Thursday, 9 January 2014

What is the average profit margin

What is the average profit margin

Profit margin is not exactly an accurate term.

Cost=The actual money it costs the builder/remodeler to build it

Gross Profit=The actual money of profitability the builder/remodeler gets from selling the job to a client for the asking price before the builder subtracts all of his overhead from the job.

Net Profit=The amount of money that the Builder/Remodeler actually makes.

So use the following example as a typical scenario, where 33.33% a normal or median Mark Up for the industry:

to build the home

33.33% Mark up = 25% Gross Profit$ 33,330 Mark Up

$133,330 Price for the home.

The 33.00% Mark up is $33,330 is 25% of the asking price of $133,330.

So 25% Gross Profit is made by the builder. But this doesnt cover overhead, cost of business, fuel, taxes, Liability Insurance, Workmans Compensation Insurance or any number of an astounding line up of costs that are figured for Overhead.

Typically 20% of the original 25% is paid out to cover overhead expenses and this includes the Builder/Remodelers salary.

Leaving 5% as the Net Profit or true gauge of profitability of the company.

In this case:

$133,330 with a Net Profit 10% =$13,333

There is a misconception of profit vs. mark up vs. how much the builder makes

When you break it down into these terms:Gross Profit

Net ProfitIts much easier.

33.333% Is a national average for a benchmark Mark Up with a 25% Gross Profit and a resulting 10% Net Profit. Reference is from the Harvard university School for Housing, the National Association of Home Builders, the National Association of Realtors and the National Association of Remodelers.

The profit is accurate for the companies I have worked for across the nation from Florida to Arizona to California, Ohio, Minnesota and Colorado. All of the homes being produced were a selling price of between $500,000 to $10,000,000 homes, within the past 15 years.

If youre making net profit less then 1. youre leaving too much on the table, or 2. your a bad business manager, which puts you direct conflict on each job since you risk constant fear of going out of business because of low operating capital.

Chances are that both are the case.

If youre a homeowner and appalled at these numbers, ask your boss how much their overhead, gross, net and mark up are handled. Bet youll be surprised.

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