Economies of Scale

When deciding on the design for your dream home, your budget plays a major factor. A question we hear often at PrecisionCraft is, “If I decrease the square footage of my home, can you make it fit within my budget?” While our designers create a home according to the budgets of our clients, there is something that can have a direct effect on your home called “Economies of Scale.”

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What does “Economies of Scale” mean?

“Economies of Scale” is a term used to describe how mass production can decrease the cost to produce materials. This reduced cost is often seen by consumers when purchasing items in bulk or larger quantities. For example, a pint of paint is usually more expensive per ounce than a gallon or a five-gallon bucket. While the five-gallon option costs less per ounce, a problem arises when you only need two gallons of paint. In this case, you must decide if your are willing to pay more per ounce to get just two gallons. This same ideology is applicable to building your dream home.

The Realities of Shrinking Your Square Footage

The recent craze for tiny houses is a prime example of how lowering square footage does not always solve budget constraints. In this case, as the square footage diminishes, the cost to create these custom spaces increases drastically. While tiny homes cost less overall, their cost per square footage is double the cost to build a traditional home. [1]

An extreme comparison between the square footage cost of a tiny house versus a conventional home.

While most PrecisionCraft clients are not interested in downsizing to a tiny home, they still want to save money. Oftentimes, clients think that the best way to save money is to decrease the amount of square footage. For example, a client may find a 3,500-square-foot plan they love but cannot afford. Their first thought may be to decrease the square footage by 28% to 2,500-square-feet. While the square footage reduction will lower the price, it is unlikely to cut the cost by that same 28%.

The Effect of Fixed Costs on Your Budget

Things you may adjust in size or eliminate altogether include a bathroom, bedroom, or kitchen. While eliminating a bathroom will save you the cost of a sink, toilet, and shower, the other bathrooms in the home will still require those items. A similar principle applies to the kitchen. No matter the size of the kitchen, you still incur the same fixed costs of an oven, cooktop, refrigerator, sink, and dishwasher.

Even by reducing the size of the home, there is still very little difference for fixed costs.

There are other things that each home will need, including an HVAC system. While the size of the HVAC may shrink with a smaller home, and require less duct materials and fewer install hours, it is only decreased by 10-15% of the original cost. By applying this same line of reasoning to other finishes like carpet, tile, and roofing, you will still incur the base cost for installation. These fixed costs for building are what keep your home’s overall budget from decreasing at the same rate as your square footage.

A Complete View of Your Home

For PrecisionCraft clients who need to cut costs by 10-15%, square footage reduction may be a viable option. However, at the end of the day, it all comes down to the design. Distinctive character pieces, large panes of custom glass, and complicated roof lines can have a major impact on the budget. When it comes to designing your affordable dream home, shrinking the square footage may not always be the best answer. We suggest taking all the design aspects into consideration.

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[1] BB Tiny Houses

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