The Importance of Benchmarking in Construction
Date Posted: August 19, 2021
Posted In: Discussion, Ideas,
From RubinBrown: You may think your bid win rate is “really good,” but what defines really good? Should you be comparing against your competitors or your previous experience? To really see if the win rate is truly where you want it to be, you might consider doing both!
There are several reasons every construction company should be doing at least some basic benchmarking. It’s a clear way to set business goals that are measurable. You can monitor the results and hold your team accountable. Another bonus, it should help motivate your employees because they see a clear goal that is hopefully attainable, but also stretching their abilities. It’s an opportunity to take a step back from the daily grind and discover new ways of working, new ways to boost financial performance and just get the team thinking strategically. It can help you make strategic decisions for the future, improve productivity across employees and functions, and potentially help identify and reduce costs. It might also give you a quick insight into your company’s processes and areas where you could improve.
What benchmarks can you use?
First, you need to find benchmarks that are truly comparable to your construction company. Sometimes this is easier said than done, but there are resources out there where you can pick and choose relevant statistics. Don’t forget to use your company’s historic results, as well, to benchmark against.
Some benchmarks we find helpful and you might consider would be the following:
- Backlog to working capital
- Backlog to G&A – How many months of overhead expenses will be covered by your backlog?
- Gross profit per FTE
- Net over/underbillings to revenue
- Net over/underbillings to equity
- Stockholders’ equity to revenue
- Gross profit on completed and in-progress jobs
- Gain/fade analysis on jobs
- Finally, don’t forget your more commonly used ratios (e.g. return on equity, return on assets, current ratio, etc.)
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