Wouldnâ€™t it be great if you could get paid for every cost you incurred during a home-building project? If your answer is a resounding â€œYES!,â€ you need to start a cost-plus building model.
What is cost-plus building?
Unlike fixed-price building when a builder builds a house for an agreed-upon set price at the beginning of the project, cost-plus building is when a builder charges whatever it costs to build a home, plus their fee (usually around 15%). This model is useful when you want to reduce risk and be sure your expenses will be covered.
There are three key types of â€œcostsâ€ that come into play:
1. Direct Costs: These are the actual costs of a given project, such as labor, materials, and equipment.
2. Indirect Costs: Like overhead costs, indirect costs are all of your business-related costs required in order to successfully execute a project. This covers things like renting office space, insurance, and mileage to and from the building site.
3. Profit: Generally, profit is an agreed-upon amount based on a percentage of direct costs that the builder receives as a markup for doing the work.
What are the benefits of cost-plus building?
- Cost-plus building protects the homebuilder from unexpected costs.
- Fixed fees are difficult in this market because you can’t accurately estimate material costs these days.
- With fixed-price building, there is a big risk of unknown costs. Even if builders priced it to make a profit, unknown or higher-than-usual costs could negatively affect their profits. Builders can still make a guaranteed profit of course with cost-plus building.
- Decisions like whether or not to use the best materials become easier when the cost wonâ€™t come out of the home builderâ€™s paycheck.
Since a key component of cost-plus building is showing and tracking costs of things like materials, it is critical that builders show their clients accurate price breakdowns and have systems that effectively track different costs. That’s where HBFP can help: we create systems that effectively track, manage, and present project costs so that builders can relay their pricing to clients.
Ready to see how the HBFP difference can become your advantage? Call (843) 402-0977 to schedule a FREE consultation or visit our website to learn more about our services: hbfpllc.com