Builders’ Profit Margins Reached Highest Levels in a Decade
Profitability for single-family home builders reached the highest levels in more than a decade in 2023, as seen in results from the National Association of Home Builders’ (NAHB) most recent edition of the Builders’ Cost of Doing Business Study. Industrywide profit benchmarks are important because they allow companies to compare their financial performance against the entire industry. Doing so can guide resource allocation, budgeting and target setting for costs and expense lines. Additionally, understanding industry benchmarks more broadly can lead to an improved business strategy and to higher financial results.
According to Eye On Housing, On average, builders reported $11.3 million in total revenue for fiscal year 2023. Of that, about $9.0 million (79.3%) was spent on cost of sales (i.e., land, direct and indirect construction costs), which translates into an average gross profit margin of 20.7%. Operating expenses (i.e., finance, S&M, G&A, and owner’s compensation) cost builders an average of $1.4 million (12.0% of revenue), leaving them with an average net profit margin of 8.7%.
Based on historical survey data (performed every three years), the 20.7% average gross profit margin in 2023 was the highest registered since 2006 (20.8%). As a point of reference, builders’ gross margin sank to a record low of 14.4% in 2008 (i.e., during the housing recession), but bounced back steadily through 2017 (19.0%). The onset of COVID-19 in 2020 increased costs, causing builders’ average gross margin to drop (18.2%) for the first time since 2008.
