Best Practices, Operations, V7I2

Counting the Costs

(Photo courtesy of Joslyn Pickens from Pexels)

Merritt Eaton, a founding partner of Heritage Building Company in Salisbury, North Carolina, keeps track of his business costs—on a daily basis. 

“I have a spreadsheet for each style, size, and model for every building I manufacture,” he says. “We offer  120 different sizes and styles, so I track the cost from an 8 by 8 all the way to a 14 by 40. I account for everything down to the nails and screws in the roofs.

“I keep a breakdown for every single part of the cost going into every building. I have a percentage target for materials, manufacturing, delivery, and overhead.”

Arlan Riehl, a partner in Liberty Sheds based in Due West, South Carolina, says his company has a bill of materials (BOM) for every model and size—without upgrades—that lists all materials. 

“Materials are organized by build process—floor, wall framing, siding, roof framing, roof covering, doors, paint, misc.—and indicate quantity and cost,” he says. “These are currently spreadsheet-based because of limitations in our ERP (enterprise resource planning) system.”   

Builders need to track all materials that go into a shed to have an accurate cost to build each unit, shares Silas Bowling, co-owner of Sheds By Design in Cleveland, Mount Airy, and Pageland, North Carolina.

“Otherwise, you’re flying blind,” he points out. “Know every stick of lumber, every tube of caulk, and exactly how many are used down to a quarter piece count. 

“How many sheets of floor sheathing on a 10 by 20 building? How many coils of nails used to build a 10 by 16 shed? What about tubes of caulk used on a 10 by 12 building?

“Add all these material components up, per size, then add manufacturing overhead, sales commission, shop labor, and installation averaged out per buildings produced that year.”


When determining costs of goods sold (COGS) Riehl says Liberty Sheds factors in materials, labor (including doors/trusses and finish work), and plant overhead, which includes facility maintenance, repairs, electricity, plant management, rent/lease, waste removal, supplies, insurance, etc.  

“Plant overhead is separate from office overhead, which is a true overhead account,” he says. “Why? This seems to be in keeping with best practices related to GAAP accounting (generally accepted accounting principles).” 

Riehl says Liberty Sheds doesn’t include delivery in its shed costs because of GAAP.

“Our sales team and building team are all commission-based, so it’s pretty easy to budget a percentage,” he shares. “Our delivery team has a budget based on percent as well.” 

Eaton, like Bowling, does factor in delivery costs, saying, “If you aren’t factoring in delivery, you do not know where your company is financially.”

Bowling says Shed By Design works to keep material costs at less than 50 percent of the retail sales price and shop labor under 12 percent. Additionally, he works to keep both sales expenses and delivery less than 10 percent of the retail price.

He evaluates costs every quarter—more often in volatile lumber markets. 

Eaton says he keeps his cost per shed within his target percentage for building, selling, and delivery.

“I have heard of delivery costs as low as 5 percent going to 12 percent, depending on distance and volume of buildings hauled,” Bowling says. “On-site crew labor for builds could be more variable depending on build time and if the install crew is paid hourly or per job.”  


Knowing the true cost per shed is a step in the right direction to keeping build costs down—without sacrificing quality and customer satisfaction.

“When building a shed, always watch your overhead,” says Bowling. “Buy the most important equipment and equipment upgrades first and put off the ‘would be nice to have’ stuff vs. the essential equipment. 

“Watch out for the fluffy monthly subscriptions from this company or that. There are a lot of services that seem nice on the surface, but then those re-occurring bills all start to stack up every month even if manufacturing slows down.”

“You can only decrease costs so much and you’re fighting against the tide when many or all of your suppliers are raising prices,” Bowling points out. 

“To lower the budget cost per shed as a percentage of final retail, which is just maintaining where we need to be, we have been forced to raise retail prices, source new lumber suppliers and hardware suppliers, and make sure sheds are being built as efficiently as possible.” 

And Bowling recommends shopping different lumberyards and distributors to find the best prices. 

“Lumber is our highest expense by far,” he says. “In this volatile lumber market, it has made it a guessing game of what to charge on a week-to-week basis. As much as you might like the people at the place you normally buy lumber, they may not have the best pricing on all types of lumber.

“A distributor’s contract commitment to buying certain kinds of lumber in massive quantities means they may have better pricing than another distributor that only has made a commitment to buy a minimal amount of that same product.”

To reduce costs, Eaton says he negotiates with vendors, and he’s looking into creating a buyers’ group.

“If smaller-scale shed manufacturers could form a shed manufacturers co-op, that would lock in certain pricing with the large-scale purchasing power,” Bowling says. “If farmers can form and benefit from co-ops, why can’t shed businesses combine buying power to negotiate on key lumber components?” 

What is Riehl’s recommendation to reduce costs, lowering the per-shed budget? Adopt practices geared to retain builders for a long time. 

“Turnover is a huge cost many companies ignore and can’t quantify,” he points out. 

Also, Riehl recommends building infrastructure to store materials out of the weather, which reduces waste and allows a builder to buy larger quantities at a time.

Finally, he suggests shed builders employ lean production principles that reduce build time and effort, organize production workflow wisely, and reduce product movement during production. 

Bowling offers one final budget-reducing tip: Don’t give away things that customers don’t appreciate. Some things are non-negotiables in the quality of the building, others are upgrades. 

“Make sure you know what exactly should be in the standard features and what should be an upgrade,” he says. “Otherwise you risk having a more expensive building that you might have to discount to sell. Lower your material budget by not giving away things customers should be paying to upgrade for.”

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