As a builder or construction business owner, you understand the importance of taking measurements.

In accounting, we like to do things the same way. Our philosophy is: You manage what you measure!

But instead of measuring lengths and widths, we keep a close eye on specific numbers within a business; your metrics. When you track the most important numbers, you will be able to make better decisions and pinpoint small financial problems before they become large ones.

Here are some of the metrics we recommend building companies keep in check:

• Breakeven
• Gross Profit (Margin) per job
• Average hourly rate
• Slab pours per month
• Proposal/ tender requests
• Conversion rate
• Google/ FB reviews

How to know your break even

Do you know the exact amount your business needs to stay operational? Follow the steps below to find out (we have added some example figures to give you a clearer idea):

• Calculate your total annual Fixed Expenses (overheads) (eg $300k)
• Calculate your average Sales Price per job (eg $125k)
• Calculate your average Gross Profit (Margin) per job (eg $25k) [20%]
• Divide Fixed Expenses ($300k) by average Gross Profit ($25k) = 12 jobs needed to break even

Using the numbers above, a break-even turnover would be 12 x $125k = $1.5m.

More key metrics for builders

There may be some hidden issues affecting your profits. Take a look at some other metrics which may impact your ability to break even and generate enough cash:

• Actual to budget costs per job at least weekly
• Profit margin per job versus target
• Average hourly rate
• Capacity to take on new work

You can also do a quick stocktake. Figure out who are your most/least profitable customers and who are your most/least productive staff. You may get some clues as to why revenue or profits aren’t where they should be…. for example if the least profitable clients are the ones you spend the most time with.

Finally, take a look at your hourly charges. Are they covering the following:

• All labour time
• Subcontractor time
• Owner time on jobs (including project management, supervision etc)

If you have been wondering why there are always shortfalls, it could be because you are not billing correctly.

How to track construction business metrics

The metrics you measure in your business will be unique to you, depending on your services, your goals and your business model.

Tracking them will help you make sure they are in the right shape. Ideally, you will work with an accountant or bookkeeper who can quickly and accurately give you access to information about your metrics.

To stay clear about where your money is coming from and in which amounts, use financial and job management software. For accounting, Xero, Quickbooks and MYOB are incredibly useful as they will give you at-a-glance updates on financial balances, outstanding accounts and unpaid invoices.

As a builder, you can use CoConstruct, Buildertrend or BuildXact to track tasks, labour and more. Allocate time each month to review hours worked, money spent and money collected and you’ll be able to understand if your business is doing well or if it needs changes.

Confused? If it all feels like too much, speak with an accountant who specialises in the construction industry. A regular meeting will make life easier than trying to track and measure everything yourself.

If you do prefer to have control in this area, here’s an outline of what to review and how often:

Want help to understand your key metrics and build a construction business that gives you a financially rewarding life? Speak to Imagine Accounting today.