How to Become a Professional Home Builder – Pitfalls of Contract Building – Firm Price and Profit

When building speculative, I stress you should earn a net profit of 10% or get out of the industry. With my experience, I want at least 15% or more. If it’s less than 15%, I’m not a happy camper.  รับสร้างบ้าน

But when you build contract, it’s very important that you charge as much as you possibly can and hopefully it’s going to be 20-25% or more.

The only way you’re going to be able to charge this amount of profit is with a firm contract. This means doing a lot of homework to come up with that firm price.

Most contract builders I know want to work on a cost plus basis. One main reason is because they don’t want to spend the effort to calculate the total cost. But look at the problems with a cost plus contract. Let’s start off talking about cost plus 15% profit. First of all, the owners will be wringing their hands during construction, scared to death that you’re going to run over costs. What a terrible way to feel. Then they start playing the game. Now wait. The more he spends, the more he earns. And all of a sudden they don’t trust you. They want to see your invoices. They start checking all your figures. That is a terrible situation to be in during construction. And they know what you’re earning. They will walk into the home and say, “I’m not paying $15,000 to $20,000 for that kind of work! No way! I won’t do it!”

The problem with converting your 15% to a fixed fee is – again – the customer is worried about going over costs. And again, they know what you’re earning. They say, “I’m not paying $20,000 for that kind of work! No way!”

One beautiful part of a firm contract is that the customer does not know what you’re charging. This is how you can charge 25% and more. Understand, even if you were the low bid and the customer knew you were going to net 25% profit, they couldn’t sleep at night knowing you were earning that much money. So the only way you can earn this kind of money is with a firm contract. And you must earn this kind of money. Here’s why.

In my course on How To Build A Home, I mention three people I built for in my early years. I lost money building their homes which means they got their home at or below my cost. But even after all these years they probably still dislike me today. It’s because of this next lesson.

An individual by the name of Richard Dugan owned one of the largest remodeling firms in the country, based here in Atlanta. Richard showed me that his firm would take the cost of material, add the cost of labor, and multiply it by two to get the total. Since then I’ve found that a lot of major remodelers take the cost of material plus the cost of labor and multiply it by three to get the total. I wish I liked remodeling because there is greater profit in remodeling than new construction. When Richard told me this, I thought to myself, Richard you’re gouging the public. No he is not. This is one of the greatest lessons I learned – and I went from a builder of homes and creating enemies and not earning any money, to a builder creating friends and earning good money.

I’ll sum it up with a little story. After I learned Richard’s philosophy of charging a good profit, I started working on a firm contract. The beauty of the firm contract is once the customer signs the contract they’re not concerned about the cost, all they want now is their beautiful home. They sleep well at night. They know what it’s going to cost. On this particular home that I was building I had a firm contract price, one with a good profit. Then one day the owner walked on the job-site during the construction of their fireplace. As soon as he looked at the fireplace I could tell he didn’t like it. It was built exactly like the drawings, but many times the drawings don’t look like reality. He really was not happy with it.

Back when I was “Mr. Nice Guy Builder” only charging maybe 10% or less, I’d look at the customers and if they didn’t like it I’d say, “I’m sorry. It’s per the drawings, and you’re going to have to pay to tear it down and you’re going to have to pay to rebuild it.” Many customers don’t have that extra cash in the project to do this and they’re stuck with a fireplace in their dream home they don’t like.

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