One of the measures of success for every home building company is the number of closings each month. Success or failure is a simple calculation of closing goal minus actual closings. After a discussion of how to increase the number of closings (easy answer is more sales = more closings), the conversation turns towards, “Can we make more money from each closing?”

As an IT executive for a home building firm, I have written many variations of closing reports that show the details of every closing including the community, lot, customer name, and the final selling price. My first year in business school, I learned the formula for profit = sales – cost. There are many factors in the calculations to determine your selling price including market pressures, cost to build, expected margin, economic stability, and customer expectations. One of the critical components of this equation is the cost to build. If you can reduce the cost to build your homes you will see an increase in the final profit for each home. The difficulty is to know how to analyze your building costs to minimize waste.

I will discuss four mechanisms that need to be reviewed to increase the profit from each closing:

--The first area to understand is the gross and net profit generated from each closed home. The gross profit is a sum of the total building cost (include all of the physical material costs + labor which are referred to as “hard” or “direct costs”) subtracted from the sales price. Don’t forget to include that “free” refrigerator (or any other sales incentive) you threw in at the last minute to lock in the sale. Add up the cost for every physical component in the house plus the labor cost to install. Once you have finalized your calculations ask yourself a question, “What is the gross profit you budgeted for the sale?” Did the final gross profit for this house stay in line with your budgeted gross profit? You should save the gross profit at time of sale (in your signed contract folder) and compare the percentage to the final value calculated after the home closes. Did your gross profit decrease? Did the material or labor costs increase between sale and closing? Was there an excessive amount of variances that increased your job costs? These questions need to be researched to know your job costs.