Industry benchmarks on profit margins, asset levels, and equity positions are important because they allow businesses to compare their performance to their peers, and that can be extremely helpful in identifying areas for improvement and increasing efficiencies. This is the reason why NAHB periodically conducts a survey asking single-family builders nationwide to (confidentially) provide their income statements and balance sheets. Complete results can be found in the recently released Cost of Doing Business Study: 2016 Edition, showing that profit margins continue to increase, but have yet to reach 2006-levels.
Builders reported an average of $16.2 million in revenue for fiscal year 2014, of which $13.2 million (or 81.1% of revenue) was spent on cost of sales (i.e. land costs, direct and indirect construction costs), thus leaving them with a gross profit margin of 18.9% ($3.1 million). Operating expenses (i.e. finance, sales and marketing, general and administrative, and owner’s compensation) consumed another $2.0 million (12.5% of revenue), and as a result, builders posted an average net profit (before taxes) of $1 million – a 6.4% net profit margin.