Labor is top expense for remodelers
Labor is top expense
Whether the work is performed in-house or subbed out, labor leads all expenses, accounting for 44 percent of all expenditures. That number was basically equal across companies of all sizes, but the split between employees and subs shifted as revenues increased. (We've split expenses out by company size in the adjacent table.)
The percentage of money spent on direct labor decreases and the amount spent on subs increases as company size increases. Only the smallest companies spend more on direct labor costs than subcontractors, and the largest companies spend more than two-thirds of their labor costs on trade contractors. (For more on labor, click here.)
Building materials accounted for 27 percent of expenditures, with little difference between companies of varying sizes, except that those under $500,000 spend a slightly higher percentage on materials. That's probably due to the very low overhead these small firms have.
Owner's compensation ranged from 4 percent of revenue for the largest firms to 8 percent for the smallest. For the second year in a row, the real dollars ($17,808) that equates to for the smallest firms seem low. One possible explanation is that owners were not taking into account profits and other benefits, such as a company truck, that they pull out of the business. It's also quite possible that these smallest firms are only part-time endeavors for the owners.
SLIPPAGE A PROBLEM
Most companies continue to have problems hitting their profit goals. The average company is aiming for a gross profit of 28 percent but ending up with 23 percent. Nearly half of companies have gross profits under 20 percent, and 23 percent have gross profits under 10 percent. In fact, 14 percent had a target gross of under 10 percent, a number that would seem to make it difficult to stay in business. More than a third of companies targeted a gross profit under 20 percent.
There was, however, significant difference in the net profit percentages, which declined as revenue increased. There was also less slippage by the largest firms, likely reflecting their better handle on overhead costs. The smallest firms aimed for a 23 percent net profit, achieving only 16 percent on average, while the largest companies aimed for 12 percent and achieved 9 percent.
Overall, more than 60 percent of companies had net profits under 10 percent and 9 percent of firms had no profit in 2008. Nearly half of companies had a target net profit of under 10 percent.
To read more of our survey, click the links below:
Examining the depths of the downturn
Revenues take a plunge
Labor is top expense
Small workforce the norm
The amazing shrinking job
Repeats and referrals dominate
Lean sales operations