Every year, our search for the Big50 uncovers some of the best-performing remodeling companies in the country. That said, it makes sense to see what their numbers have to say about industry benchmarks. Here are highlights from the Class of 2004.
No man's land. Nearly half of this year's Big50 Companies show revenues of between $1 million and $2 million. A closer look at gross margins and profit reveals a kind of "no man's land" somewhere between $2 million and $6 million in revenue. Companies in this revenue range performed 5 to 6 points lower on margin than smaller companies, and they only gained a little ground looking at 5-year averages. Companies in no man's land also achieved almost 3 points lower on net profit for both periods. Once again, on average, companies under $1 million in sales produce the most profit.
Top to bottom growth. A strong economy the past five years has encouraged growth, especially in remodeling, which, as an industry, is 50% larger than it was in 1999. But the average top-line growth rate for Big50 companies is very high — maybe too high. Two-year growth rates are more than 50% for almost 40 of the 50 companies, a pace that's difficult to sustain without careful planning and investment. Ten Big50 companies, however, got smaller in the past year. Most kept profits at 5-year levels, but a few showed gains, trading growth in the top line for growth in the bottom line.
Growing pains. With size comes larger numbers of employees, and, like the book says, management would be easy if it weren't for the people. More evidence of a no man's land in the $3 million to $6 million range is the drop in productivity (measured as revenue per employee) among both field and office employees.
Pay to play. Owner salaries are strong, although most fall below the benchmark of 10% of revenue, even when combined with cash bonuses (not included here). On average, companies spent less than 1% of revenue on training for field and office personnel combined.