Builder’s Margin Truth Uncovered

Perway Construction Services
June 14, 2021

What is a builder’s margin?

When a builder prepares a professionally detailed proposal for you, they use their skill and knowledge to work out the best construction methodology and what will be the best materials to use to suit your design requirements.  They calculate the amount of time it will take to do the job and they work out the cost to do it including the cost of labour and materials.  In addition, they will add a percentage onto the price of the job known as a builders' margin.

So, what exactly is a builder’s margin for?

For any business to run successfully, they need to be able to pay for their overheads and they need to make a profit.  Overheads include the running costs of the office, staff wages, administration, advertising, phones, insurance, vehicles, industry association costs, tools and training costs.  Profit is the amount that the business makes to ensure that it is successful and that it is able to keep its doors open in the foreseeable future so if you run into any warranty or rework issues, you want the builder to still be around so they can return and fix the issues for you.  

What is a reasonable builder’s margin?

The builder’s margin percentage can vary from builder to builder depending on the size of their business or type of works that they are required to do e.g., high versus low-risk job.  From experience, some residential construction projects can have a builder’s margin between 15% to 30%. If a builder charges a small margin, it doesn’t mean this is a good thing.  If something goes wrong, you may incur larger costs than first anticipated or have a builder that’s on the verge of bankruptcy while building your dream space.

How do I know that I am not being ripped off?

Not all builders disclose their margins.  It is a commercial decision by the business if they do or not.  They do not have to as it is their business; however, some builders may want to be completely clear and transparent with their customers.   For you, the homeowner, you need to decide if what the builder is offering is of the best value to you.  You need to ensure that you do your due diligence checks to choose the right builder, someone that is the right fit for you and whom you can trust and have peace of mind and confidence in.  You need to choose a builder that will want to give you a quality outcome and quality customer experience and who is clear and transparent in their professionally prepared proposals and processes.  If you cannot trust your builder, then you may regret your build process.

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