasing premium options and providing realistic visualizations, builders can entice buyers to invest in higher-end finishes, driving revenue growth.
Before we look at the examples, let’s talk about a key concept. The global catalog is a collection of visualization assets that can be used in different projects. If you only use the global catalog for one project, it may not be cost-effective. You can achieve a significantly higher ROI by spreading out your costs across multiple projects. After all, it wouldn’t make sense to construct a $3 million design center for just one project. The cost of setting up a global catalog can vary from $50 to $100 per unit/lot. The final cost depends on factors such as the product options available and the creation of 3D scenes for visualizing the products in different rooms.
Related reading: 10 Best Practices on Implementing a Successful Digital Design Center
To analyze the breakeven point and ROI of using a virtual design center to boost upgrade sales, let’s say the project’s setup and software license cost is $68,000, and there are 300 lots/units involved. If the builder predicts a $10,000 revenue increase per lot/unit for the project due to the virtual design center, the total net revenue increase will be $900,000.
It’s important to note that while these numbers may be realistic for certain builders, they may not necessarily apply to your specific situation. The project size and the level of visualization will affect the virtual design center’s cost, thereby influencing the overall ROI.
Example 1: Investment Amortization Over 5 Year
First, let’s explore the impact of amortizing the investment over a longer period, such as 5 years.
With an average cost per unit/lot of $280.78, and a 30% markup, the breakeven is $935.94 per Unit/lot. Now, imagine offering your buyers the opportunity to visualize their options at their own pace from their convenience of their home. In this scenario, do you think it’s reasonable to aim for an additional $936 in sales? And if you believe you can, how much do you think you can upsell?
Our clients have experienced a significant increase in upgrade sales, ranging from 200% to 300%, compared to similar projects. When considering a $10,000 increase in upgrades, the ROI is an impressive 968%.
Allowing your buyers to see real-time pricing and mortgage impact can also help your buyers purchase more. For example, if they opt for $12,514.75 worth of upgrades, it would result in an additional $57.64 per month added to their mortgage payment.
Example 2: Investment Amortization Over 1 Year
With the project cost per unit/lot at $869.81 and a 30% markup, the builder would need to sell an average of $2,899.38 per unit/lot in finishes upgrades to reach the breakeven point, which is considerably more than the amount required to amortize the investment within a five-year period.
Relying on a solution to generate nearly $870,000 in upgrade revenue within the first year for just one project may seem somewhat risky. That’s why we always advise our clients to embrace a long-term vision when implementing a virtual design center.
Related reading: 10 Best Practices on Implementing a Successful Digital Design Center
Data-Driven Insights
Virtual design centers provide builders with valuable data and insights regarding buyer preferences and trends. By utilizing AI, virtual design centers can analyze the vast amount of collected data and generate valuable insights. These insights can inform strategic decision-making, inventory management, and future product development, ultimately optimizing operations and maximizing profitability related to finish upgrades.
Related reading: 6 Ways AI Can Transform Builders’ Digital Design Center
The virtual design center is indeed worth the investment for new home builders. It offers tangible benefits such as cost savings, upselling opportunities, and valuable data-driven insights. Embracing the virtual design center can position builders for success in a competitive market and pave the way for long-term growth and profitability.
To determine the cost of the virtual design center and ROI for your company, please contact our sales team.
Interested in learning more about how a digital design center could work for you? Check out our product page: Virtual Design Centre.
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