Successful companies use key performance indicators (KPIs) to stay on top of their finances. Guess what? Construction companies can — and should — do the same.
Let’s break down some of the most important KPIs every contractor should know and track.
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Profitability Metrics
Want to know if your jobs are actually making money? These metrics help.
1. Gross Profit Margin
This tells you how much profit you’re making before paying overhead.
• Per project:
(Total revenue – Total project costs) / Total project revenue × 100
• For your whole business:
(Total revenue – Cost of Goods Sold) / Total revenue × 100
Tip: A higher margin = more profit. Top contractors achieved a 21.8% gross profit margin, According to the results of the Construction Financial Management Association’s (CFMA’s) 2024 Construction Financial Benchmarker online survey.
2. Net Income Margin:
Net income is among the most widely cited metrics related to profitability, but there are plenty of others, however this is an even definitive profitability metric. This is your real profit after covering all expenses — including taxes and interest.
• Formula:
(Total revenue – Net income) / Total revenue × 100
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Short-Term Financial Health Metrics
These KPIs show how well you can pay your bills in the next 12 months.
3. Working Capital
Think of this as your financial cushion, ability to cover short-term obligations and support daily operations. Examples of current assets include cash and accounts receivable, and examples of current liabilities include short-term loans and accounts payable.
• Formula:
Current assets – Current liabilities
4. Current Ratio
Can you pay what you owe using what you already have? Current ratio reflects your business’s ability to pay debt due within the year using its existing assets.
• Formula:
Current assets / Current liabilities
5. Quick Ratio
Like current ratio — but stricter. It leaves out inventory and focuses on how quickly you can turn assets into cash. Quick ratio is another metric that demonstrates your construction company’s ability to pay short-term obligations. However, it also considers the liquidity of your current assets — in other words, how quickly you could pay current liabilities.
• Formula:
(Current assets – Inventory) / Current liabilities
The CFMA’s Benchmarker survey average quick ratio in 2023: 1.4 (That’s a healthy number!)
higher figures generally indicate stronger financial and operational health, suggesting that you can safely invest in growth without jeopardizing operations because of excessive debt.
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Cash Flow Metrics
Cash is king — especially in construction, where payments can lag behind. We know that cash flow is critical to maintaining daily operations.
6. Net Cash Flow
Tracks your actual cash in vs. cash out which shows the flow of cash for a specific period.
• Formula:
Cash received – Cash spent
If it’s negative, check if payments are delayed or if you’ve made a big investment. Negative net cash flow may signal that your accounts receivable are lagging and you need to become more aggressive with your collection efforts. However, it’s not always a bad sign. For example, if you just launched a major business development initiative, negative net cash flow could mean that you’ve incurred costs without reaping the benefits yet.
7. Days in Accounts Receivable (DSO)
How long does it take to get paid? This KPI measures the average number of days your company takes to collect payment on invoices after you issue them.
• Formula:
(Average A/R for the year / Total invoiced) × 365
If it creeps over 30 days, watch out! You might be headed for a cash crunch.
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Each KPI is just a snapshot. The real power comes from tracking them over time. Look for patterns, compare year to year, and use benchmarks to see how you’re doing.
Need help figuring out which KPIs matter most for your construction business? Contact us or fill out the Prospective Client Questionnaire and we can move forward with seeing how we can best serve you— we’ll help you measure what matters.
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