Table of Contents
For the first 10 years of my career, I was nervous about clients seeing how much money I made on their project. The funny part is, I wasn't even making that much. Looking back, that discomfort had a lot more to do with my own self-doubt than it did with my clients. I wasn't completely confident in what our work was worth, and I didn't have the same understanding of my true costs that I do today.
After years of building custom homes and presenting a whole lot of pricing, I've learned two big lessons: you have to know what the project actually costs, and you have to be confident explaining why it's worth it. If you can’t do those two things well, pricing becomes a very difficult conversation.
What Should Builders Include When Calculating Their Pricing?
Every single cost associated with building the home needs to be accounted for before you add your margin. And I mean every single cost. Most builders know to include lumber, windows, roofing, subcontractor labor, and all the obvious stuff. But what about the porta potty? Insurance? Warranty? Your project manager? Your project coordinator? Those costs are part of building the house too.
Then there are the expenses that may not appear directly on the sworn construction statement: your truck, office, phone, and everything else required to operate the company behind that project. If you're looking at the bottom of a job and thinking, "That's a pretty healthy margin," without understanding everything that margin still has to support, you may not be making nearly as much money as you think.
Know your true cost, and don't be afraid to make a profit. A healthy margin isn't something builders need to apologize for. It's what allows us to hire great people, stand behind our work, and still be here when that homeowner calls five, 10, or 20 years from now. I actually think clients understand that.
Should You Tell Clients How Much Profit You're Making?
In a cost-plus environment, transparency can actually create more trust. Think about how unusual our industry is. You don't buy a couch and get a breakdown of what the manufacturer spent on foam, fabric, labor, shipping, rent, and marketing before they show you the price.
But a custom home involves thousands of products, decisions, and people. Clients understandably have a hard time wrapping their heads around why the final number is what it is. Our job is to bring clarity. That's especially true for the engineers, CPAs, financial professionals, and other detail-oriented people we build for. They're not scared of numbers. They want the details.
It's like selling a computer to a tech guy without telling him the RAM, memory, or processing speed. Those details are part of how he determines whether the computer is worth the price. Give clients enough information to understand what they're buying, and suddenly the conversation isn't only about price. It's about value.
Learn more about financial strategy here!
How Should Builders Present Pricing to a Client?
Don't start with the number. Start with why they're building the house. I would never walk into a pricing meeting and immediately say, "Here's what it costs." There’s nuance to this part of the sale. Before we get buried in spreadsheets, I want to bring the client back to the vision. We'll review the design, look at the renderings, and talk about what we're creating. Why are they doing this?
Maybe they're moving onto a lake. Maybe they have kids on the way. Maybe they want a healthier home built with products that support their wellness. Maybe their current house doesn't work for the way they entertain. Sometimes it isn't even primarily about the house. It's the neighborhood, neighbors, proximity to nature, restaurants, health clubs, schools, or whatever else matters to them. That's the value.
Of course we're going to go through the numbers. I'm not suggesting we hide the price behind a pretty rendering. But I want to stay on what I call "planet excitement" long enough to remind them what those numbers are actually buying.
People don't decide to build a custom home because they desperately want a construction statement. They're building because they believe this house will change something about the way they live. Show them that first. Then you can say, "In order to create this lifestyle and achieve these things we've been talking about, here's what it costs."
How Can Builders Protect Their Margins Without Losing Clients?
Start by believing that running a healthy business is good for your clients too. I used to worry that showing a client my profit would make them think I was making too much. Now I'm comfortable explaining exactly why the business needs to be profitable.
I want MDW to be healthy enough that if you have a question about your house 10 years from now, we're still here to answer it. I want to take care of your family. I want to build for your friends. I want to hire talented people and do beautiful work. That requires margin.
So know every cost. Charge enough to operate a healthy company. Be transparent about what the client is paying for. And before you show them the bottom line, remind them why they wanted to build in the first place.
Don't be afraid of making a profit, and don't be afraid of showing your clients the value that makes that profit possible.
