The Real Cost of Rising Construction Materials And Why Builders Must Protect Their Profit Margins

Introduction:

A recent Wall Street Journal article titled “Construction Materials Are Getting More Expensive” caught the attention of many builders, but for most of you, this is nothing new.

Prices rise every year, economic conditions shift, and materials fluctuate. But according to Jon Markee, your Builder CPA, rising material costs are not the builder’s problem. In this blog post, we’ll explore why builders must maintain their profit margins, the risks of discounting work, and how to protect your business when dealing directly with homeowners.

Rising Material Costs: Not the Builder’s Burden

Construction materials get more expensive year after year. While homeowners often assume builders should adjust their price to “help out,” the reality is simple: your costs are going up, and your profit margin must stay the same.

Many builders respond to economic pressure or client hardship by getting “creative” with pricing, sometimes even discounting their work. This well-intentioned generosity can quickly turn into self-destruction. As Jon emphasizes, you cannot absorb the rising cost of materials. That cost belongs to the homeowner.

The Danger of Discounting Your Work

Even if materials stayed cheap, homeowners would still push for discounts, they will always try to negotiate your price down. But discounting your work creates dangerous consequences:

• You compromise your profit margin.

• You take on more risk for less reward.

• You set unrealistic expectations for clients.

• You may unintentionally position yourself as the “cheapest” option.

If someone is focused only on getting the lowest price, Jon suggests letting them go to the builder who may not be in business next month. Chasing low-budget clients is a race to the bottom, a race you should refuse to join.

The Illusion of “Making It Up on the Next Job”

Builders sometimes rationalize discounting by telling themselves they’ll make up the profit later. But in reality, one mistake, one unexpected cost, or one miscalculation can destroy the entire job’s profitability.

If you end up working at zero profit, or worse, at a loss, you would have been better off staying home on the couch. Operating at a loss is not “keeping the schedule full”—it’s actively harming your business.

Why You Don’t Need to “Keep Crews Busy” at Your Expense

Some builders panic when they see a gap in their schedule and feel pressure to accept low-margin jobs just to keep crews working. But most builders:

• Are not in long-term contracts with subs

• Have no obligation to keep crews busy

• Take on unnecessary financial risk trying to “do the right thing”

You must prioritize your business health over someone else’s schedule. You cannot sacrifice your profitability to keep cash flowing temporarily. That’s not business—that’s survival mode, and it collapses companies.

Beware of “Rich-Looking” Clients

Many builders get excited when a potential client shows up in a Ferrari or wearing expensive jewelry. But Jon warns that this is a trap. Flashy purchases do not indicate wealth, they show spending habits.

Some of the most extravagant clients run out of money, and when they do, they can’t pay you.

Builders often don’t earn their profit until the final draw. If the homeowner runs out of funds at 75% completion, you may be left unpaid for the most important portion of the project.

Protect Yourself: Verify the Client’s Ability to Pay

When working directly with homeowners, especially in custom homes or renovations, you must:

✔️ Confirm they have the full funds to complete the project

✔️ Require proof beyond the initial deposit

✔️ Consider using a dedicated escrow-style checking account

Jon recommends opening a dedicated account where all project funds are deposited. You can then transfer money from that account into your main operating account as the job progresses. This minimizes the risks of:

• Chargebacks

• Insufficient funds

• Homeowner disputes

• “Robbing Peter to pay Paul” situations

One bad client can turn a thriving construction business upside down.

Final Thoughts

Construction materials are rising and will likely continue rising for the foreseeable future. Economic headwinds come and go, but one truth remains constant: the homeowner must bear the cost, not the builder.

Do not allow rising prices, emotional pressure, or client negotiations to talk you into discounting your work. Protect your profit margin, screen your clients thoroughly, and structure your payment process to ensure you get paid safely and consistently.

Your business depends on it.

As always, thanks for reading, and have a great day.