LIME REALTY GROUP is pleased to bring you another part in our series of understanding the cost of doing business in construction.  This time we’d like to talk about Profit.

The most simple way to think about profit is to consider an item you would buy in a retail outlet.  Most retail sellers buy their products from a wholesale supplier at a wholesale price.  These products almost always include a suggested retail price.  This suggested price includes a certain percentage for the retailer considered profit.  

Of course the retail agent isn’t forced to actually charge the suggested price.

In construction, profit isn’t always so cut and dry.  Often, the profit isn’t based around a product with a profit margin built into a suggested retail price.  This is because the profit is based on labor or other skill sets of individuals in addition to a product.  

For example, a plumber uses materials purchased from a supplier.  Some, like the pipes are materials you don’t actually see on a daily basis.  Other items would be the faucets and sinks you see in your bathrooms and kitchens.  These items generally do include a markup as they are purchased from a retailer, but it’s not uncommon for a plumber to mark the price up a little bit.  Remember our previous article where we discussed credit.  If the plumber (for instance) is buying these fixtures on behalf of a client, they are extending credit and like a credit card, they should be compensated for that initial investment.  The markup is generally small, but fair.

It can be confusing when a customer sees one price and then finds that price irreconcilable with a final bill.  However, if you consider all the possible charges it makes sense.

Anyone working on a home in any capacity should be compensated for their efforts on behalf of the home buyer.  It’s not always an obvious scale to someone looking at it from the outside.  

But that is part of the reason a General Contractor can be a huge asset.  A GC understands these different areas sub-contractors will use to generate the profit margin they expect to make on a project.  He knows where they will expense them in their billing and how it all comes together to create the final price.  As he puts together an initial overall bid for the project, he takes these different areas into consideration and his price will reflect these different points used by subs to create the correct percentage they need to generate in order to profit from a job.

We’ll discuss this more in our next article so check back and remember, Lime is the clear choice for real estate in the Southern Utah area.