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KPIs, or key performance indicators, help contractors measure how well their business is doing. When compared to the goals of the company, they can help management know where the problems are and what needs to be addressed. Contractors can choose to monitor their own KPIs or focus on a few that are standard across the industry. If your company isn’t tracking these measurements, here are some to get you started.
Gross profit margin or gross margin ratio is a measure of how much money a contractor is making on their projects. It can be calculated for individual projects or for all of them. To calculate gross profit margin, subtract cost of goods sold from sales income and divide the result by sales income. This gives you the percentage of gross profit. This KPI doesn’t include administrative or overhead costs. If you choose to subtract those costs from your sales as well, you’ll get the net profit margin.
Cost variance is a simple measure of the difference between the planned budget for a project and the actual costs incurred. To calculate the variance, multiply the planned budget by the percent complete and subtract the actual costs to date. This comparison can include all project costs or can be focused on a specific scope of work or subcontractor.
For contractors that provide labor-intensive work, comparing the number of hours you planned for the project with the actual hours can be very enlightening. Differences can highlight productivity issues or signal that the estimate is inaccurate. If you choose to measure this KPI, you’ll need detailed time records to make the comparison.
No one wants to admit it, but workers often spend a lot of time waiting for work to be ready. Measuring this downtime and comparing it to the total hours worked can highlight productivity issues. Workers have to be honest in reporting their actual time worked, and there can’t be repercussions if you want honest data.
Measuring and monitoring a business’s performance is key to ensuring continued success. If problems are found, you’ll need to do research to find out the cause. Then you can make changes to get your company back on track.
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