Menu
Business Advice5 min

Tips for Increasing Builder Profit

There are basically two ways builders can boost their bottom lines: lower costs and increased revenue. In a previous blog, we focused on the cost-cutting aspect. In this post, we’ll explore ways for builders to increase profit.

Understand Markup vs. Margin

“It sounds elementary, but a lot of builders don’t know the difference between markup and margin when calculating their sales prices,” said Bob Whitten, CEO of SMA Consulting. “Markup is cost of sales multiplied by the desired margin percentage, while margin is gross profit divided by sales. As an example, a 25 percent markup yields a 20 percent gross profit. Many mid-sized builders don’t even price their own homes. They leave that to their purchasing, sales or accounting teams, and that means they often don’t price their base homes or their options correctly.”

Whitten feels that more builders should offer base homes as standard, then sell “nice to have” features and upgrades liberally as options.

“This is one of the keys to higher margins without impacting sales velocity,” he said. “No one ever buys just the base house. They pay for options.” 

To illustrate his point, Whitten points to the fireplace in his Florida home. 

“I’ve never used it once in 16 years,” he said. “If I had really wanted a fireplace, the builder could have offered it to me as an option – and would have probably made up to 40 percent margin on it. That’s why I constantly tell builders, ‘Options are your friend.’”

Premium sub-flooring and radiant barrier sheathing are upgrades that most homeowners probably wouldn’t request. But you can enhance your profits by suggesting them because they don’t create extra work for your install team.

Know What You Do Best and Capitalize on It

Whitten also extols the virtues of consistency and focus.

“Some builders have hit-or-miss revenue because they try to be all things to all people,” he said. “But the really successful builders don’t do that. Toll Brothers is never going to be the entry-level builder in any market they’re in. They focus on the move-up niche. We all know that the majority of restaurants fail in the first few years, but a McDonald’s almost never fails. Builders need to have that same unwavering focus.”

Today’s builders need to think like MBAs. The more they know about margins, markups and brand focus, the higher their profits will climb.

Continue Reading
Business Advice4 min

Radiant Barriers For Attic: A Quick Guide

Maybe you’ve been thinking about installing a radiant barrier in your attic but have a few questions. Is the upfront cost worth it in the long run? What are the advantages? What areas of the country are appropriate for a radiant barrier? How do I make sure I install it properly? Let’s take a look at a few of these questions and see if a radiant barrier is right for you.

Continue Reading
Industry Trends5 min
Trends: Five Best Sustainable Building Materials Best Practices

Sustainability and green construction are dominating homebuilding trends as homeowners are choosing energy efficiency as a primary driver in their purchase consideration. However, just as all trends evolve, we’re seeing the definition of sustainability expand to include health and wellness. What does this mean for you when installing sustainable building materials? Choosing non-toxic building materials and safe building materials have tremendous benefits not only for homeowners but for you and your crew, too.

Business Advice4 min
Prepare for the 2021 Storm Season With More Weather Resistant Siding

Do you frequently build in regions with heavy rain or strong winds? 2021 is projected to be a severe storm season, which means your builds will need some extra reinforcement. Finding the most durable siding or building solution for your projects can be confusing. Thankfully there are practical ways and durable products to help prevent damage and help protect against harsh weather so you can be prepared before the storm season arrives.

Inspiration5 min
Small Home Design Ideas: Best Exterior Colors for Your Custom Smaller Home

You’re likely building more smaller houses than you were about five years ago. Homeowners across the country want affordability, energy efficiency, or simply less home to clean and maintain so they have the weekend to explore—or they’re empty nesters. Whatever the reason, they still want their small home exterior to have maximum curb appeal and have all the charm and pizzazz of a larger home.