How To Add A Net Margin To Your Projects Rather Than A Gross Margin

A lot of residential builders believe that the best way to price a project is by adding a percentage, or even a dollar figure to the total cost of materials and labour.

This is known as adding a gross margin or gross profit.

The problem with this approach is that the builder is simply hoping to make a net profit rather than planning how much net profit they will make.

The best way to operate a residential building company is by implementing the Pricing 4 Profit model which adds a net margin to a project rather than a gross margin.

In order to add a net margin, the builder needs to calculate the amount of fixed expenses that must be added to each job based on the timeline and capacity for concurrent jobs.

To also establish the break-even point for any job, all the builder needs to do is multiply the daily rate per project by the number of working days the project will run for, and then add that figure to the cost of materials and labour.

You now have a true break-even figure which means any profit added to this number will be pure net profit.

The goal for any residential building company is to exceed 10% net profit. However, that may not be possible straight away if the building company does not have the marketing structure in place to generate the required amount of sales opportunities that will enable the business to increase its margins.

This is because of the law of supply and demand, and it’s why margins are linked to marketing!