Builders: How to Add $100k+/Year to Your Bottom Line in One Easy Step
Do you apply a similar mark up to all your jobs? If you do, you’re probably leaving money on the table and missing profits of at least $100k every year. Here’s what to do….
Talking to a builder recently he mentioned that ProCalc’s pricing seemed spot on for larger projects but ‘over-priced’ for smaller jobs.
Intrigued, I asked him about his approach to pricing and discovered that he applied his ‘standard’ 15% to every project – no matter its value, duration, location, etc.
This revealed he could have easily been making better returns – particularly given he was booked solid for the next two years.
For comparison, experienced builders we’ve interviewed take into account some key factors before determining their margin, including:
- Job Size
While most builders apply a standard margin to larger projects (say $1.5M+), typically they almost double that margin for smaller projects (say $300k). This makes sense because the set-up cost for each project is often the same no matter the size of the project.
Also, whether it’s a structural renovation, new extension or a new build, you still need to brief the same trades, engage with most of the same consultants and deal with the usual issues that arise on site.
For that reason, experienced builders apply greater margin for smaller projects to cover their time and ensure they obtain good returns for a project that may stop them taking on larger projects.
Take a Free ProCalc Trial to See How Project Size Effects Margins/Pricing
2. Risk
If a job’s got significant risk that can’t be eliminated with exclusions or contract terms, experienced builders apply some additional margin to cover those risks. That is, high risk equals greater reward.
Put another way, the client needs to adopt (or at least share) the risk for their project.
3. Attractiveness to the Builder
Many factors come into play for a project’s attractiveness including how easy it is to work with the client/architect, type of project, location, value/convenience to your pipeline, how it will look on your website plus more.
Understandably, builders typically apply margins that reflect how much they want the project.
Considering projects for these factors will ensure adequate rewards for the work you take on – and add to your bottom line.
To give a realistic guide on project pricing, ProCalc, the builders price guide, factors in these various elements. You can use it to calculate concept estimates in just a few minutes and also understand how other builders (the market) value projects (as a reality check when your estimating construction drawings).
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Author Richard Armstrong is a project manager & former registered builder who specialises residential construction pricing. With post-grad property qualifications and over 15 years’ design & construct experience, he is the Founding Director of ProCalc – Professional Construction Estimator. Free trial at www.procalc.com.au.
