The Truth About Builders Margin
There is a common misconception that builders run projects on huge margins and that most building companies make excessive profits. I have made a long term successful career out of building and as a member of the Master Builders Association Victoria for over 28 years, nothing could be further from the truth.
1.What is a Builders Margin?
A builders margin is the percentage added to the cost price of a building project and can vary from builder to builder depending on the size of the business or type of building service offered. This margin covers all of the business running costs including the profit for the builder.
2.Common Misconceptions.
Many of the misconceptions about builders margins comes from the fact that:
- Some building quotes lack transparency.
- The margins are not usually disclosed.
- The margins can vary greatly throughout the project.
For example: a builder may charge a higher margin for a “renovation” compared to a “new build.” They may also charge a different margin for the basement garage component compared to the general living area of a project. Also, building variations may attract a different margin compared to the main building contract.
3.Building Margins Percentage Variations.
From my experience, residential construction projects can have building margins varying between 15% to 25%:
- Lower end margins are generally applicable to smaller scale builders with lower running costs or a job that has simple building logistics.
- Higher margins often reflect larger company overheads, more comprehensive management structures and complex building logistics.
4.Small builder vs a larger building company.
A small general builder may manage one or two projects himself and not employ a site foreman or office administrator, hence the ability to run his jobs on a 15% margin.
A larger building company however may run many jobs simultaneously therefore requiring a specialist team made up of site foreman, project managers, office administrators and an on-site office, all of which can easily add another 10% to a general builders cost.
For you, the client, to be able to make the right decisions, you must trust your builder and have confidence in their quoting process. This is only possible if you engage an experienced, reputable builder that is transparent with their quoting process and their documentation.
Click here to learn more about the building process, including How To Find the Right Builder.
