The Bengaluru-based home solutions provider has taken the offline marketing and the franchise model route, among other measures, to drive better unit economics and profitability.
Technology interfaced home solutions provider HomeLane was co-founded by serial entrepreneur Srikanth Iyer and his four friends Vivek Seetharaman, Rama Harinath K, Prabhu Venkatesh and Srini Battula in 2014 to cash in on the housing boom in the country. It was one of the hottest startups of its time, and explicably so.
The Bengaluru-based startup had the kind of start that most startups would give an arm and a leg for. Within five months of its launch, sales were growing at 100 percent month on month. And investors were making a beeline with their hoards to be a part of that growth.
Investors led by Sequoia Capital pumped $4.5 million into the startup in a Series-A funding barely eight months after it commenced operations. Till date, the startup has raised nearly $15 million in funding.
But four years on, HomeLane has been forced to shift its focus from growth and expansion to unit economics and profitability. They had their epiphany when the large round of funding they were expecting last year did not materialise.
“There’s been many aspects to our growth in the last three years. We had have a lot of downs and a few ups. We did spend a lot of money in marketing and kept growing and growing very fast and were less bothered about the unit economics and profitability or getting towards it,” says Srikanth, who was earlier the CEO of Pearson India.
As funds dried up, it brought the company’s expansion plans to a screeching halt and threw its unit economics out of whack. Giving up, however, was not the next step, says Srikanth, adding that pushing the boundaries towards attaining breakeven and profitability in the next 6-18 months became the need of the hour.
The quest for sustainable growth saw the company effecting structural changes and cost-cutting measures to improve unit economics and bring marketing costs down.
To begin with, the company moved to cut its dependence on digital marketing and opted for a combination of online and offline marketing. The move paid off. Offline marketing resulted in a 20 percent spike in RoI during the one-year period from April 2016 to April 2017, according to Srikanth.
Next up on their radar was marketing spend, which was as high as 20 percent of the value of a single order. This was largely responsible for the wafer thin profit margin the company had come to live with. With an average order size of Rs seven lakh, at 20 percent the company was spending Rs 1.4 lakh on marketing alone.
With such a high customer acquisition cost, the company, after accounting for the cost of products like wardrobes, kitchen, etc. and payments to designers, manufacturers and installers, was left with very little for itself. The result was faulty unit economics -- the ratio of the direct revenues to the costs associated with any product on a per-unit basis. Says Srikanth,
The first thing I did was slash the marketing budget. We were spending an upward of Rs 1 crore a month on marketing, and I slashed it to Rs 35 lakh, that is, by 65 percent. And we challenged ourselves to get the same amount of leads in Rs 35 lakh which we used to get by spending Rs 1 crore.
Offline marketing, which entailed meeting builders and partnering with them, gave HomeLane access to a huge customer database. The company entered into partnerships with builders by offering 4-5 per cent of the total revenue. All that the builders needed to do was send an email to their customers saying that HomeLane will contact them. This strategy has reduced the customer acquisition cost drastically, says Srikanth.
HomeLane has also partnered with factories in Bengaluru, Hyderabad, Chennai and Mumbai. Unlike earlier when factories negotiated with manufacturers for the laminate, plywood and the glue to stick them together, HomeLane now negotiates directly with the manufacturers.
For example, Greenply, one of the largest ply manufacturers in the country, has agreed to sell bulk products at huge discount to HomeLane. Dealing directly with the manufacturers has helped improve margin by five per cent, according to Srikanth.
The next plan was to bring down the installation cost for the company. Earlier, HomeLane employed its own own blue-collar workforce across the four cities for installing kitchens and wardrobes in client homes. This has now been replaced with the franchise model, wherein the local partners or the franchisees do the installations, bringing down the installation cost from 14 percent to 9 percent.
“We do installations for two homes a day which means every day I’m earning Rs 2.80 lakh to Rs 3 lakh per day, which is Rs one crore a month,” says Srikanth.
HomeLane currently has three franchise partners in Bengaluru and one each in Chennai, Hyderabad and Mumbai.
Focus on the customer
In May this year, HomeLane launched SpaceCraft, which they claim is the world’s first virtual design platform that allows homeowners and designers to collaborate on design ideas and visualise a furnished home in 3D in real-time. This reduces the time needed to arrive at design decisions and crashes the time taken to complete a home project by 30 days.
A survey of HomeLane’s designers (after the launch of SpaceCraft) showed that they are now able to work five times faster. With SpaceCraft, designers are now able to close the same number of orders in seven days which earlier took 30 to 45 days. The product further comes with an integrated pricing engine which allows the customer to see the cost implications of every design change instantly.
The comprehensive design platform covers several home design decisions; including fixed furniture, loose furniture, paints, wallpapers and false ceilings. Customers and designers can together customise and visualise every part of a new home design efficiently and conveniently.
SpaceCraft works on a browser wherein both the homeowner and the designer can log-in simultaneously and discuss and iterate on designs real-time through a video or voice-led conference integrated in the platform.
“We have closed more than Rs 1 crore worth of orders using SpaceCraft,” says Srikanth.
He informs that SpaceCraft has been designed by the team of Doowup, which HomeLane acquired in 2015. Doowup is a tech startup whose ‘Shop-the-look’ platform enables consumers to browse through and customise a host of curated designer looks of their own homes.
A positive outlook
HomeLane currently has 300 designers across the four cities it’s present in. The criteria for onboarding designers is that they should be qualified architects or qualified interior designers and should have three to four years of minimum experience in residential projects. These designers get a revenue share of 5-6 percent. The ticket size per house ranges from Rs 4 lakh to Rs 20-25 lakh.
HomeLane has partnered with brands like Urban Ladder for furniture, Asian Paints for painting solutions, Greenteriors for Wallpapers and Grypoc for false ceilings, with the result that the customers get a holistic service under one roof.
“We take a rating from every single customer on every single design. We take the Net Promoter Score (NPS) rating very strictly,” says Srikanth.
HomeLane currently has 170 employees across four cities and so far delivered more than 1,500 projects in the last three years. In the next one year, it expects to get 70-80 projects a month.
The company’s revenue in FY15-16 stood at Rs 30 crore while it was Rs 36 crore in FY16-17. According to Srikanth, HomeLane has been operationally profitable in the last four to five months, and is looking to break even over the next six months.