Nobody likes to operate in a vacuum, but in a competitive industry such as home building, it can be very difficult to determine how your business measures up to your competitors.
Industry benchmarks on profit margins, asset levels and equity positions are important because they allow businesses to compare their performance to their peers, and that can be extremely helpful in identifying areas for improvement and increasing efficiencies.
This is the reason NAHB periodically conducts The Cost of Doing Business Study — a nationwide survey of single-family home building companies designed to produce profitability benchmarks for the industry.
In an analysis in this Eye on Housing blog post, NAHB economist Rose Quint breaks down the numbers from the 2019 edition of the study, which show that builders’ profits margins have continued to slowly increase and reach their highest point since 2006.
On average, builders reported $16.4 million in revenue for fiscal year 2017, of which $13.3 million (81%) was spent on cost of sales (land costs, direct and indirect construction costs) and another $1.9 million (11.4%) on operating expenses (finance, sales and marketing, general and administrative expenses, and owner compensation).
As a result, the industry average gross profit margin for 2017 was 19%, while the average net profit margin reached 7.6%.
The Cost of Doing Business Study is a unique resource that details financial performance according to builder type and size, as well as industry-wide averages using these key indicators:
- Gross margin
- Net profit
- Cost of sales
- Operating expenses
- Financial ratios
The Cost of Doing Business Study is available for purchase ($149.95 retail/$79.95 for NAHB members) at BuilderBooks.com or by calling 800-223-2665.
This post brought to you by NAHBNow – Eye on Housing.