As individual companies, custom builders generally don’t have a lot of clout with local vendors. Unlike production builders, who benefit from high-volume purchasing, custom builders buy materials and products one house at a time. But combine the volume of a group of custom builders and you have a powerful financial message to take to suppliers.
That’s the mission of Washington, D.C.-based Custom Builders USA (CBUSA). It helps local groups of custom builders in markets around the country to pool their purchasing power in order to enjoy the kind of cost savings suppliers extend to large-volume builders.
The company is already proving the power of banding together. As of November 2005, it had 235 members nationwide who bought $1.1 billion worth of building products that year. That puts CBUSA builders on par with the nation’s 25th largest production builder (as measured by BUILDER magazine’s BUILDER 100 listing). Just as impressive, though, is that CBUSA says its members typically save $5,000 to $6,000 a house on materials purchases.
The company is an outgrowth of a nine-year alliance of Northern Virginia custom builders who used their combined buying volume to negotiate lower costs, rebates, and better service from suppliers and manufacturers. In 2005, 10 custom builders from the Northern Virginia group formed CBUSA to expand upon the experience of the group and take its process to markets throughout the country. “We’re builders building a service for builders,” says custom builder Bill Smithers, who is also the company chairman. “Our objective is to give builders better pricing and more effective delivery of materials than they could get as single businesses.”
The company works with local custom builders to form a limited liability corporation (LLC). Once the corporation is formed, it contracts with CBUSA to manage its relationships with vendors and provide members with “back of the office” services, such as estimating and order building. Only “A list” builders—those who consistently pay invoices on time—are eligible to belong to the LLC because the financial integrity of its members is a major part of the rationale CBUSA uses to persuade local lumberyards, suppliers, and national manufacturers to participate in its program.
CBUSA invites vendors selected by the LLC to bid competitively on members’ projects through the local LLC Web site it sets up. If, for example, a builder wants to bid a framing package for a house, he’ll enter the package on the Web site, and it will be sent to three lumberyards for bids. The builder can then compare and analyze the results online and choose one of the bids—or go elsewhere. (Members of the nnLLC are not required to purchase from participating vendors.)
Each builder has to sign a confidentiality statement promising not to share pricing information, and vendors can’t see competitors’ prices on the Web site. Vendors can update their pricing on the site periodically, for example, monthly or quarterly; but they can’t raise prices during the period, though they can lower them.
CBUSA’s fee to start up a local LLC is $30,000. Half of that amount comes from the local members and the rest comes from half the rebates the LLC realizes during its first quarter of operation. CBUSA and the local LLCs are for-profit organizations whose main revenue comes from rebates the vendors give for on-time payment.
CBUSA also offers a Partners in Quality program that is designed to bring together custom builders and national manufacturers who do not sell direct to builders. A participating manufacturer gains the opportunity to present information about its products during a gathering of local LLC members and receives a guarantee that when its sales rep asks for an appointment, member builders will schedule one.
As of November 2005, CBUSA had formed seven groups nationwide and has plans to roll out 16 more in 2006. Local groups average about 30 members, but some have as few as 17 or as many as 52. CBUSA looks for groups that generate 400 starts a year and at least $20 million in purchases of building products and materials. For more information, contact CBUSA at www.custombuilders-usa.com.
