« Back

Articles and reference materials from our business to yours.

Managing Your Margins

Hanging chandelier
High-end finishes and fixtures, like this hanging chandelier Dahan used in one of his homes, create a wow factor that clients are willing to pay for.
(Photo: Dahan Properties)

As with design, when it comes to making sure your profit margins come out right on your next job, it’s all about the details. That means choosing your products and finishes wisely, while making sure your processes are as efficient as possible to get the job done quickly — and well. Paying attention to those areas can make all the difference in your profitability.

Gross profit margins in constructionrange from 20 to 40 percent. Remodelers, whose jobs are usually smaller in terms of dollars, should be at the top of that range. Homebuilders, whose jobs are bigger in dollars, will be at the lower end. Workers in a specialty trade — subs — should land in the middle.

Given these numbers, it pays to go high-end when it comes to products and finishes. Why? Because the right customers — i.e., the ones you can make money with — will be willing to pay for them. Sometimes that means showing them what they really want, even if they don’t know they want it. From there, selling them will be easy.

“Once we get those high-end finishes in place, we let the products speak for themselves,” says Tom French, founder of Oklahoma City homebuilder French Construction. “When a perspective customer views a model home, they’re going to want the tile, floors and fixtures they see. If you have luxury, high-arc pulldown faucets installed, it will be hard for them to envision their kitchen with just a stock faucet in place.”

Of course, your own costs are going to be higher on an upscale kitchen or bath fixture as well. The key is to find those high-end, quality components from a reliable, trusted supplier and negotiate terms for the volume you deliver to your own clients.

“Our in-house team of designers and architects scour various suppliers that provide us with the highest-quality material at the best price,” says Mayer Dahan, chief executive of Los Angeles–based Dahan Properties, an eco-focused, luxury homebuilder. “Things like our imported Ann Sacks tile, our selective lighting fixtures and our CaesarStone countertops all make clients say wow. They are willing to pay for top-notch design and function.”

For Matt Stevens, president of the Winter Park, Fla.–based consultancy Stevens Construction Institute, finding those kinds of customers comes down to getting picky about the jobs you take on.

“The highest-performing firms in our industry really say no more than they say yes,” Stevens says. “They might bid 100 jobs, but they’re only going to get maybe 15 to 20 of those. What that means is they’re charging more for what they do, and there’s only a few people interested in their value, which is perfectly fine.”

While French says that what he pays for his product ultimately has the biggest impact on his margins, he also keeps an eye on the labor that goes into his jobs, right down to the install process for a specific product. “If you look at your tile flooring, for instance, laying tile on diagonal, and with fancy inlay patterns, looks great, but it will also increase your cost of labor,” French says. “For the additional cost, it may not be worth it.”

Keeping labor costs down on any job, of course, is about keeping a close eye on your processes. That means keeping projects on schedule, and hiring and scheduling your own labor so that you can impact those processes to make them more efficient.

“If you subcontract out all your own work, you’ll be able to make money quicker, but there will be a ceiling to those profits,” Stevens says. “If you manage your own labor, you might be slower to make your first profit dollar, but you’ll certainly make a lot more, as much as double the profits, if you manage your own labor long term.”

By keeping your eye on high-quality, high-end products, while making your processes and labor as efficient as possible, you’ll find the clients who will say yes to what you have to offer. Higher profits surely will follow from there.