Every builder has the same instinct when things get tight.
Do more.
More leads. More jobs. More blokes. Bigger turnover. Get to $10 million and surely the money will sort itself out.
It will not.
More work will not fix a weak building business. It will multiply the weakness.
The model
Here is the alternative.
Three carefully selected projects producing approximately $5 million in annual turnover.
At a true 30% gross margin, that creates $1.5 million in gross profit.
Hold total overheads to 10%, including a proper market wage for the owner, and that is $500,000.
What remains is $1 million in profit before tax.
That is the 30-10-20 model:
- 30% gross margin
- 10% overheads
- 20% profit
This is not the average and it is not a guarantee. It is a high-performance boutique building model.
When I wrote Million Dollar Builder 2.0, the guardrail was 25-10-15. That remains a strong business.
But among some well-run architectural builders using value management and early builder involvement, I am now seeing genuine gross margins approaching 30%.
That changes the arithmetic.
The question stops being how do I get bigger. It becomes which three jobs.
What makes it possible
You do not produce a 30% gross margin by adding more markup to a tender after the design is finished.
You produce it by getting involved earlier.
If you enter at tender stage, you are competing on price against builders who may not understand their own costs. You will either lose the job or win a job you should have lost.
The better model is negotiated work.
Build relationships with a small number of architects and designers who trust you. Get involved while the plans, specifications and budget can still be influenced. Help the client understand what is buildable and what they can genuinely afford before they waste months designing the wrong house.
You are no longer just another number at the end of the process. You become part of the team that helps make the project work.
That does not guarantee the job or eliminate every tender. It creates more opportunities to secure the right work through expertise and trust rather than price alone.
Then you have to select properly.
Three good jobs can create a highly profitable, controlled business. Three bad jobs can create concentrated risk.
You need to assess the client, the architect, the contract, the complexity, the likely duration, the payment terms and the gross profit per week. Gross margin matters, but so does speed. A job producing $400,000 over 40 weeks is a different proposition from one producing the same amount over 80.
Finally, the numbers must be real.
Accurate job codes. Purchase orders that match the estimate. Direct labour allocated properly. Variations recorded and approved. Costs tracked during the job, not discovered six months after completion.
Most blokes have a feeling.
They feel like they made 25%. They feel like overheads are under control. They feel like the job went reasonably well.
A feeling is not financial control.
The business also needs to operate without every decision running through the owner. If the job starts falling apart because you take one day off, that is not a work ethic. That is a structure problem in a hard hat.
Boutique can be more resilient because it carries less fixed overhead and less complexity. But small does not automatically mean safe. The model only works when the margins, contracts, cash, team and job selection are strong.
What to calculate this week
Do not start with more leads.
Get out your latest profit and loss and the results from your last ten completed jobs.
Calculate four numbers:
- Your true gross margin after all direct job costs and labour.
- Your total overhead ratio, including a fair market wage for yourself.
- Your actual profit before tax.
- The gross profit per week produced by each job.
Then compare those numbers with the 30-10-20 model.
If your gross margin is 22%, find out where the other 8% is going before adding more work.
If overheads are 16%, determine what the business is carrying that the better model does not need.
If the jobs are profitable but take too long, examine sequencing, supervision, procurement and gross profit per week.
Five million is not the right target for every builder, and the exact number of jobs will depend on their size and duration.
But the principle remains.
You do not need more jobs. You need a far better business to make more money from fewer of them.
If you want to find out where your margin is really going, book a free strategy session. This is exactly what we work on with builders every single day.
Kurt Hegetschweiler is the founder of Builders Coach and author of the internationally best-selling Million Dollar Builder. He has coached thousands of residential builders since 2004.
