When it comes to gauging the health of your business, you know the importance of having and tracking your company’s key performance indicators. But as times change and the economy fluctuates, you need to make adjustments. Looking ahead, are your current benchmark numbers really the ones you ought to use? We searched for benchmarks covering operations, customer satisfaction, marketing, and social media and the Web. These numbers, gleaned from industry experts working with many of the nation’s top remodeling companies, can be used as lagging indicators as well as leading indicators—guides from which you can create goals for your own company. As industry consultant and REMODELING columnist Shawn McCadden says, “Use benchmarks to create a reference point and establish goals for what you want to accomplish, and to figure out a plan for how to get there. Then look back and ask, ‘What is the message my benchmarks are telling me from year to year?’”

Operations

Victoria Downing, president of Remodelers Advantage Roundtables (RAR) and a Remodeling columnist, sees the following numbers as the important benchmarks to track. They are gathered from a group of successful remodeling company owners who follow best practices and strive for professionalism in all aspects of their business.

Owner’s compensation: 18%

An often heard rule of thumb about owner’s compensation is that it should be 10% of revenue. The average for these RAR members is higher. If you compare yourself to other similar businesses to reach the bar they set, it’s important to understand how they arrived at that particular number. For compensation, RAR looks at “The combined net before bonuses—you have to earn it before you give it away—plus the salary or dividends or draws, that is, however [owners may] take out their own compensation.” RAR’s stretch goal is 20% of revenue going to the owner, Downing says. “Our members should earn enough to take an above-average owner’s salary and get a good return on their investment, which is net profit.”

On track to meet X% of budget: 115% It’s important to know whether you’re going to meet your financial goals. At this point, the RAR group was ahead of budget. If they continued at this rate they would produce 115% of what they had budgeted. Tracking your progress and knowing where you stand with regard to that goal helps you determine what you need to keep doing or stop doing.

Cost of goods sold: 65%
Gross profit %: 35%
Overhead expenses: 24%
Net profit: 11%

Look at COGS, GP, and overhead, Downing says, to see if you’re going to be on budget and hitting the percentage that you planned for. “There is not any one ‘right’ percentage,” she adds. “These are measuring tools. Overhead expenses can be 40% if you can come out at the bottom with a net profit of 8% to 10%. That’s the real scorecard. It gives you the equity to buy equipment, build your business, and reward employees.”

You also want to look at your slippage (the difference between your estimated and actual costs). “What’s acceptable is 2% of the job cost one way or the other. You want to be accurate,” Downing says.

For Remodeling’s Big50 class of 2013, average gross margins for 2012 were around 33% and net profits were roughly 9%. That’s not only the best showing for any Big50 group since 2006, it also knocks the socks off of the 26.8% margin and 3% net profit recorded in the 2012 National Association of Home Builders Remodelers’ Cost of Doing Business Study. Gross profit within the 2013 Big50 group ranged from a low of 12.5% to a high of 59.3% and a median (half above, half below) at 32.8%, while the range for net profit was from a negative 1.2% to a robust 25.6%. The median point was 7.3%.

Quick Ratio: 1.37
Current Ratio: 1.70

The quick ratio equals accounts receivable divided by current liabilities; 1.37 means that the average for these companies is $1.37 of liquid assets to every $1 of current liabilities. The Current Ratio is all current assets divided by current liabilities. You want to have $1.50 to $2 for every $1 of liability.

The CR tells you—if you had to close down your business tomorrow—whether you would end up with cash or owing money. “You don’t want [the current ration] to be less than one. It gives you a low liquidity ratio—the stuff banks look at if you want to take out a loan,” Downing points out. “If it’s too big, say 5 to 1, you should think about taking money and putting it outside of the corporation. If someone sued you, for example, you’d have a lot of cash and liquidity.”

Percentage of raw leads to new prospects: 59%
Close ratio: 35%
Construction contracts: 24
On track to meet % of budget: 111%

When setting lead benchmarks, you have to define for yourself what a lead is. RAR defines “raw leads” as anything from online and calls that come in, including referrals. These top remodelers deem 41% of their leads as unworthy and turn 59% into appointments. The close ratio is defined as construction contracts divided by the number of new prospect meetings. About 1 in 5 leads turn into actual construction contracts.