Eye On Housing
The Remodelers’ Cost of Doing Business Study, recently released by NAHB, is based on a nationwide survey of residential remodelers. The survey, conducted in 2012, asked remodelers to provide their income statements and balance sheets for fiscal year 2011. The study helps remodelers compare their financial performance against benchmarks for the industry as a whole as well as assess the financial health of their companies.
Figure 1 shows that, on average, residential remodelers earned about $1.1 million in total revenue. Of that, $831,000 (73.2%) was spent on cost of sales (items such as labor, material, and trade contractors), leaving them with an average gross profit of $303,000 – a 26.8% gross margin. After subtracting operating expenses, which averaged $269,000, remodelers were left with an average net profit of $34,000 – for a 3.0% net margin. Operating expenses included indirect construction costs, financing, sales & marketing, general and overhead expenses, as well as owner’s compensation.
Results across business models showed a discernible difference between what general and design-build remodelers earn. In terms of gross profits, general remodelers averaged a 22.2% margin, compared to 31.0% percent among design-build remodelers. The difference carried through to the bottom line as well: general remodelers’ net margin was 1.8%, less than half that of design-build remodelers, 3.9% (Figure 2).
Results for the top 25% and bottom 25% of all remodelers (in terms of net profit margin) show how the most and least successful remodelers performed. The net margin among that top 25% group, for example, averaged 15.9%, significantly higher than the 3.0% for the average remodeler.
Remodelers’ balance sheets showed an average of $269,000 in assets, $176,000 in liabilities, and $93,000 in equity. The current ratio among all remodelers was 1.49 and the debt-to-equity ratio 1.90.
Findings in the report are presented not just for all remodelers combined, but also across the four Census regions, by business model, revenue groups, number of years in business, and number of jobs completed so that remodelers can more accurately compare their numbers against similar peers in the industry.
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