For TBF (throw back Friday) we are reposting an old post back from 2011 that has been a very popular read.
What Is the Profit Margin at a Lumber Yard and how does affect their pole building prices?
What in the heck does the gross profit margin of the average retail lumber yard have to do with the price of tea in a third world country, or for that matter your new pole building?
Keep filed away in the back of your mind – gross profit is the difference between the cost of goods sold and what they are sold for. Out of this margin, needs to be paid all of the expenses of operations – lights, phones, heat, wages, employee benefit programs, equipment and the costs of flooring inventory.
I owned and operated two lumber yards for 17 years. Our typical average gross profit was 17-20%. This is pretty much the industry standard. Hansen Buildings currently provides pole building kit packages through several lumber yard partners, we know their margins are pretty much in the same range.
Builders FirstSource is one of the lumber industry’s largest pro dealers. In the second quarter of 2011, they reported $206.4 million in sales, with a net loss of $15.5 million. In practical terms, they lost about 7.5% on every sale, with a gross profit margin in the industry average range.
The Math Behind Pole Building Prices
Hansen Buildings operates pretty much like most lumber yards, however we do not have the added burdens of numerous facilities, the huge overhead costs of large numbers of employees and equipment like delivery trucks and forklifts. And we do not have to pay to floor millions of dollars of inventory. This allows us to keep from losing the 7.5% on every sale, like Builders FirstSource (and probably some other major lumber dealers).
This leads me to the second part of the equation. I just have to scratch my head when a client reports to one of our Building Designers the price on exactly the same building, purchased from their local lumber yard is thousands (usually $5-6,000) of dollars less than our price.
Considering the average pole building kit package is about $15,000, for a lumber yard to be even $5,000 less than us, would mean they were selling their materials at about $2,000 below their cost!!
As I am unaware of any Federal bailout money for lumber yards operating businesses in this fashion, I can deduce the alternate provider, who is so much less expensive, will quickly be out of business, or the pole building prices being compared did not list the same features. Or more likely, I discover is often the case, the buildings being compared were not even the same size. Not even close.
I’m all about doing pole building price comparisons, but let’s compare apples to apples, not apples to elephants.
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