5 tips to help you know your builder costs base
Being a profitable building business means that you can confidently deliver estimates to your customer. In addition, knowing your builder costs base provides confidence that you will realize the estimated profit margin. Using insightful information to win the work promotes a healthy project margin for the project and for your construction company. Learn more about making profit by reading our blog: 5 ways to maximize your builder’s margin
Estimates are just guesswork if you do not know your base costs. Experience and gut instinct might help with the quantity count with a pretty good degree of accuracy. However, if your knowledge of the builder costs is out of date then you are still working on the principle of “good guesswork”. Keeping most of this information in your head, rather than storing it in a more reliable place, creates other problems.
Your knowledge of builder costs covers a few different areas:
Subcontractors
Your subcontractors want to keep doing work for you and you want to keep reliable subbies on your books. Make sure you have their current rates and costs so you can use them to get the best estimate to your client and get a good margin for your building business.
Your suppliers
Have your supplier’s costs regularly updated – costs change regularly and rarely downwards. We found one builder who was using prices that were over 10 years old and then doing a lot of “adjusting on the fly”. Upon completion of the project, the builder really had no idea of whether he made the real profit margin.
Employing staff means you have fixed costs
How are you covering these costs on each building job? We often hear about staff being under pressure. The builder has met with the client to sign the contract and then the staff has to “make it work”. How does a staff member “make it work” when there is no central location for all the current builder costs for that project? Staff can’t, or maybe they do the guesswork as well, either way, you won’t know what margin to expect and the margin at the end comes by chance.
So what are the overheads for your construction business?
Builders insurances, trucks, phones, gear etc. Ensure you know these builder costs, at least annually. And how you are going to cover them across all your projects for that year? One good way is to estimate the number of building projects you are likely to take on over a year. Add up all the typical overheads for a year. Then divide the number of expected projects into the total overhead to give you an estimated overhead for each project. That will ensure you won’t be wondering where the margin went at the end of the year because you missed including your overheads in your project costs.
Good building businesses use a method and a business tool to make all this work
If you’re like any good builder you wouldn’t want to have to calculate this stuff on every estimate. Checking subbie and supplier costs, adding the overheads and any staff costs on each estimate is nothing short of crazy. Let’s automate this so we can use our thinking power on more important things.
As many of you know, Bizprac software has the database, method and processes to automate estimates so that your builder costs and margin are known factors, not guesswork and can be included in each estimate. Make sure you automatically update the costs from your suppliers as they change. Ensure your subbie costs are kept up to date. Build in the right margins to cover staff and overheads. This will ensure confidence in your estimates and that your project and business costs are well covered.
So whether you are using Bizprac or some other method, make sure you know your builder costs. Doing this ensures you get a margin on your projects, which means you get to keep building, keeping clients happy, keeping your staff stress-free and generally having a better time of it in your profitable building business.
