There once was a likable bloke
Who built homes for a whole lot of folks.
He discounted them deep
And priced them real cheap.
Or he did … until he went broke.
Ever heard of the P-Principle in new home sales? Probably not because it’s a term I created to explain why some builders go broke. Simply stated, the P-Principle is this: If you’re selling a lot of product, but not making a profit, you’ll eventually be penniless.
Don’t mistake income for profit. Income is the money you actually get paid. Profit is how much you have left after taking all the money you received and paying all your expenses.
Some builders lose sight of this and forget they are in business to make a profit. Instead, they think they’re in business to build houses so the more they build, the more successful they are. Not true. You could sell the most homes of any builder in your region, but if those sales don’t put money in your pocket, you’ll go out of business. The numbers that really count are the ones on the bottom line of your profit-and-loss statement; not the ones listed in some top-ten sales report.
You also shouldn’t be looking for break-even production. You must generate new wealth in order to stay in business, employ more people, take care of your family and contribute to a viable economy.
Call me the prophet of profit, but here’s what I’m proclaiming loud and clear: Builders … price your homes fairly, competitively and with a healthy profit margin. Then stay the course. Your goal isn’t just to record sales; it’s also to report a profit.
