Using the Remodelers’ Cost of Doing Business Study to Understand Profit
By Alan Hanbury Jr., CGR, CAPS, CGP, GMR

The Remodelers’ Cost of Doing Business Study is conducted periodically to assess the growth, viability                                  

Remodelers Cost of Doing Business Study, 2012 Edition

and demographics of the remodeling industry. The study provides a statistically accurate analysis of

remodeling businesses in terms of their size, profitability, time in the business, organization

and number of jobs performed. It also includes multiple comparisons to previous studies. The study has

a wealth of information that can be mined to help keep score against benchmarks for today and plan

for success tomorrow.

 

The final results include averages as well as breakdowns for the top and bottom 25% of remodelers in the study. The averages should not be considered targets or benchmarks. Rather, pay closer attention to the top 25%, as your goal is not to be just average. The report also shows results for the bottom 25% so you can see there is a range of acceptable results.

 

Trade publications, articles by industry experts, books, and local HBA meetings are a few other places you can go to find performance benchmarks. Of course, the most accurate and useful benchmarks are those that reflect improvement from your own past results. This study will help you gauge your success compared with a large cross-section of your peers and competitors. The study shows results based on net profit percent when defining the top and bottom 25% groups. It also includes several breakdowns by business focus, number of jobs, and other variables to help you create a benchmark for your company.

 

The study is designed to rank participants’ companies by their percent of net profit after deducting all expenses, including paying a reasonable salary to the owner. The two major outputs to pay attention to are net profit margin and gross profit margin (where we’ve included labor burden items we pulled from operating expenses, aka overhead). Make sure you include the owner’s W2 pay in operating expenses before calculating net profit. Next, deduct all operating expenses from gross margin to calculate net profit.

 

The study addresses net profit before income taxes. Most consultants to the remodeling industry agree that viewing owner’s compensation, and net profit as a whole is a better way to compare any company, regardless of its legal organization (i.e., partnership, LLC, S corporation, C corporation) since the line between the owner’s compensation and net profits gets a little blurry. Although the study does not present the numbers this way, you can just add the two lines together to arrive at benchmark.

 

The preceding information is an excerpt from the National Association of Home Builders Remodelers’ Cost of Doing Business Study, 2012 Edition. The study’s results are broken down by region of the country, type of residential remodeler, 2011 revenue, number of jobs completed in 2011 and number of years in business. Download the data directly to your PC or iPad.

 

Read more about the e-Book.

 

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