Ten Ways Builders Mess Up Their Business

By Al Trellis and Paul Sharp

Theres never a lack of opportunity for builders to mess up their business and kill their profits. Here are ten of the most common.

1. Poor pricing decisions. One of the hardest things for builders to do is get their price right. Price too high and the product sits. Price too low and you lose profit or go broke. Solution: price for profit, and adjust for the market. Most builders use cost-based pricing. They figure what it costs to build and then tack on a percentage. The second type of pricing is value-based. This is what the market will pay. Value-based pricing is the one that ultimately prevails in the market. If the builders cost-based pricing is higher than the market-based pricing, the builder will have to find a way to reduce his costs (or accept a lower profit).

2. Building a ho-hum house. One reason builders cant get a better price for their houses is that theres nothing special about them. Theyre like all the other houses, cluttering the market and competing on price alone. To go from a ho-hum house to a hot house is often a matter of simple redesign.

3. Building in the wrong location. (Bad neighborhood, bad lot). Builders think that if they build a nice house on a bad lot people will buy it anyway. A good house doesnt compensate for a bad lot. A bad lot makes a good house bad.

4. Overbuilding for the market. To set themselves apart from the competition, some builders think they have to build the fanciest (and costliest) house around. Its always better to be the least expensive house in a good neighborhood than the most expensive house in a so-so neighborhood. If you overbuild, you wont get your money back.

5. Unrealistic expectations. We do such a good job of selling clients on what a great builder we are that they expect perfection. When things go wrong (and they always do), theyre disappointed. It doesnt have to be that way. If your clients understand that there is no such thing as a "perfect" house, theyll be happier (and so will you).

6. Poor sub supervision. Much of the work of building a home is done by subcontractors, but the builder is responsible for seeing that the work is done on time, and done right. Slipping schedules and poor quality control are indications that the builder isnt doing his job.

7. Sloppy cost control. Some builders dont know if theyve made money until the house is complete. Then they discover change orders that should have been submitted and avoidable cost overruns. Look at every job every month to see that costs are under control.

8. Inaccurate estimating. Sometimes builders really want to get a job. Without realizing it, they underestimate to get the costs where they want them. If you want to lower your prices to get a job, thats your business. But dont lie to yourself that youre making more profit than you really are.

9. Selling features, not benefits. Builders are so fixated on building that they often neglect to tell consumers what the product will do for them. People dont care about features.

10. Makeshift marketing. If you dont have a strong marketing message or good marketing materials, you may be in trouble. Good marketing creates awareness and value perception.

There are a lot of ways that builders can mess up their business. How many of them are you guilty of?

Al Trellis and Paul Sharp are cofounders of Home Builders Network. Al has 25 years experience as a custom builder, speaker, consultant, and columnist. He speaks to over 6,000 builders a year. Paul provides marketing consulting to builders around the country. The article is excerpted from their book, Building with an Attitude.

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