Profit on Cost Calculator

The Profit on Cost (POC) Calculator is the essential viability tool for UK property developers. POC is the primary metric that development lenders use to assess deal quality—it determines whether your scheme will secure finance and at what terms.

Understanding Profit on Cost

Profit on Cost measures your development profit as a percentage of total costs. The formula is simple:

POC = (GDV - Total Costs) ÷ Total Costs × 100

A 20% POC means that for every £100 spent developing the scheme, you make £20 profit. This buffer protects both developer and lender if costs overrun or sales fall short.

Why Lenders Focus on POC

Lenders use POC to assess risk buffer. Here's why it matters:

- 20% POC: Costs can overrun by 20% OR sales can fall by 16.7% before the lender loses money - 15% POC: Much tighter margin—only 15% cost overrun or 13% sales fall tolerable - 25%+ POC: Strong buffer gives lender confidence even in stressed scenarios

During due diligence, lenders stress-test your appraisal by: 1. Increasing costs by 10-15% 2. Reducing GDV by 10% 3. Extending programme by 3-6 months

Your scheme must still show acceptable profit after these stresses.

Lender POC Requirements

Typical minimum POC requirements:

- Prime London, experienced developer: 15-18% minimum - Regional UK, experienced developer: 18-20% minimum - First-time developer or complex scheme: 20-25% minimum - Speculative (no pre-sales): 20-25% minimum - With 50%+ pre-sales: 15-18% may be accepted

Lower POC = higher rates, lower LTC, harder to secure terms.

How This Calculator Works

Our POC Calculator guides you through all cost components:

1. GDV: Your total expected sales revenue on completion. Be conservative—overestimating GDV is the most common appraisal error.

2. Land Cost: Include purchase price, SDLT, legal fees, and agent fees. Typically 20-35% of GDV.

3. Build Cost: Total construction including prelims, contractor overheads/profit, and external works. Use BCIS benchmarks.

4. Soft Costs: - Professional fees (10-15% of build) - Finance costs (interest + fees) - Sales costs (2-3% of GDV) - Contingency (5-15% of build) - Other (CIL, S106, utilities)

Key Metrics Explained

- Profit on Cost: Primary lender metric. Target 20%+ for comfortable approval.

- Profit on GDV: Alternative measure showing margin on sales. 20% POC ≈ 16.7% profit on GDV.

- Return on Equity: Shows return on your cash investment (assuming 30% equity). Important for investor presentations.

- Equity Required: Estimated cash needed, based on 70% debt assumption.

Improving Your POC

If your scheme shows marginal POC, consider:

1. Reduce Land Cost: Negotiate harder, consider alternative sites, or reduce land offer.

2. Increase GDV: Add bedrooms, improve specification in high-impact areas, add parking/storage, optimise mix.

3. Reduce Build Cost: Value engineer specification, change contractor, simplify design, reduce contingency (carefully).

4. Reduce Soft Costs: Shop around for cheaper finance, reduce professional fees, phase marketing spend.

Common POC Mistakes

1. Optimistic GDV: Using asking prices not achieved sales, ignoring incentives, not allowing for sales costs.

2. Underestimating Costs: Missing costs (utilities, S106), insufficient contingency, optimistic build programme.

3. Ignoring Finance Costs: Not including arrangement fees, exit fees, or realistic interest over extended sales period.

4. Static Analysis: Not allowing for cost inflation or market changes during 18-24 month programme.

POC vs Margin on GDV

Don't confuse these metrics:

- POC 20% = £20 profit on £100 costs = 16.7% margin on GDV - POC 25% = £25 profit on £100 costs = 20% margin on GDV - POC 15% = £15 profit on £100 costs = 13% margin on GDV

Always quote POC to lenders—it's their standard metric.