Monday, July 25, 2016

Price, Cost, Profits and Losses

We’ve all been there and done that. Priced a home for a customer and when all the bills have been paid and the dust settles, you lost money.

How could that happen? You were very careful pricing it out. You knew your costs. You even built in a little extra for unforeseen problems. So why did you lose money?

Oh, you say that you’ve never lost money on a single house you’ve built. That’s fantastic. But did you make what the bottom line profit you could have and should have made? Almost an impossibility.

I hear from builders all over the US telling me their horror stories of customers they wanted to choke, inspectors that had no knowledge of modular, subcontractors not doing good work or not even showing up.

The bottom line to all the emails and calls I receive about the aforementioned items is that every single one of them were not calculated into the “cost” of the house. How do you figure in the cost of a sub not showing up or an inspector failing a small part of the house and then rescheduling for a week later?

What is your procedure when a customer wants to make a change order after the house is ordered? Or after the house has been set? Do you require them to pay for the entire change order up front? You should. Think about it…..if they can’t pay for it before you make the change, where will they find the money later?

How many of you have negotiated down a change order for the customer and at best broke even. Yeah, that one hurts.

Unless you have your own finish crew, you are at the mercy of drywallers, trim and finish people, electricians and plumbers. Add an HVAC contractor into the mix and is it any wonder you get any house finished on time.

All it takes is your electrician to get backed up on another job and can’t show up to yours for 3 days. Now your HVAC people can’t install all the connections and tell you to call them when the electrician if finished and they will try to get back to you as soon as they can.

You promised your customers they would be in by certain day. You planned it out and thought you had plenty of time. Then the rains came and didn’t stop for a week. The ground is all mud and the carriers couldn’t get into the lot.

The set crew who gave you such a great deal on setting your home didn’t include some of the work your regular set team does and when you checked on them at the end of day, you found that have to come back the next day and finish what you thought you were getting. More money down the drain.

The house is now weather tight and the bleeding has begun but you’ve built in that little extra to cover these things. You just didn’t expect to have to use it all on the set crew.

This story could go on and on but this is enough for now. The bottom line is that you can never accurately figure your final profit dollars. At best you will make a nice profit and at worse, you will lose big time on the house. That is how this business works.

Using modular construction at least gives you a fixed cost on approximately 80-85% of the home’s cost. Fixed.

That only leaves everything from the sill plate down and everything from the time the carriers leave the factory.

It is still better than your site builder siblings who have every last detail to calculate and sweat through until the house is finished and the contract is completed.

I almost forgot. It doesn’t matter if you are site builder or a modular builder, you still have to service the house for at least the next 12 months but what could possibly go wrong in that short period of time?

Figuring your bottom line cost and profit is so important to the survival of your business that next year I will be concentrating a lot of my time and effort on this important subject through the Modular Boot Camps, the Builder Breakfasts and the new Breakfast with Modcoach series.

1 comment:

Carl Robinson said...

"Think about it…..if they can’t pay for it before you make the change, where will they find the money later?"

This is so true. I had a woman want to change her kitchen countertop after the home was set. She chose it but now wanted an upgrade to granite. When I told her the cost she only wanted to pay the difference between what she ordered and what she wanted. When I told her no she sued me.

She lost in court, kept the original countertop and her house was delayed 3 months late. The time and money I lost because of her stupidity was almost $3,500.