KPIs Every Home Builder Must Track for Success

Tracking Key Performance Indicators (KPIs) is essential in today’s residential construction market. Investors and hard money lenders heavily weigh a sponsor’s past performance and relevant experience when deciding whether to participate in a project. In addition, a volatile market in recent years has forced builders more than ever to make crucial decisions mid-project. Builders tracking a combination of Financial, Marketing, Sales and Operational KPIs across projects can clearly define successes on projects, as well as monitor ongoing performance and risks on current projects.

Below are common KPIs builders should track on projects for ongoing performance and use on past projects when sourcing new investors. Note this is not an exhaustive list, and each builder should define KPIs which signal success in specific deals & markets.

Financial KPIs

Gross Margin: The percentage of revenue that is retained as GROSS profit after subtracting Cost of Goods Sold. Builders should aim to operate at a 25% Gross Margin.

Net Margin: The percentage of revenue retained as NET profit after subtracting all expenses. Note the difference between Gross and Net Margin is your Fixed Expense Ratio. Builders should strive to achieve a minimum 10% Net Margin.

Debt to Equity: The degree to which assets are funded by liabilities as opposed to equity. A higher Debt to Equity ratio generally signals a higher degree of risk. Builders should consider a deal’s Debt to Equity ratio when considering the level of risk in a deal.

Operational KPIs

Warranty Claim Rates: The average number (and cost) of warranty claims on each unit. Builders should track this at a company level as well as individual subcontractor level.

Supplier On-time Delivery Rate: The rate at which suppliers deliver the correct material on time. Builders should track the rate for each supplier and focus on maximizing this percentage to avoid delays with related subcontractors, thus pushing back closing dates.

Variant Purchase Order (VPO) Frequency: Tracks the percentage of Purchase Orders requiring additional material and/or labor. A high VPO Frequency can signal an inaccurate estimating process, or a mismanagement of subcontractors on the job site.

Marketing KPIs

Cost Per Lead: Tracks the amount of investment required to generate a single lead. Builders should continuously push to maximize this ratio through cost-effective marketing strategies which target specific markets.

Lead Conversion Rate: The percentage of leads generated which are converted into customers. Signals the quality of leads introduced into the sales pipeline, as well as the efficiency of the sales pipeline itself.

Customer Acquisition Cost: The total investment required to generate a single customer. This differs from Cost Per Lead, as Customer Acquisition Cost includes additional costs incurred after first generating a lead, and only includes converted customers.

Sales KPIs

Sales Cycle Length: The average amount of time required to convert a lead into a customer. A longer sales cycle length presents more opportunities for a lead to fall off the sales cycle.

Sales per Channel: The number of customers generated from each sales source. Includes social media, word of mouth, in-person events. Indicates which channels to focus marketing and sales efforts.

Sales Pipeline Leakage: The percentage of leads lost at each stage of a sales process. Should be tracked at each major step to identify areas of improvement in the sales process.

R2 Management is The Builder’s CFO, combining decades of experience in the home building industry with connections to a variety of Investors searching for builders to partner with and deals to invest. We have directly managed over 18,000 Closings and $3.7 Billion in revenue for Builders and Developers. Our team of tenured professionals in the residential construction industry allow scaling or established Builders to rely on much-needed expertise without the tremendous overhead burden.