How Do You Measure Up: Benchmarking Net Profit
Information is power, and powerful, when you’re trying to run and grow your remodeling business. So you carefully track your numbers and your data. You can measure your year-to-year progress that way.
But how do you stack up against other remodeling companies? To truly gauge where you are now, where you want to be, and how to get there, it’s vital to have benchmarks from the rest of the industry.
If you want to be great, you’ll set those benchmarks — and goals — based on what the best in the business do.
One of the benefits of being a Remodelers Advantage Roundtables Peer Group member is the twice-yearly benchmarking of company performance — and all the data that comes in from R/A members makes for a valuable resource for charting progress and growth. Our members go through the numbers, see who’s doing what and share how they got there. Working in their peer groups, and looking at benchmarks set by the whole membership, remodelers are able to share their successes, see the places where they need improvement, and offer help, ideas, and support.
Out of all the data we can look at, one of the key indicators of the health of your business is your net profit.
Net profit is the amount of money left over after paying for all your job costs and overhead. Overhead should include your salary, plus the other costs of doing business, like:
- Payroll for office and administrative staff
You need regular net profits to give yourself more choices in how you grow, how much money you can save, or how much you pay to hire the best people. In the remodeling industry, eight to 10 percent of net profits in the usual goal. The top 25 percent of all our Roundtables members hit that 10 percent benchmark consistently, well above the industry average.
While it’s a relatively simple calculation, net profit depends on so much more — your gross profit on every job, which means pricing, estimating, and scheduling every job with great accuracy while keeping overhead low.
What’s in Your Wallet?
Another benchmark of your business’s success are your cash on hand, or your liquid assets — and these are tied directly to your net profit. You should aim to have enough liquid assets available that are equal to between four to six month’s worth of overhead — something to get you through in case of a dry spell or an emergency.
Many of R/A’s top performers aim for and maintain liquid assets to get them through at least six months, and some are able to reinforce their safety net with a line of credit they can use if necessary.
Having that safety net can help you get your business through the bad times — a weather event, a bad hire, a project that goes sideways for another reason. But if you can consistently hit a 10 percent profit, and keep enough cash on hand to get you through those tough times, you’re well on your way to having a top-performing company that will grow and succeed.
More Benchmarks & Best Practices in Our Webinar
Net profit is just the start. Find out how you stack up in job costing, owners compensation, and work/life balance, and learn best practices in sales, marketing, team management, and more in the free webinar “How Do You Compare?” that Victoria will present on Thursday, May 16, at 11 a.m. ET. We’d love to “see” you there, so click here to register!