For some custom home professionals, the skills needed to design and build their clients’ dream homes comes naturally. For others, it’s knowing how to make a profit that is programmed into their DNA. The key to success is the ability to master both skill sets at once.

It’s possible to be good at making profit while not knowing how to create high-quality homes, but even those who create the highest-quality homes will fail if they do not turn a profit. So how do successful, profitable custom home firms do it? Residential Design & Build talked to managers of a design firm and two custom builder businesses to find out.

Landis Construction

A simple way to ensure profit is building it into a project’s budget, which is much easier said than done. But Chris Landis, owner/partner, Landis Construction in Washington, D.C., knows how to make it work. Landis’ contracts spell it all out for clients so everyone is on the same page.

“Clients understand they’re going to pay for my work,” Landis says. “We have it in the contract that as price goes up so does the design fee. I’m explicit about it. For example, as we go along, if suddenly the clients say they want a fireplace, or some other change or addition, this increases the project budget, the time it takes to design the changes as well as our fee and ultimately, the profit.”

Landis’ clients sign separate contracts for design and construction services. The design process is divided into three parts: schematic design, design development and construction documents. The design budget likewise is broken into three parts accounting for two-fifths, two-fifths and one-fifth respectively. Each portion comes with its own budget of hours which allows Landis to track hours spent against the total design budget and to update the owner(s) on how the budget is doing.

“Ultimately, the design fee is calculated based upon an hourly rate,” Landis says. “This rate is essentially an average loaded labor cost for our design department plus a markup which theoretically would get us to a 10 percent net profit at the end of the process. The loaded labor cost includes overhead as it relates to the budget set forth in the beginning of the year for the design department.