Profitability Benchmarking: How Do You Compare to Your Industry?

Why Benchmarking Matters

You cannot improve what you do not measure, and you cannot evaluate what you do not compare. Benchmarking is comparing your financial performance to industry standards so you know whether your numbers are healthy, average, or a warning sign.

Most owners operate in isolation. They know their own numbers (hopefully) but have no idea how they compare. A 30% gross margin might feel fine — until you learn that your industry average is 45%. That gap is not a rounding error. It is the difference between a business that grows and one that struggles.

The Key Metrics to Benchmark

1. Gross Profit Margin

What it measures: Revenue minus cost of goods sold, as a percentage of revenue.

Industry benchmarks:

| Industry | Low | Average | Top Performers | |----------|-----|---------|----------------| | General contracting | 20% | 28% | 35%+ | | Specialty trades (plumbing, HVAC, electrical) | 35% | 45% | 55%+ | | Professional services | 50% | 65% | 75%+ | | Landscaping and lawn care | 40% | 50% | 60%+ | | Cleaning and janitorial | 45% | 55% | 65%+ | | IT services and MSP | 50% | 60% | 70%+ |

Where to find data: The Bureau of Labor Statistics publishes industry-level cost and revenue data. Trade associations (ACCA, PHCC, IEC, NAHB) publish member surveys with detailed financial benchmarks.

2. Net Profit Margin

What it measures: What is left after all expenses — COGS, overhead, taxes, owner compensation, and everything else — as a percentage of revenue.

Industry benchmarks:

| Industry | Low | Average | Top Performers | |----------|-----|---------|----------------| | General contracting | 2% | 5% | 10%+ | | Specialty trades | 5% | 10% | 15%+ | | Professional services | 10% | 18% | 25%+ | | Landscaping | 5% | 10% | 15%+ |

A net profit margin below 5% in most service businesses means you are one bad month away from a cash crisis.

3. Labor Cost as Percentage of Revenue

What it measures: Total labor costs (wages, taxes, benefits, workers' comp) divided by revenue.

Benchmarks:

• Service businesses: 25%–35% of revenue
• Construction: 20%–30%
• Professional services: 35%–50%

If your labor cost percentage is above the high end, you are either overstaffed, underpriced, or your crews are inefficient.

4. Overhead as Percentage of Revenue

What it measures: All costs that are not directly tied to job delivery (rent, admin, vehicles, insurance, marketing) divided by revenue.

Benchmarks:

• Under $500K revenue: 25%–35% overhead ratio is common
• $500K–$2M revenue: 20%–28%
• Over $2M revenue: 15%–22%

Overhead should decrease as a percentage of revenue as you grow. If it does not, you are adding overhead faster than you are adding revenue, which is a scaling problem.

5. Revenue Per Employee

What it measures: Total revenue divided by total employees (or FTEs).

Benchmarks:

• Trades and construction: $120,000–$200,000 per employee
• Professional services: $150,000–$300,000 per employee
• Landscaping/cleaning: $60,000–$100,000 per employee

Low revenue per employee means you need more people to generate revenue than your competitors, which compresses margins.

Where to Get Benchmark Data

Free Sources

• Bureau of Labor Statistics (bls.gov) — Wage data, industry statistics, cost indices
• SBA Office of Advocacy — Small business economic profiles by state and industry
• SCORE — Financial benchmarking tools and mentors who know your industry
• Census Bureau Annual Business Survey — Revenue and expense data by industry code

Trade Associations

Most trade associations publish annual financial benchmarking reports for members:

• ACCA (Air Conditioning Contractors of America)
• PHCC (Plumbing-Heating-Cooling Contractors Association)
• NAHB (National Association of Home Builders)
• Associated General Contractors of America

Paid Sources

• Sageworks (now Abrigo) — Private company financial data
• BizMiner — Industry financial profiles
• Risk Management Association (RMA) — Annual Statement Studies

How to Run Your Own Benchmark

Step 1: Gather Your Numbers

Pull your Profit & Loss statement for the last 12 months. Calculate:

• Gross profit margin
• Net profit margin
• Labor cost as % of revenue
• Overhead as % of revenue
• Revenue per employee

Step 2: Find Your Comparisons

Use the sources above to find industry-level data for your specific trade and business size. National averages are a starting point, but regional data is more useful if available.

Step 3: Identify the Gaps

For each metric, determine where you fall:

• Above average: This is a strength. Protect it.
• Average: Room to improve. Small gains here compound.
• Below average: This is a problem. Prioritize it.

Step 4: Diagnose the Causes

A gap is not an answer — it is a question. If your gross margin is 10 points below average, why?

• Are your prices too low?
• Are your direct labor costs too high?
• Are you losing money on specific services?
• Is material waste a factor?
• Are callbacks eating margin?

Use the gap to direct your investigation, not as a verdict.

Step 5: Set Targets and Track

Set specific, time-bound targets:

• "Improve gross margin from 38% to 43% within 6 months"
• "Reduce overhead ratio from 30% to 25% by year-end"
• "Increase revenue per employee from $140K to $165K"

Track monthly. Review quarterly. Adjust strategy based on progress.

The Comparison Trap

Benchmarking is a tool, not a judgment. Do not spiral if your numbers are below average. Many small businesses, especially younger ones, have below-average metrics. The point is knowing where you stand so you can improve.

And do not compare yourself to the top 10% and feel like a failure. Best-in-class numbers are aspirational targets, not the baseline expectation for every business at every stage.

The Single Most Important Benchmark

If you only track one number, make it this: net profit margin after paying the owner a market-rate salary.

Many owners claim profitability while paying themselves below market rate. If you replaced yourself with a hired manager at $80,000–$120,000 per year, would the business still be profitable? If not, you do not have a profitable business — you have a job that buys its own equipment.

That is the ultimate benchmark: does this business generate real profit after paying everyone, including you, what they are worth?