Vertical Integration: Lowering Custom Home Construction Costs

Vertical integration is an economic term that refers to a company that is involved in multiple aspects of building or creating a product. Today, vertical integration is something of an anomaly in business. The same applies to custom home building, and has to do with an amalgamation of economies of scale and current market trends/standards.

How Mangum’s Vertical Integrated Business Can Help You Save

In the Triangle housing market, hardwood floors are the industry standard in today’s custom home, and the market is saturated with installers willing to install them. Installers have streamlined their materials and labor prices down to a quantifiable science, and are very competitive.

Ask your Raleigh custom home builder to have stone flooring tile installed, and the situation changes in terms of what subcontractors charge. The scenario is compounded by the fact that suppliers don’t sell a lot of limestone or travertine; hence, they do not have access to volume discounts that our Florida neighbors regularly take advantage of.

Superior Efficiency & Craftsmanship by Mangum Contractors

Both suppliers and installers know that installing a stone tile floor would be a special feature in a high end home, and they automatically charge more, in part because they don’t have much competition. Added to which, some have little experience with stone flooring, as it must be installed differently that ceramic tile. They’re already making good money doing what they’ve always done with their market. There is no real incentive to learn a different aspect of their trade, because they’re already doing well as it is.

But Mangum Design-Build are the NC custom home contractors who do it differently. We perform a comparative market analysis with the NC Triangle and another market that uses tile as its principal floor covering, such as Port St. Lucie, Florida. We find that they’re installing tile at almost 1/3 of the cost we pay in North Carolina, and they’re still earning a percentage profit commensurate with subcontract work.

This becomes Mangum Design-Build’s new benchmark for efficiency and pricing. We send our own artisans to train with the Florida crews for a time, learning the differences in placement techniques, and maximizing our square foot per hour, per man, per day. We learn from the best, and we bring this back home.

How We Save on Construction Supplies & Offer Unique Building Materials

That solves the challenge with installation. Now we concentrate on custom home building materials prices.

Since there are no deals to be made in North Carolina, we had no choice but to import our own stone tile. We make connections and create business relationships with overseas quarries and distributors. And our tile arrives in various ports, from Italy, or Jerusalem, or Argentina.

Remember that quality costs money. We don’t mind paying for quality, but we refused to be gouged over it. Our job is to find the balance between good quality and reasonable costs for our clients, and take this very seriously. We then have the opportunity to offer stone flooring for what another Raleigh custom home builder would charge to install hardwoods.

Why don’t other builders choose to operate as a vertically integrated business?

The answer is both simple, and complex.

  1. It’s hard work. It’s a lot of hard work. We have to consistently ensure that we’re keeping our Raleigh general contractor team busy. We’ve got up front training costs, and heavy initial capital investments in equipment. It’s not possible to ease into this orientation of business. Since Mangum Design-Build has decided to do this, it has been a complete and total dedication of our assets and resources. For many other builders, it’s just easier to build a regular home with standard features and not get into the fray of value added services. But for Mangum, we wanted to offer our customers the best for a great price.
  2. Vertical integration requires infrastructure that most builders do not have. The Mangum family of North Carolina general contractors represents 10 wholly owned separate businesses in the Carolinas, and another 10 investor-based development LLC’s stretching from Raleigh to the Bahamas. That being said, we can afford to invest the proper capital and realize a return on that investment by lowering building costs due to economies of scale.
  3. Vertical integration allows us to pay our NC construction employees more — which, in the mindset of a builder who is already trying to cut costs, is counterintuitive. For our Raleigh or Wilmington, NC general contractors who are laying tile, installing soffit, and pouring concrete, we can afford to pay them more each year because we’re already saving 30% by doing the work internally.Here are the numbers: Let’s say we are able to install tile in a house for a labor rate of $5000, and the market rate is $10,000. We can afford to pay our NC construction contractors another $1000, and still save our clients $4000. And that is just for tile. If we’re able to do this across 10 different aspects of construction on each house, that savings adds up. As a bonus, we’re able to take care of our employees. And it is so very important to take care of the people that take care of us.

Mangum Design-Build is a part of the Mangum family of stand-alone companies representing equipment distribution, construction and development, marble import, and wholesale landscape supplies. These companies have office locations in Raleigh, NC; Morrisville, NC; Clayton, NC; Wilmington, NC; Myrtle Beach, SC & Xiamen City, Fujian Province, China. Construction and Development entities are led by Kevin Mangum.