How Does Your Business Measure Up?

Filed in Economics, Home Building by on April 5, 2019 5 Comments

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 or by calling 800-223-2665.

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Comments (5)

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  1. Michael Overhoff says:

    I think this information is good, however for me a more helpful number would be the % of return on capital risked would be a real measurement.

  2. Henry Watts says:

    This is a very good and helpful analysis of profitability! I’m a small volume, “on the job” builder and a one man “C-Corporation.” Some of my “cost” may be one and the same in your analysis. And I may have my own definition of each. But under your COST OF SALES item, would you mind giving me an example of (Indirect Construction Cost) and under your OPERATION EXPENSE item, giving an example of your )General and Administrative Cost) and (Owner Compensation)? I think I know but would like your definition. Thank you very much for your replay and help!
    Henry Watts

    • NAHB Now says:

      Per NAHB’s Chart of Accounts, indirect construction costs are job site and non-unit specific construction costs, such as job supervision, estimating, purchasing and design personnel, warranty costs, construction vehicles, tools, and any other indirect costs. Examples of general and administrative expenses include salaries, payroll taxes, and benefits of non job-related personnel; office & computer expenses; vehicles; travel; entertainment; taxes; insurance; and professional services. Owner’s compensation includes owner’s salary, draws, bonuses and benefits.

  3. Kevin says:

    This is a good exercise but for better evaluations please consider sharing this information by region, product type, and volume.

    Thank you.

  4. Having worked with 250 builders over the past 21 years, it is a rare builder that makes 7.6% net on 19% gross margin. Most bill be at 4% – 6%. Some even lower. It usually take 22% – 24% Gross margin to produce 8% net.

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