It may seem easy to figure out how well your company is doing – you just look at whether or not you made a profit this month or this quarter. But you need to dig deeper if your profits are erratic or not at the level you’d like or expect them to be. You need a way to measure your business’s performance in key areas and to identify areas that can be improved.
For starters, you can compare current and past performance to identify trends. Another approach: Compare key metrics with those of successful construction firms of a similar size. The data and insights gained from this type of performance benchmarking exercise can be invaluable.
Obtaining Data
Use credible data from similarly sized companies within your geographic region for your analysis. Choose an industry group source – generally based on North American Industry Classification System (NAICS) code – that best represents your business. And look into joining national industry and trade associations so you can access the financial and surety data they collect from their members every year.
Financial Benchmarking
This is a critical area for measurement since access to bonding and credit will depend on your business’s financial health. Important metrics include:
- Profitability ratios, such as gross profit margin, return on assets and return on equity
- Liquidity ratios, such as the current ratio, which measures your firm’s ability to pay off short-term obligations as they become due
- Underbilling ratios, such as the underbillings-to-equity ratio, which measures the percentage of your business’s net worth represented by work performed but not yet billed
- Backlog ratio, which lets you know how quickly the firm is working through its backorders
- Asset utilization ratios, such as the fixed-asset turnover ratio, which measures how efficiently your company is using its assets
- Debt utilization ratios, which help your business measure its liabilities in relation to its earnings ability and asset base
Operational Benchmarks
This generally includes everything from staffing and productivity to office flow and analysis of procedures performed. Potential areas for analysis and comparison include:
- Job site accidents
- Number of change orders
- Productivity levels per employee
There are other areas in which comparing your company’s performance with those of competitors can be helpful. For example, look into sales and marketing issues and your firm’s fuel and energy use.
If you would like advice and input on the most effective way to benchmark your company’s performance, please call us. We can help you set up systems that will capture the data critical to your growth.
