Browse Forums Building A New House Re: Profit margin of builders 21Mar 03, 2009 1:19 pm “It's just as unpleasant to get more than you bargain for as to get less” George Bernard Shaw. Re: Profit margin of builders 26Mar 03, 2009 6:46 pm Built 36sq Plantation "Retreat" on 4460m2 at Spring Mountain, Qld In Living and landscaping.. >>> ... http://retreatspring.blogspot.com Re: Profit margin of builders 28Mar 04, 2009 9:38 pm I think they are making about $2k markup on our bricks that we have upgraded to and almost $1.5k markup on our fireplace that we are having put in Built 36sq Plantation "Retreat" on 4460m2 at Spring Mountain, Qld In Living and landscaping.. >>> ... http://retreatspring.blogspot.com Re: Profit margin of builders 29Mar 05, 2009 2:25 am King willy Thlo, Using your rational about the huge profit margin try bargaining with Porter D, Metro.., Nat. Sim, Denis, Dev, etc etc about the price of their homes. A second hand car is not quite the same as a brand new unconstructed house. I can't believe your intentional misquotation. There is nothing about a huge profit margin or second hand cars in my post. Re: Profit margin of builders 30Mar 05, 2009 12:41 pm thlo King willy Thlo, Using your rational about the huge profit margin try bargaining with Porter D, Metro.., Nat. Sim, Denis, Dev, etc etc about the price of their homes. A second hand car is not quite the same as a brand new unconstructed house. I can't believe your intentional misquotation. There is nothing about a huge profit margin or second hand cars in my post. yeah I was a little confused by that post too! Annie A thankful person is a happy person. [/color]My hobby design blog: http://aviewondesign.blogspot.com/ Re: Profit margin of builders 31Mar 05, 2009 5:42 pm Annietom thlo I can't believe your intentional misquotation. There is nothing about a huge profit margin or second hand cars in my post. yeah I was a little confused by that post too! Annie Yes willy has a lot of explaining to do. Re: Profit margin of builders 32Mar 05, 2009 8:08 pm mattwalker OK lets say you earn $10,000 per house and you build 50 homes a year After you have paid everyone, all your expenses your are left with $500,000 in your hand. Not a bad profit when you look at it like that is it? Depends how you look at it. Assume that the builder is a straight project builder, i.e., not a developer so there's no land sales to complicate the issue. Further assume that he sells every one of those 50 houses for, say, $180,000, which is a fairly average construction cost. All going well he's turning over $9 million a year. A $500k EBIT on $9 million represents a return of around 5.5%. Not that bad but there are a lot of businesses showing better nett profits than that. But that's EBIT (earnings before interest and tax). It doesn't take into account the cost of borrowing money (and every builder works on borrowed money) or tax. The true bottom line in your example is likely to be considerably less than $500k. It's still a good business of course, and I've never met a poor builder, but I think it's true that the 'average' profit on a new home is not particularly high unless it's a custom build or there are a lot of variations/extras. It's certainly not 15% or more margin. Maybe 15% gross, definitely not nett. I've dealt with a lot of builders over the years and, while you have to take anything they say with a large pinch of salt, as far as I can work out their nett margins range from around 3% to 8%. That's no better, no worse, than many businesses. The supermarket chains operate on margins as low as 1.5%. Clothing manufacturers can be up around 30%. Re: Profit margin of builders 33Mar 05, 2009 8:16 pm Ancient Mariner mattwalker OK lets say you earn $10,000 per house and you build 50 homes a year After you have paid everyone, all your expenses your are left with $500,000 in your hand. Not a bad profit when you look at it like that is it? Depends how you look at it. Assume that the builder is a straight project builder, i.e., not a developer so there's no land sales to complicate the issue. Further assume that he sells every one of those 50 houses for, say, $180,000, which is a fairly average construction cost. All going well he's turning over $9 million a year. A $500k EBIT on $9 million represents a return of around 5.5%. Not that bad but there are a lot of businesses showing better nett profits than that. But that's EBIT (earnings before interest and tax). It doesn't take into account the cost of borrowing money (and every builder works on borrowed money) or tax. The true bottom line in your example is likely to be considerably less than $500k. It's still a good business of course, and I've never met a poor builder, but I think it's true that the 'average' profit on a new home is not particularly high unless it's a custom build or there are a lot of variations/extras. It's certainly not 15% or more margin. Maybe 15% gross, definitely not nett. I've dealt with a lot of builders over the years and, while you have to take anything they say with a large pinch of salt, as far as I can work out their nett margins range from around 3% to 8%. That's no better, no worse, than many businesses. The supermarket chains operate on margins as low as 1.5%. Clothing manufacturers can be up around 30%. although the point is probably moot because all builders have different costs/profits etc... I just can't see a builder earning around $500 gross income if he's building 50 homes a years. That has to cover all staff wages, head office rent, superannuation, bank fees, lending costs to cover display homes, advertising... and so on and then his wages. I just don't see it. I think your analogy of 15% gross on turnover is closer, but I think even more with most, perhaps some, less - and then of course, there's the management (good or bad) which tips the scales either way. A thankful person is a happy person. [/color]My hobby design blog: http://aviewondesign.blogspot.com/ Re: Profit margin of builders 34Mar 05, 2009 8:33 pm Annietom I just can't see a builder earning around $500 gross income if he's building 50 homes a years. That has to cover all staff wages, head office rent, superannuation, bank fees, lending costs to cover display homes, advertising... and so on and then his wages. I just don't see it. Erm, not quite. In the example Matt used the $500k was nett profit in the builder's hand, after all expenses other than interest & tax. The basic equation is pretty straightforward: Income - cost of goods sold - overhead (expenses) = nett profit before tax. Annietom I think your analogy of 15% gross on turnover is closer, but I think even more with most, perhaps some, less - and then of course, there's the management (good or bad) which tips the scales either way. Perhaps, although I would think it would actually be pretty hard for most businesses to make a profit at a 15% gross margin. Given the costs/overheads a builder faces I suspect they would need to operate at a minimum 25% gross margin in order to turn a profit at all. Re: Profit margin of builders 35Mar 05, 2009 8:41 pm Ancient Mariner Annietom I just can't see a builder earning around $500 gross income if he's building 50 homes a years. That has to cover all staff wages, head office rent, superannuation, bank fees, lending costs to cover display homes, advertising... and so on and then his wages. I just don't see it. Erm, not quite. In the example Matt used the $500k was nett profit in the builder's hand, after all expenses other than interest & tax. The basic equation is pretty straightforward: Income - cost of goods sold - overhead (expenses) = nett profit before tax. Annietom I think your analogy of 15% gross on turnover is closer, but I think even more with most, perhaps some, less - and then of course, there's the management (good or bad) which tips the scales either way. Perhaps, although I would think it would actually be pretty hard for most businesses to make a profit at a 15% gross margin. Given the costs/overheads a builder faces I suspect they would need to operate at a minimum 25% gross margin in order to turn a profit at all. sorry, yes, I think $500 nett after wages paid etc is a good profit for a 50 a year builder, maybe a little on the low side. def agree they need a 25% gross margin, they certainly need it! A thankful person is a happy person. [/color]My hobby design blog: http://aviewondesign.blogspot.com/ Re: Profit margin of builders 36Mar 05, 2009 10:42 pm stressed85 Well the builders mark up on our house is 25%.. So.. I dont know how much their administration expenses or advertising expenses are.. But i'm pretty sure they make more than 10k a house. Thats what id heard too. Between 20-25% Living in Caloundra Thread****** Lovin my house all finished!!! Now tackling the HUGE task of the Garden- viewtopic.php?f=31&t=14782 Re: Profit margin of builders 37Mar 05, 2009 11:54 pm Guys, a 25% markup does not represent a 25% gross margin (gross profit).
A 25% markup on cost would only give a business a 20% gross margin. To make a 25% gross margin the builder would have to mark up his costs by 33.33%. It's something of a moot point anyway because a builder is not a manufacturer or a retailer and cannot just mark up the 'goods' he sells by a fixed amount. He has a much more complex equation to deal with, involving differing margins on a wide range of materials and complex labour costs across a series of trades. Re: Profit margin of builders 38Mar 06, 2009 7:42 am I think a builder who can make a 10% profit (after paying for all parts and labour) and can minimise their risk would be doing well.
In good times, this figure is probably a bit higher. Right now, I suspect there is some reduction in this figure. Demolition August 2009, Construction Started September 2009, Completed December 2010 Re: Profit magin of builders 39Mar 24, 2009 2:06 pm As material costs are easing, are builders reducing their prices? If not, what would it take for that to happen? Re: Profit magin of builders 40Mar 24, 2009 4:01 pm thlo As material costs are easing, are builders reducing their prices? If not, what would it take for that to happen? I don't know what the basis is for your comment... I can say that materials I am buying are increasing and anything with a global price like steel, aluminium or any form of energy, is suffering from the exchange rate fluctuations. For prices to reflect cost reductions there needs to be 1) A cost reduction, & 2) Stability at the new level of cost. Ed "ECOECO" At 'EcoEco', we design windows, we design the best windows, we do it for you, so that when you’re happy we are happy. Tel. 1800 326 326 Look at your bill from the electricity company. It should detail the charges. You will need to do some estimating and some calculations. Then charge the… 8 4291 Site works are just about to start on our build with Blueprint in Midvale. viewtopic.php?f=31&t=106894 2 3999 Hi all, We are looking to build a new two storey house in western Sydney. Can anyone recommend a smallish builder to go with? We are trying to stay away from the big… 0 12238 |