Annual SORCI Report Shows Positive Signs for 2023

Houston, TX – The State of Residential Construction Industry (SORCI) Report for 2023 has been released by the  Association of Professional Builders (APB). Compiled annually, the report surveys hundreds of residential home builders in the U.S., Canada, Australia, and New Zealand.  The 2023 SORCI Report explored four key areas of insights for builders: finance, sales, marketing, and technology.

Among the key takeaways for 2023:

• 7% of jobs were delivered on time despite material delays and other supply chain shortages, extreme weather, and personnel shortages.
• Average contract values improved over 2021, with a steep incline of contract values in excess of $1 million.
• Generating quality leads remains the top key challenge for builders with 40.4% of builders surveyed citing this as their number one sales issue.

Builder finances

Understanding cost escalation clauses as they relate to their own contracts is a critical area for builders’ financials. In Australia, 33% of builders declared their contracts incorporate special conditions to include cost escalation clauses. This number still lags behind New Zealand builders where 85.5% have protected themselves with such clauses, the United States with 61.8% and Canada with 44.1%.

Financial understanding has not been at the level it needed to be for builders in previous years, however that is clearly starting to change. Even more encouraging is that 70.5% of builders showed they understand the difference between markup and margin. This statistic is further substantiated because the builders who claimed to know the difference were also tested.

Almost 75% of builders also know their fixed expense ratio and more than half of the builders surveyed (57.3%) produce monthly financial reports. Sixty percent monitor gross profit margin on every job on a monthly basis.  Additionally, 58.1% of builders experienced an increase in sales revenue in 2022 and 72% are expecting revenue to increase in 2023.

According to Russ Stephens, Co-Founder, APB, “As builders become smarter about finances, in particular in the areas of cost escalation clauses, the differences between markups and margins, and their fixed expense ratios, among other key financial scenarios, they will truly be able to continue to improve their bottom lines and thrive, no matter the market conditions.”

Sales

Sales continues to be one of the more challenging areas for builders according to the report: 40.4% of builders cited their number one sales challenge is generating quality leads. Additionally, only 50.3% of building companies reported having a documented sales process. On the positive side, companies that do have a documented sales process in place are approximately four times more likely to achieve industry standard gross margins of 25% and above.  Overall, the outlook from builders for 2023 remains quite similar to 2022, with 46.2% of respondents expecting to sign more contracts than last  year.

Marketing

YouTube was cited as an important marketing tool by builders across all geographies. Builders in Canada are currently leading the way on this platform with 20.5% reporting that they post at least one video on their channel monthly.

Publishing content on a blog remained similar to 2021 data with 64.1% of building companies not creating any content over the past 12 months. Of builders who do publish content, 63.6% do it in-house while 35.8% outsource the task.

Marketing represents a huge growth opportunity for builders and is likely the reason why the few builders that do engage in marketing activities find it easier to sign so many contracts at higher margins – their competitors are virtually invisible.

Technology 

Builders stand to gain efficiencies in utilizing technology and software. During 2022, 91.3% of builders handled their estimates in-house. In terms of outsourcing, it was New Zealand’s builders that lead the way with 22.6% of builders trusting a third party with this time-consuming task.

A baffling trend emerged in terms of the number of builders now using spreadsheets to compile their estimates which actually rose from 31.1% in 2021 to 36.4% in 2022. Considering it has been well documented that 88% of spreadsheets contain errors, it’s surprising that more builders have turned to spreadsheets as a solution. The exception to this trend was in Canada where only 24.2% of builders now use spreadsheets for their estimating compared to 52% in 2021. Overall, 37.9% of builders invested more money into software in 2022 with 26% of respondents expecting to spend more again in 2023.

A complimentary PDF of the full 2023 SORCI Report can be downloaded at https://go.associationofprofessionalbuilders.com/sorci-download.