182. Market Insights With Grant Farnsworth

Welcome to another episode of Professional Builder Secrets. We recorded this one live at the International Builder show in Las Vegas, but the content is still highly relevant for builders. Today I talked to Grant Farnsworth from the Farnsworth Group and we dive into how you can leverage customer behavior data to stay ahead of your competition. Grant reveals some really interesting insights around what today's home buyers expect to receive from builders in terms of communication and the outcomes from their builds. And we also dive into the biggest pros and cons homeowners experience when working with a builder. So there's some phenomenal insights in there that you can help manage the client experience.

I hope you enjoy the episode.

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One of the things top of mind for homeowners, whether they bring it to your attention or not as a builder, as a remodeler, is budget. Homeowners may have the discretionary income to spend against something, but they're not going to spend it against everything. So the idea that they're making a decision on do I go on vacation, do I do that larger model? They are thinking about budget. So we need to be super sensitive to that. If they're not mentioning it, you should bring it up yourself. How are you as a builder providing solutions and offerings and a breadth of offering to help meet them where they're at as important. Along with that, how are you bringing them confidence in their decisions?

Here we go. Professional Builder Secrets live at ibs.

Just like that. Just like that.

Just like that.

Right? We're going great.

Nowhere else to go. I'm here with Grant Farnsworth. Grant from the Farnsworth Group.

That's it.

Welcome to the show.

Thanks. I'm happy to be here. Will excited to talk to you today and hopefully learn something from you as well.

Yeah, absolutely. I'm really excited to talk to you because it's going to be a lot about data. But before we dive into what we're talking about today, can you just give a quick overview of who you are, what your company?

So name is Grant Farnsworth with the Farnsworth Group. I'm President of the Farnsworth Group. Our job is to help a lot of these companies around here, a lot of these manufacturers in the building product space make better strategical decisions. Better products serve their customer better. We do that through custom research solutions. So we conduct qualitative quantitative research surveys amongst the builder community, amongst homeowners. Again just to help our clients make better strategic decisions that hopefully improve the lives of builders and modelers everywhere.

Okay. Yeah. So you're very much data driven company.

Very much data driven custom research, really getting in the weeds of certain topics. We focus only on the building products home improvement space and we've been studying it for 36 years now. So a little bit of a background.

So do you work directly with the building company themselves and then like do the research within their company or is it more like a. Yeah, like across the board.

We work with like primarily manufacturers but also suppliers. So. So you know, a manufacturer may be developing new product. They want to understand how a builder remodeler may respond to it. Manufacturer, supplier wants to understand how are folks making decisions. What are the pain points for a lot of contractors out there that they need to be thinking about. So we help them uncover a lot of those customer needs, customer wants, customer behaviors, whether it's the pro, whether it's the homeowner.

So what's the overall customer sample sentiment that you're seeing in the market at the moment?

Yeah, I think, you know, for the existing home contractors as we think about the remodeler, very positive. We're seeing, you know, strong backlogs remain for those working on existing homes as you're. And optimistic about this year as well. Many, many saying, you know, we track on a quarterly basis, you know, surveying hundreds of existing home contractors and many are saying that are anticipating revenue growth for 2025 in the range, you know, those that are expecting growth in the range of, you know, 10%. So very positive, very optimistic about this year. I think on the homebuilder side, as you look at NHBS index, it's tied very, very closely with mortgage rates. And the higher the mortgage rates are, the longer they, they stay high. I think a little bit pessimism creeps into the homebuilder audience. So more optimistic on the existing home contractor side, less so on the homebuilder side.

Yeah, it's interesting with our research, the state of residential construction industry report almost every year builders think they're going to earn more the year following. So like always an optimistic, it's good to be optimistic but I guess is that how it will play out, I don't know.

Yeah. So for us, we look at the deltas between, like, those that are optimistic, those that are pessimistic. And right now we're really not hearing much pessimism now. We came out with our Q4 index just last month, and so things are changing pretty rapidly. The unknowns are increasing kind of week over week. So we may see a downtick in some of that optimism again. It's something we're tracking very, very carefully here in the US because of so much uncertainty that we've got to deal with. And that's trickling down really in the consumer sentiment as well. So there's not only the sentiment, but it's the homeowner. Are homeowners feeling comfortable with the spend right now? We know they want to do work on their homes. We manage a nonprofit called the Home Improvement Research Institute, and we track on a quarterly basis, do you want to do something to your home over the next 90 days? And we've got overwhelming response over the majority saying, yeah, I want to do something. But that idea of uncertainty and deferral on, on, on kicking that decision down the road, not activating against that project, seems to still be the case. And we're waiting for that moment. It's a matter of when, not if. We're waiting for that moment where that consumer confidence just gets a little bit more positive and starts hiring those contractors, hiring those builders to do some of those larger projects.

Do you think that solely comes back to the mortgage rates like you mentioned before?

I don't think it's solely the mortgage rates. So as we look at our consumer work and qualitative and quantitative work we're doing amongst DIYers, it's the lending rates. Right. So larger projects are typically going to draw on that home equity. We've got a lot of home equity in this country, so that's the positive side. But the fed funds rates is still high, so it's a little bit of an inhibitor. It's expensive money to borrow. That's not the only thing. There is just a general sense of an unknown about what's, what's happening. Are prices going to go up? Are they not? Is it better off to wait for another 12 months to do this project? Am I better off to do it now? So I don't know. That's just rate specific. It's the collective of unknowns and this geopolitical kind of uncertainty that as long as that uncertainty hangs over the consumer, it's just going to cause delays in spending.

So what's going to improve that, do you think?

What's going to improve it? I mean, if I, if I, if I knew, I'd probably be sitting on an island somewhere. What's going to improve it? Yeah, I think just having a decision one way or the other. If you, if you look at the election, at least here in the US that was one one of these big geopolitical events that we were saying, hey, great, once we can get past this, we can start moving forward and increasing our optimism and consumer confidence. We saw that actually happen. So a decision was made. Whether you like decision or not, it almost doesn't matter. It's at least a decision made and you can now move on with your life. So we were seeing consumer confidence creep up prior to really this month election was done, A big decision's gone. Now we've got new things are creating more uncertainty and we just saw a drop in consumer confidence through the conference board. That's the biggest one month drop we've seen in five years. Right. So again, anything that introduces uncertainty in the consumer mindset about spending and is it a good time to spend or you know, do I need to be holding on to my cash? Yeah, Uncertainty in our world is, oh, it's just not a fun word.

Especially I mean when you're building a new home or doing a large remodeling project as well. I mean, that's one of the biggest investments you potentially make in your life. Right.

But, but look, the, you know, the undercurrents are really strong. Right. I'm curious, you know, what you guys are seeing from your perspective. But the fundamentals would support. There's a lot of opportunity, a lot of upside and probably five, seven years of it once it activates for the existing home space. Those larger projects, we have that high home equity, we have very low inventories, which is keeping home values high, keeping that equity high. Yeah, it's also keeping people put in place, you know, high mortgage rates with low inventory to move. People are staying put in their homes. They're going to be looking for those larger projects to do. They're living differently, they're thinking about their home differently. So yeah, maybe I'll take out $300,000 and pop the top, push out the back, do a new kitchen, whatever it is. So we see that opportunity there, we see the demand there, we see the demand growing again. This level of uncertainty though, just causes homeowners to make some discrete decisions about their spending. And that's impacting the builder, that's impacting the remodeler.

So I think you touched on this when we caught up a couple of weeks ago in preparation for this interview. It sounds like you've got some insights into what the consumer's thinking about when they're in a conversation with a builder.

Yeah.

And I think this is going to be really valuable information. What are the pros, what are the cons that they're looking at? And often probably unspoken and the builder's got to assume what they're doing.

One of the things top of mind for homeowners, whether they bring it to your attention or not as a builder, as a remodeler, is budget. And again, I think this goes back to, you know, homeowners may have the discretionary income to spend against something, but they're not going to spend it against everything. So the idea that they're making a decision on do I go on vacation, Do I do that larger model? They are thinking about budget. So we need to be super sensitive to that. If they're not mentioning it, you should bring it up yourself.

Yeah.

How are you as a builder providing solutions and offerings and a breadth of offering to help meet them where they're at, but more importantly, well, as important along with that, how are you bringing them confidence in their decision? So we talk about getting homeowners kind of across that finish line, signing, you know, signing that contract and conversations we're having with pros. They're burning a lot of calories. Just, you know, we've been, we've been talking for months and we, I've got any of the plans and just, just sign the darn thing.

Yeah.

Sometimes it's just coming down to they need to feel a sense of confidence that this check that they're going to write, which is a big check, is the right decision to make. So address that budget thing right out of the gate. It seems to be the top thing. As we research for homeowner decisions. It doesn't mean you have to be the cheapest thing in the world, but you've got to be able to meet them where they're at. You've got to have different options for.

Them or at least understand that without getting too far down the sales process.

Understand it. And we see. So we've got some, some research that we've done that it's. If you look at that, that journey, that path to purchase of the homeowner, more often than not, it's happening in one of the first two interactions with a pro. Typically, if they're not bringing up in one of those first two interactions they're having with you, we'd highly suggest you bring it up with them. Oh, and by the way, we know budget may be a concern of yours. Here's how we address it. We have different product lines, we have different brands we work with. How, again, are you helping them make a very confident, comfortable decision, knowing that they're probably wrestling with it, the elephant in the room?

I guess it is.

It is. It absolutely is. I mean, it shouldn't be because it's. I mean, it's present everywhere. You know, we've been talking about it as consumers now for the past, however long. We are still in a budget mode. But again, it doesn't mean consumers are looking for the cheapest thing in the world. Value proposition is very, very important. They're willing to trade up so long as you, as the builder or modeler can tell them, yeah, for that extra 15%, you're actually going to get this, that and the other, which aligns perfectly with your needs. If you can sell them through on that value proposition, you stand a better chance of winning.

Yeah, and we are seeing that a lot as well. Like just more recently, especially the last 12 to 18 months, deals are getting so far along and then falling over at the last hurdle, and it's sometimes to do with financing, but I guess it all does come back to whether or not they have the budget that can satisfy the home they want you to build.

It's that budget, but it's also that confidence and comfort with it. Right, so. So how are you translating the project into how it's going to make their life better, more comfortable? What. What were their goals when they started talking to you in the first place? And are you bringing them that same sense of confidence that, yes, we're going to give you this. Like, I know it's going to be a couple of months, but trust us, when it's done, here's what it's going to look like, here's what your home's going to feel like. Here's what you're going to be able to do in your kitchen. So making them feel that that check is the right one to be riding instead of going on the vacation over to Greece for a week. You know what I mean?

Well, I was going to say the holiday thing. I mean, if they end up going on that vacation, then you haven't done your job well enough to convince them that the remodel or the new home was the way to get spend their money.

They're making choices, man. They've Got some money to spend, but they're just not comfortable yet spending it on everything. And we saw in some of our research that we're doing as well with the Home Improvement Research Institute. We ask on a quarterly basis amongst thousands of homeowners, where do you plan to spend more money this year than last? And there's a list of like 15 things. Right. First one is groceries. Right. Things are getting higher prices. I'm anticipating paying more for groceries. I've got to get food, I've got to eat, I've got to live. Number two on that list, ahead of everything else is the home. It's ahead of hobbies, it's ahead of entertainment, it's ahead of travel. So, again, we see a lot of undercurrents that we feel very optimistic about this market. The intent that homeowners have, suggesting that maybe they've. They've gone through some of that revenge spend and taking those cool trips. They've done the Taylor Swift concert, and now they're returning to putting money back in their home. They just need to feel really comfortable doing it. And it's our job in the builder community and the remodeler community to help bring them that comfort, to help bring them that confidence.

Okay, interesting. So what are some other insights you've taken from all that research you've done into the way consumers and builders interact and the decisions they make?

Communication continues to be an important one. I'm sure you guys have seen this over the years, right? As you're, as you're coaching up.

It's a constant challenge in the building industry. Communication or lack of communication.

How. I'm curious how you're seeing some of the pros solve for that communication disconnect that oftentimes exists between the homeowner and the builder.

Well, I mean, it comes back to technology, I think, and systems as well within the business. So, I mean, I'm not an expert on how it all plays out, but I mean, if they have a good project management software of some sort in place where they can provide visibility to the clients and keep them aware at regular intervals during the project, we find that that creates a better experience for the consumer. I guess, in that situation. Is that something that you've seen?

Yeah, and it's. And it's really not only utilizing technology, but providing a range of ways they can communicate as well.

Yes.

So as we think about the research that we collect and look at it by age group, by income group, everyone's kind of got their own cadence and preferred methods of communication. But it also changes depending on where they are in that, in that journey. Are they early stage gate and they want a little bit more hand holding and they want to meet face to face? Are they mid project? They just want some text updates on what's happening every single week. So I think as builders, we need to be super savvy from the technology side because we're going to have different modes of communication throughout that journey that we have to be hitting on. The challenge for builders, the challenge for manufacturers as well, is you've got to be kind of all places at all time when the consumer wants it, how the consumer wants it. Again, it may be in person, it may be over phone, it may be text and maybe email, but you need to make sure you got your system set up so that they're able to communicate with you in a way that, that accommodates them. And you've got to be super responsive. And that's a message for manufacturers as well. Talking to the builder community and remodeler community, you've got to be super responsive to your pro. You've got to communicate, you've got to be transparent with how much is this going to cost, what is the price increase going to be? How available is it? It didn't show up, it's broken. Solve my needs. The pro, I mean, it just kind of trickles down. Manufacturer has to do that for pro. Pro has to do that for the homeowner.

Yeah, Talking to some other partners that are software providers that have integrated with platforms like Home Depot to try and pull in materials and products and stuff so builders can have a seamless experience. They're saying the core problem they're trying to fix is what you're talking about manufacturers not replying quickly enough. And therefore it's just a slow experience for not only the builder, but the consumer as well.

And this was exaggerated, right? Really, in the height of the pandemic, when available, I mean, product was just so darn scarce. Builders or modelers, all pros, just were struggling to find anything. Some of their suppliers weren't even open because they weren't deemed essential. So, I mean, this really got, you know, catapulted into, you know, priority a few years ago. And that importance of communicating very regularly but also very transparently for manufacturers is critical. I mean, we see it in our research that the number one thing that pros are reaching out to for the manufacturers is warranty information, pro pricing information, availability information. There's a top three things and a lot of it comes around to solve fix like take care of any of my problems. A lot of these pros that are walking around, a lot of the pros that we talk to, they're busy. They don't have enough labor and the in the right workforce to get the jobs done that they have. So anywhere they can gain efficiencies, this is a win. Manufacturers can help with that, suppliers can help with that. And a lot of times when we see, you know, BuildXact and these other systems, it's helping them gain these efficiencies. They need to stay on task. It's really, really important. Manufacturers engage regularly and in any sort of mode that the, that the builder that the remodeler wants.

I think you touched on it as well. And that communication aspect across multiple channels makes a lot of sense because some consumers might prefer text message or they might prefer it getting phoned or they might prefer an email. And I guess you gotta, you gotta provide it for every different type of person.

Yeah. And different, different stage in the process.

Maybe you should ask them which one, what they actually are.

This is also a thing too. We haven't even talked about this. You know, how good are are we as builders and modelers at profiling our audience?

Yeah.

And making sure that we're understanding, you know, who they are, where they're at in their journey, their expectations. Right. So again, identifying that up front is only going to help everybody, but. Absolutely. We can look at preferences across age groups, demographics, income, whatever it may be. And we do see at certain times they prefer they, even the younger generations, I think, I think there's a stigma that, you know, millennials, you know, they don't want to talk to anybody. They're averse to human interaction. That's not the case. We've got research and data that shows. No, depending on where they are in that cycle, we've actually got a large percent of millennials and younger homeowners and home buyers that want to have a face to face conversation, that want to have a phone conversation. Not always. They just may need an update. So again, it goes back to this thing of you as a builder, as a remodeler, you've got to be technically savvy because that's what the homeowner expects. Meet them where they're at, when they're at and how they want it.

That's really interesting because yeah, you might assume that certain generations automatically prefer a certain style of communication. But what you're saying is that's not the case.

Well, they may bend that way.

Yeah.

But the idea, and I'm blanking on the stats, but we ask our homeowners, in our annual study that we do for our, our building products customer workshop, we're asking homeowners, how do you prefer to communicate with a manufacturer, with a contractor? And we are always surprised to see that younger generation. There's a good chunk that are saying, yeah, like I'd love to have a phone call when I need a phone call. I'd love to have a face to face visit when it's an important decision that needs to be made. So don't assume that just because they're 32 years old that they're averse to hopping on the phone with you. I think those assumptions are going to get you in trouble. But you've got to be in all places kind of at all times and you have to be super responsive. That communication piece, for anyone that's been in this industry for more than 10 years, you know, is not a new problem we've got to continue to solve for. And I think you're right. I think technology is a great way to help us do that.

Yeah, I mean, if you use it in the right way, of course.

Yeah, sure, yeah.

I mean, you got to use it too. I was chatting to someone else earlier who say, who was saying, like a lot of new customers will sign up for their software and then not use it for six months. Paying for it the whole time.

Yeah. And you got to wonder why, like ask them, you know, talk. I mean this goes back to what you said, like, yeah, maybe you should ask. Maybe you should ask, you know, stop. That new homeowner would be homeowner, homebuyer, ask, listen, talk to them. Now I'm a little bit biased. We're researchers so we geek out on asking questions. But my gosh, just stop and listen to your customer for a minute. You may uncover some things that are going to be real useful throughout the process.

All right, so budget communication, they're the two big ones.

Budget communication. And with the communication piece, I would say that transparency piece. Right. So a lot of this is so experiential for the home buyer, the homeowner help paint that picture of what the project is going to look like, good and bad. So that level of transparency, we. Anyone that's been through a model, anyone that's built a house, I've done both multiple times. It's not always a pretty process. It's just not. And it's. And it's not going to be. Things come up. So don't paint a false picture to the homeowner. That this is going to be a rosy, fun experience. Tell them what the downsides are going to be. Tell them when the downsides are going to come. Tell them how you're going to work through those downsides with them. So I think there's a lot that goes into this communication bucket. The transparency piece is a big one. This is a huge journey that some homeowners may only do once or twice in their life. Treat it with that, that respect and that level of severity and I think you'll find a greater success for both the builder and the homeowner.

Yeah, no one likes surprises.

No one likes surprises. Just own it. I think that's it. I mean, just own this stuff. Bring it to their attention. Their homeowners still look to this community as the expert. As much work as homeowners are doing online and they are researching to look at product and designs and technologies, they are still looking to the pro in most categories to be the ultimate decision maker and be the ultimate guide. We really have to be. But that means we've got to listen, we've got to be transparent, we've got to walk with them every step of the way.

Yeah. I mean the builder needs to be the expert. They need to be the one that if asked, they have an answer to what your recommendation is for this material or that, what windows you're going to put in the house or whatever it is, you need to be the one that's delivering that expertise a hundred percent.

And the more that product is kind of behind wall, more commodity oriented, less aesthetic oriented, those products, the homeowner's relying on the, on the builder, on the remodeler, even more, the finished goods, plumbing, lighting, some of those things, the homeowner may want to have a little bit more of a say so, but when it comes to a roofing shingle, when it comes to insulation, yeah. The homeowner really doesn't know and doesn't care too much about what's going on behind the wall. That's again more even more important if.

They'Re building high performance homes or something like that.

Absolutely, absolutely. But more often than not we just see again in the research and where we see more homeowner engagement are typically those more front of wall esthetic oriented categories. Right. It's not that they don't care, you're right about the insulation, but be mindful as a builder that they're going to rely on you even more for those things that they just wiring, they may not know, underlayment on the roof, they just May not know. So again, it's a huge trusted resource that we for those homeowners.

So it sounds like you at Farnsworth Groove have years and years of great data, and there's other data out there you can access about consumers and how they interact with builders and things like that. What can builders do to utilize this kind of data better to improve their sales process, improve their experience with customers?

You know, I think you brought up technology earlier. I think we're hearing some of that from the pros that we talk with as well. So as you think about sales agents and AI just being a tool to help be efficient, to help folks get further down the sales funnel, to help better qualify leads. So I think technology solution, but I also think just identifying and targeting and profiling those leads that are coming in. Right. How are you collecting more than just a first name and an email? Right. You know, how are you understanding where they are in their journey, what demographics they fall into? Because we know the older they are, the higher the income, the more likely they are to spend on their home. Right. So are you making sure that you're profiling correctly to have a better adjustment through your sales process, different talk tracks, where do they fit in that cycle for your team? So I think a combination of technology, but a combination too, of, I mean, just collect that data, make sure you're asking those questions and you've got a repository that you can reference. Over time, you'll start finding some trends in the data, the same as we do for our clients at the Farnsworth Group. You'll be able to mine data if you start collecting it now, plant that tree in a few years, start looking at that data so you can find where you win, where you lose. I think that's a big missed opportunity for a lot of builders and modelers just getting analytical, treating it as a business.

That's a great point. We talk a lot about. We encourage builders to invest in marketing. 3% of their revenue, we've found is the sweet spot for what they should be investing in marketing to generate paid leads rather than relying on referrals, word of mouth, this kind of stuff. And a benefit that I not really articulated before, but what you've kind of just hinted at then is that through all of that additional lead flow that you're getting through your CRM and all the data you're collecting about those people, you're actually providing, gaining new insights about who your ideal customer is.

Absolutely. Just think if, I mean, again, just you do that for a few years, you've got a pretty nice data set, right? I mean you guys are captured. You just released your, your report that we're looking at here on the table. What, this month? Yeah. The bigger that data set, like, I mean it just becomes so rich, doesn't it?

It gets bigger every year. 2240 builders participated this year.

And so think about what you can mine and learn as you. The more and more builder responses you have is it's the same for a builder. The more and more leads that come in and data you're capturing gets those leads. You can start identifying some trends.

Yeah, we're looking at things like from 2021. We've done it for five years now across five years. And it's amazing to see some things up and down kind of shit don't shift significantly. But there's some where you're like, wow. Like for example, the use of spreadsheets has just like started to plummet for project management, estimating all these kind of things, which is great to see as well it should. But it's amazing that it was only five years ago where spreadsheets was the dominant. Isn't that wild use for like things like estimating and stuff where you require so much accuracy?

So hey, at least we're moving away from napkins. This is a great thing, right? Just writing, you know here.

That was the old spreadsheet.

It still happens, man. It still happens. I'm super curious, I got to ask. So what was like some of your biggest like takeaways for you from this year's report release?

I mean, I'm a marketing geek, so there was a lot of data we collected. We correlated a lot of data together as well this year, more so than we've done in the past. A consistent theme throughout was builders. I guess it's not even just marketing related. Builders with documented processes and systems in their companies were more profitable. So we compared it with gross markup, gross margin, net profit, things like sales processes in place in their building company sales scripts, investing in marketing and advertising, investing in training, reading books. Like all these kind of things correlated to high net profit across the board, which I found fascinating.

But not surprising though, right?

No, I mean on paper it just makes sense, but it's nice to reinforce it through the day.

Absolutely. I think those are. I'm excited to dig into it. I think you guys are doing some great work.

Well, Grant, thanks so much for coming on Professional Secrets today. This is a blast for anyone listening at home. Farnsworth Group.com the FarnsworthGroup.com we got to.

Get the whole thing in there. So the farmsworthgroup.com we've got some the majority of our work is all proprietary to our clients. There are some resources on that website so you go to the farmswup.com you can download some of the work that we're doing that is available to the public and always happy to have these conversations. It's fun.

And the other organization you mentioned as well that you're a part of?

Oh yeah. So it's a great it's a nonprofit that serves the home improvement spaces. It's made up of primarily manufacturers and suppliers in the home improvement industry. That's the Home Improvement Research Institute. You can go to h I r I.org the best source of secondary home improvement data that's out there. So encourage you all to to join that organization as well. But always reach out to anyone at the Farnsworth Group if you have questions. Happy to help.

Perfect. Well, Grant, thanks for coming on.

This is great, Will. Thanks, man.