Benchmarking Data Offers Strategic Insights for Construction Industry
How does your company compare to the competition? How can a company that is smaller than yours be so much more profitable? How do your competitors continue to grow when your company has leveled off? What does your debt-to-equity ratio suggest about your business? These are the questions the leaders of construction companies routinely ask themselves — but how often do they get solid answers?
For the past three years, the CliftonLarsonAllen construction and real estate professionals have been compiling financial data from our construction companies across the United States to try to provide some answers to the financial questions that construction owners always seem to have on their minds.
Drawing on data gathered from more than 300 companies, the financial results for 2014 are more comprehensive than ever.
The benchmarking process
CLA collects financial and nonfinancial information from construction company clients who have agreed to participate in the benchmark survey. All client-specific information is kept strictly confidential.
CLA’s analysis includes comparative financial statements, key performance indicators, trend analysis, and easy-to-read graphs. The benchmark study provides a visual snapshot of a company’s financial position and operating results compared to other companies of similar size, trade, geographic location, and other specifically defined variables.
The results are grouped into four industry segments:
- General building
- Heavy highway/civil
- Specialty contractors
Best in class contractors
The benchmarking survey designates best-in-class contractors by identifying those in the top 20 percent for “income from operations as percentage of revenue” of each industry segment. The results in the key performance indicators graphs below represent the median within the best-in-class contractor group for each industry segment.
Key performance indicators
Most construction owners are keenly interested in the results of this survey. It provides a financial perspective that can inform near-term decisions as well as long-term strategy. Some of the most spirited discussions we’ve had with clients involve the following issues, illustrated over a three year period in the graphs below:
Additional 2014 trends
In addition to discussing the key performance indicators above, we also uncovered some interesting trends in several industry segments. For instance, in the general building cohort:
- Overbillings represented 1.78 percent of revenue
- Revenue per project manager equaled $4,444,350
In the heavy highway and civil grouping:
- Equipment purchases were 228.92 percent of depreciation expense
- The margin on self-performed work (revenue less subcontract expense) was 20.32 percent
In the electrical and mechanical segment:
- Revenue per direct labor dollar was $4.01
- Days of cash were 25.55
Most contractors are excited to explore these numbers and contemplate what these trends might mean for their organizations. Some clients put these numbers to work right away, trying to determine what they infer about their processes and efficiency. Others look at them to head off future risks. If you are on the positive side of the median, these numbers may support the way you’ve been doing business for years. If the survey reveals that you have some work to do, those numbers can suggest where you can focus to make improvements.
How we can help
How could you use a detailed analysis your company’s key performance indicators? What might you do differently if you know how your company’s performance compared to others in your industry? Are you positioned well and prepared for the future that the industry trends suggest are heading your way? Maybe it is time to dive in to the data.