Project Pro Formas

What Makes Up a Marketing Budget?

In most of the homebuilding pro formas, it seems that the marketing budget for a project tends to be 5 – 6% of total project revenue.  If you dig down into the detail of this marketing budget, you will find it includes many line items that cover all of the marketing and sales functions necessary to successfully sell out a project.

One of the major components is the development of the models and sales office.  Typically, the construction of the model homes is part of the direct construction costs, but only the basic portion of the house construction.  After the homes are built, the model costs include all of the upgrades and furnishings within these model homes.  The sales office is often built within one of the model home garages, and these sales office costs include the construction of the sales offices, site plan models, graphics, and other furnishings.  As well, fencing, upgraded landscaping, and parking lots are often part of the model/sales office complex.

Another key category is all of the collateral materials, such as brochures and handouts, and advertising necessary to promote the project.  In years past, newspaper advertising was a major cost item in the budget.  Today, with all of the digital media, the advertising to get the word out is a more diverse budget category.  Also, there are costs of advertising agencies and consultants necessary to produce all these materials, including the design for the models and sales office.

A last key category is the sales management and escrow expenses.  Each project tends to have two licensed sales agents, which usually means some base salaries, commissions, and payroll burden.  When the homes are sold, costs are paid for escrow management, title insurance, and other escrow costs.

The marketing budget can also have some additional expenses, such as monthly maintenance for the models, equipment rentals, utilities, and temp toilets.

If you have any comments or questions, please feel free to share below.

John Kaye has over 30 years experience within the land development and homebuilding industries, having held senior management positions with The Irvine Company, Koll Real Estate Group, and Brookfield Homes. As a developer, John has overseen the land acquisition, entitlements, and development of master planned communities, residential tracts, urban infill sites, and land assemblages. His experience and skill sets include land acquisition, land brokerage, project management, market analysis, finance, and strategic planning.

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