Benchmarking is a method used to evaluate or check performance by comparing to an industry standard or other data.

Contractors may think their bid win rate is “really good,” but what defines really good? Should contractors be comparing against their competitors or their previous experience? To really see if the win rate is truly where contractors want it to be, they 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. Contractors can monitor the results and hold the team accountable. Another bonus, it should help motivate 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 make strategic decisions for the future, improve productivity across employees and functions, and potentially help identify and reduce costs. It might also give contractors a quick insight into the company’s processes and areas where it could improve.

What benchmarks can contractors use?

First, find benchmarks that are truly comparable to the construction company. Sometimes this is easier said than done, but there are resources out there where contractors can pick and choose relevant statistics. Don’t forget to use the company’s historic results as well, to benchmark against.

Some helpful benchmarks contractors might consider include the following:

• Backlog to working capital;
• Backlog to G&A: How many months of overhead expenses will be covered by 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; and
• Gain/fade analysis on jobs.

Finally, don’t forget more-commonly used ratios (e.g. return on equity, return on assets, current ratio, etc.)

Click here to read the original blog post by RubinBrown.