KPIs are a measurement that indicates how your business is doing in relation to your predetermined business objectives. The objectives of your roofing business may include profitability, cash flow, efficiency, and getting paid.
You can choose which KPIs you want to track depending on what is most important to your company. You can use these valuable metrics to track if the improvements and changes you are making to your business provide you with the results you seek.
The six important KPIs that every roofer should consider tracking:
1. Accounts Receivable Turnover
This KPI shows how many times your invoices are paid in full by your customers in a particular period.
It is used to establish and improve the efficiency of your company's revenue collection process over a given time period. It is important to track accounts receivable turnover because you need to ensure that your business is getting paid in a timely manner. That way, you’ll have sufficient working capital to keep operating and invest in growth.
Ideally, you want a higher AR turnover ratio. The higher the AR turnover ratio, the more efficient your collections process. You can also compare this ratio with other competitors in the roofing industry to get a better idea of what the industry standard is and where you stand in comparison.
Recommended reading: 9 Tips to Improve Your Accounts Receivable Turnover
2. Days Sales Outstanding
Similar to many construction businesses, it can take a while for your roofing business to get paid. This is especially true for commercial contracts. Due to this fact, your cash flow could take a hit in the early stages of your project. Days sales outstanding track the average length of time it takes your business to collect payments.
You need to monitor your DSO because it reflects how fast or slow your business is getting paid. A low DSO means that your business is collecting your receivables quickly, and a high DSO means the opposite. The faster your business collects cash, the faster it can reinvest that cash back into the business to generate more sales.
If your cash flow is tight and you want to improve your collections, you can track your DSO to see whether the changes to your collections process have positively impacted your receivables.
3. Gross Profit Margin
Gross profit margin is an important KPI to track. It shows you how much money your business is making after your equipment, labour and materials are taken away from your total sales, without including administrative or overhead expenses.
A high gross profit margin means you make more money on your projects. If your estimates are accurate, you should be able to boost your gross profit margin with greater confidence.
4. Cost Variance
Cost variance is the difference between the actual cost incurred and the budgeted cost of a project.
Your business needs to track this KPI because you want to be able to create accurate budgets and estimates. If your actual costs exceed your budget, you should identify which items went over and why. Then you can use this as a learning opportunity to improve your next estimation.
5. Average Revenue per Hour Worked
By managing your staff's time effectively, you can increase your company’s overall productivity and profitability. Tracking average revenue per hour worked can highlight which types of projects are most profitable for your company.
Without this information, you may spend your time focusing on jobs that appear most profitable but actually aren't
6. Planned vs. Actual Hours
Labour is a significant cost for your roofing business, and you want to be able to have an accurate estimate of the number of labour hours a project will require.
Knowing this gives you the ability to improve your work allocation and staffing. The best time to perform this calculation is after a project is completed. Once you have determined your planned vs. actual hours, you can determine if they are too high.
If so, your labour costs are eating into your profits. This will allow you to determine where this excess of labour hours is coming from, correct it for future projects, and be more competitive in your bidding when trying to obtain new jobs.
KPIs can help you understand how your business is performing and will allow you to track how well your business is performing. Identifying the best metrics for your business and tracking them regularly will help you make better decisions for your company.
Having accurate, reliable financials is fundamental to your KPI calculations. If you need help managing your bookkeeping, Enkel is here to help. Contact us to learn how we can help your roofing business today!