Remodelers’ gross and net profit margins dropped from 2018 to 2021, according to the National Association of Home Builders’ (NAHB) latest report.
From 2011 to 2018, the average gross profit margin for remodelers increased at a steady pace, yet that flipped, dropping from 30.1% in 2018 to 24.9% in 2021, according to the NAHB’s Remodelers’ Cost of Doing Business Study.
Average Share of Costs
An average remodeling company’s revenue in fiscal year 2021 was $1.9 million. Breaking that down, 75% of those funds were used on “cost of sales,” such as labor, material, and trade contractor costs. Another 20% went toward operation expenses, such as general and administrative, finance, and owner’s compensation.
The net margin before taxes was 4.7%.
Putting it into perspective, the net profit margin in 2011 rested at 3% then remained steady from 2015 to 2018 at 5.3% and 5.2%, respectively.
Gross profit margins in recent years were between 26.8% (in 2011) to 30.1% (in 2018), according to the report.
Influences on Declines
Why did revenue drop amid times of high demand? The report suggests the increase in trade contractors’ cost and direct costs for single-family home building. The share of revenue spent on trade contractors’ cost increased from 29% in 2018 to 36% in 2021.
This data on direct costs for single-family home building comes from the likelihood of remodelers constructing new homes. With high demand for new construction in 2021, more remodelers hoped to take advantage.