14 Benchmarks for Improving Your Construction Business
Do you want to improve your construction company’s productivity and profits? Try benchmarking — routinely reviewing your company’s (and your competition's) internal processes, like budgeting, scheduling, cybersecurity, safety record, and more. Construction benchmarking will help your construction business improve its productivity, leading to cost savings, quicker job completion, higher-quality outcomes, and less reworking. To improve your construction business profitability, Fox Blocks offers these 14 benchmark suggestions.
A quality-effective construction benchmarking study looks at internal and external key performance indicators (KPIs), all vital to ensuring a business's long-term performance and profits. It is best to choose the KPIs that most significantly impact the success of your company.
Interior KPI Benchmarks
Internal benchmarks review your historical financial and non-financial information to help you quickly identify potential weaknesses within your business, like a decrease in profits or a decline in repeat business.
Financial KPIs include information from the income statement or balance sheet, identifying sales growth or expense categories changes.
Non-financial KPIs assess the activities essential to an organization's achievement like customer relationships, employees, operations, quality, cycle time, and the organization’s supply chain.
1. Net Profit Margins
The net profit margin benchmark measures your business’s net income as a percentage of revenues (profits) received, evaluating if the profits drop below the planned amount. Successful construction businesses consistently achieve the desired net profit at the end of a project.
2. Assess the Accuracy of Cost Estimates
Accurate construction cost estimates ensure you don’t go over budget and that you achieve the desired net profit. Carefully monitoring past assessments for over and underbids will improve the accuracy of future estimates and the profitable success of those projects.
3. Review Change Orders
Change orders (an amendment to a construction contract) can increase the cost of a construction project by 11 to 15 percent, pushing the work 20 percent past scheduled completion dates. Evaluating change orders as part of your benchmarking study will help to limit the need to amend future construction contracts.
4. Evaluate Scheduling and Completion Times
Good scheduling can eliminate production bottlenecks, facilitate the timely procurement of materials, and otherwise ensure timely completion. Poor scheduling, however, can lead to considerable labor and equipment waste as they wait for resources or the completion of tasks. Delays in completing the entire project due to poor scheduling can also reduce profits and ruin reparations. A crucial KPI must include continuous evaluation of scheduling and completion times.
5. Review Overhead Costs of Projects
Many contractors neglect to include overhead costs in their bids, forcing some out of business. Overhead expenses include the home office, salaries, bookkeepers, internet, insurance, job site trailer, sanitation facilities, etc. For the future success of your construction business, you should include a review of overhead costs in your benchmark study.
6. Tender Success Rate
To help gain a competitive edge over your competitors, you should determine your tender success rate and solicit feedback from your unsuccessful bids. The feedback can help you understand why they choose your competitors over you. With this information, you can improve your tender performance rate.
7. Energy Performance
Today’s building market demands high-performing, energy-efficient structures. Upon completing a project, benchmarking the structure’s energy performance will help you understand how you might improve future projects and how your building compares to your competitors' ﹘vital information in this competitive construction market.
In 2021, most millennials (age 21-38) who make up the largest share of new home buyers ﹘ demand energy-efficient features for their new home. To stay competitive, today’s builders and architects must include innovative, energy-efficient products, like Fox Blocks insulated concrete forms (ICFs), into the design of their construction projects.
8. Provide Your Customers with a Satisfaction Survey
Customer satisfaction surveys provide a benchmark for taking your business to the next level of customer satisfaction. The information you gather from these surveys will help you improve customer loyalty and increase sales revenue.
9. The Health and Safety of Your Job Site Environment
Every year construction businesses lose time, money, and productivity due to accidents and illnesses. Therefore, for the success of your project, you should include a health and safety KPI into your benchmark study, such as lost time due to injury or illness and frequency of medical treatment. This information can help you establish safer working practices, training requirements, and ensure compliance with regulations.
10. Cyber Impact on Your Business
Cybercrime can impact your construction business, both financially and professionally. Several factors put construction companies at significant risk of cyber attack: temporary job site locations where workers connect to business systems remotely, the file-sharing between external project partners, and ransomware, malware, and phishing. Therefore, a construction business’s benchmark study must include ongoing cybersecurity and maintenance.
11. Evaluating the Supply Chains
Tariff activity, along with the COVID-19 pandemic, has led to a breakdown in supply chains, creating volatility and escalating prices. A situation that makes cost forecasting increasingly tricky, particularly with lumber. Therefore, to save on costs, stay on schedule, and improve productivity, construction companies’ KPIs should include supply chain risks.
12 Monitoring Labor Shortages
The construction industry’s continuing labor shortage challenges builders to stay on schedule and budget. Construction businesses must monitor the availability of qualified labor and project managers to ensure they have a good team of employees for the project's duration.
External benchmarks compare your company’s performance to peer companies; how does your debt-to-equity ratio, profitability, days’ sales outstanding, or time to completion compare with those of your competitors? Comparing your performance to your competitors will help you highlight your weaknesses and strengths, creating opportunities for improvement.
13. Industry-Wide Benchmarking
Industry-wide benchmarking allows you to compare your company to the industry performance average. For instance, a company should strive to have a net profit margin higher than the industry average. You can find industry-wide benchmarking data in many published surveys conducted by private firms.
14. Competitive Benchmarking
Competitive benchmarking compares your business's performance to peer companies; for instance, how does your net profits, debts, and safety record compare to your competition? Comparing your performance to the competition will help you recognize your strengths and weaknesses and ways to improve your productivity and profits. Industry organizations, like trade associations, can provide good regionally focused external benchmarking information.
Improve Your Construction Business Profitability With Effective Benchmarking
Benchmarking will help you identify the strengths and weaknesses of your construction company so you can carefully implement solutions. Sharing your benchmarking results with your team can motivate them to address problems efficiently at the start. It also helps build the staff’s enthusiasm to carry through with the changes needed to maximize productivity and profits. Routinely monitoring your benchmarking results as part of your regular financial reporting will improve your company's performance and efficiency, significantly enhancing your earnings, costs, and revenues.
Building a structure with Fox Blocks ICFs assists with all of the above points and makes the building process more manageable. Thanks to remarkable energy efficiency, efficient construction speed, improved safety, larger project scope, and the need for a smaller crew, ICF builds are one of the best ways to improve the efficiency and bottom line of your construction business.
For more on how commercial construction can improve your business and how to improve in the construction business with benchmarking, contact the professionals at Fox Blocks today.