Financial Definitions Used

Business benchmarks and how to hit them

September 30, 2004


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To encourage respondents to calculate their results in the same way and to improve the accuracy of the overall findings, the survey included the following definitions. We used the same accounting standards used by NAHB's Builder 20 and Remodeler 20 Clubs, which were provided by Steve Maltzman & Associates, the company that monitors the 20 Club financials, and further honed by Alan Hanbury, CGR.

Gross profit (margin): Sales dollars minus labor minus building materials minus other direct costs

Labor: direct labor, burden, subcontractors

Building materials: all products used in a project

Other direct costs: rental equipment for specific jobs, small tools consumed on specific jobs, and professional design fees for a specific job

Net profit: Gross profit minus operating expenses (overhead)

Operating expenses (overhead): indirect construction costs plus sales and marketing expenses plus general and administrative expenses

Indirect construction costs: Construction costs not charged to a particular job. Examples: small tools and equipment, construction vehicles, mileage reimbursements, callbacks and warranty

Sales and marketing expenses: sales manager compensation, sales staff compensation and commissions, estimating personnel compensation, and marketing

General and administrative expenses: Owner compensation, production management salaries, office and clerical salaries, design personnel salaries not directly charged to a job, payroll taxes and benefits, retirement, pension, profit sharing, bonuses, general office expense, rent, utilities, computers, vehicles, liability, property taxes, licenses and state fees, and professional services

Markup: the percentage added to direct costs to get the sales price on the job

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