Private home builders are bold risk takers. For the level of financial risk they take, the financial returns—in terms of net profit—often don’t measure up. It doesn’t have to be this way. A case in point is that some private home builders make double-digit profits in any market, under any market conditions, with any product lines while their competitors struggle to reach a 5% profit margin, even in a boom cycle.
The barrier to profitability is predominately attitude. Most home builders don’t believe double-digit net profits are possible. They view external causes (such as their competition, a tight labor market, price increases for materials, etc.) as restrictions to profitability. They fight for every deal and become volume-oriented builders instead of profit-oriented builders. There is often a lack of focus on management skills and efficiency in their organizations.
Profit-oriented builders implement good management practices, focus on things within their control (pricing of homes, controlling construction costs, maintaining a balance between operating costs and sales volume), and build strong, integrated management systems. Profit-oriented builders are open to change, they challenge conventional wisdom, and they involve the entire company as a team.
To maximize profitability, start at the top. It is the responsibility of the management team to create and maintain an environment in which people can accomplish goals efficiently and effectively. Mangers need to implement standard processes and procedures that focus on efficiency to control the two factors that have a direct impact on profitability: time and cost. An effective management team sets the stage for profitability, structures the company for profitability, hires and trains for profitability, leads the staff to profitability, and monitors performance to ensure profitability.
Investing in management training is a wise strategy for builders interested in increasing the effectiveness of their management teams to improve profits. When everyone is working from the same playbook, communication silos break down, cross-functional collaboration improves, and there is increased efficiency across the organization.
There's a reason our founder, Charles C. Shinn Jr., PhD, is known as “The Profit Doctor.” His training programs have helped hundreds of home builders across the U.S. and Canada improve their management practices and achieve double-digit profits. A veteran of the home building industry, Stuart Terl said “When you first told me we should be making 12% [net profit], I thought you were crazy. Now the 12% is in our rear view mirror.”
Our Managing for Profit seminar was developed to provide management teams with a strong foundation in effective management techniques and a road map to increased profitability. After several months of not scheduling in-person seminars due to the pandemic, we’re pleased to announce our next Managing for Profit seminar will be held in Denver, February 23-25, 2021. Click here
for details. We hope you will join us for this unique learning experience and commit to making 2021 the year you meet or exceed your profit goals.