5 KPIs Every Contracting Business Owner Should Track Monthly (and Where to Find Them)
Quick answer: Five useful KPIs for a contracting business are gross profit margin, overhead percentage, revenue per field employee, days sales outstanding (DSO), and backlog. Together, they provide a snapshot of job profitability, operating costs, workforce productivity, cash collection, and future workload. Reviewing them monthly can help you identify problems that may not be obvious from your bank balance alone.
A lot of contractors run their business by checking the bank account. If there's money in it, things feel fine.
The problem is that a bank balance tells you what is in the account today. It doesn't necessarily tell you whether your jobs are profitable, whether overhead is getting too high, whether customers are paying on time, or whether you'll have enough work a few months from now.
That's where key performance indicators, or KPIs, come in.
You don't need dozens of metrics to understand what's happening in your business. Start with a handful of numbers you can calculate consistently and compare from month to month.
The 5 KPIs at a Glance
| KPI | What It Tells You |
|---|---|
| Gross profit margin | Whether your jobs are producing enough gross profit |
| Overhead percentage | How much of your revenue is going toward operating costs |
| Revenue per field employee | A basic measure of field productivity |
| Days sales outstanding (DSO) | How quickly you're collecting customer payments |
| Backlog | How much contracted work remains |
The exact targets for these KPIs will vary by trade, business model, market, and accounting practices. The important part is establishing consistent calculations and watching the trends over time.
1. Gross Profit Margin
What it is: Gross profit margin is the percentage of revenue remaining after direct job costs are deducted.
Formula:
Gross profit margin = (Revenue − Direct job costs) ÷ Revenue × 100
Direct job costs can include materials, direct labor, and subcontractors assigned to the work.
Why it matters: Gross profit margin shows whether your revenue is covering the direct costs of the work at the margin you're targeting. Tracking it by job can also reveal which types of work are consistently producing better or worse margins.
For example, if one type of project regularly produces a much lower gross margin than your other work, you may need to review how you're estimating labor, materials, subcontractors, or other job costs.
It's useful to track gross margin both by job and across the entire business. A company-wide margin can look acceptable while individual jobs are consistently underperforming.
Keep in mind that gross profit isn't the same as net profit. Gross profit is calculated before overhead and other operating expenses are deducted.
Where to find it: Pull it from job costing in your accounting or project management software, such as QuickBooks, Buildertrend, or a similar system. Compare actual job costs against the original estimate for completed jobs.
If you're not tracking costs by job, this is one of the first systems to put in place. Without accurate job costing, your gross margin numbers may not tell you much.
2. Overhead Percentage
What it is: Overhead percentage measures operating overhead as a percentage of total revenue.
Formula:
Overhead percentage = Operating overhead ÷ Revenue × 100
Overhead generally includes business expenses that aren't assigned directly to a specific job, such as office expenses, administrative wages, insurance, software, and certain vehicle costs.
Why it matters: Overhead is the cost of running the business outside of the direct costs of completing individual jobs.
It's also an important part of pricing. If your overhead increases but your pricing doesn't account for it, your margins can gradually decline even if individual jobs appear profitable.
For example, adding an office employee, taking on a larger vehicle payment, increasing insurance costs, or adding software subscriptions can all increase the amount of revenue your business needs to generate.
Tracking overhead as a percentage of revenue helps you see whether those costs are becoming a larger part of the business.
Where to find it: Start with your monthly profit and loss statement. Separate direct job costs from operating expenses so you're not combining the cost of performing the work with the cost of running the business.
You can also compare your current overhead percentage with previous months to identify changes before they become a larger problem.
3. Revenue per Field Employee
What it is: Revenue per field employee is total revenue divided by the number of field or crew employees.
Formula:
Revenue per field employee = Total revenue ÷ Number of field employees
Why it matters: This is a simple productivity indicator that can help you identify changes in staffing efficiency over time.
If revenue per field employee is trending downward, it may be worth looking more closely at scheduling, job mix, employee utilization, project delays, or staffing levels.
A rising number doesn't automatically mean you're understaffed, either. It should be considered alongside backlog, labor costs, job schedules, and crew capacity.
For example, a contractor with a growing backlog may have strong revenue per employee but still need to add workers to handle upcoming projects. Another contractor may have declining revenue per employee because several employees were hired ahead of expected growth.
The number is most useful as a trend rather than as a standalone measure.
Where to find it: Pull monthly revenue from your profit and loss statement and employee headcount from payroll records.
For a more meaningful comparison, track the trend over several months rather than reacting to one month's result. Seasonal contractors may see significant changes in revenue and staffing throughout the year.
4. Days Sales Outstanding (DSO)
What it is: Days sales outstanding measures the average number of days it takes to collect payment after making a credit sale.
Formula:
DSO = (Average accounts receivable ÷ Credit sales during the period) × Number of days in the period
Why it matters: A contracting business can be profitable on paper and still have cash flow problems if customers are slow to pay.
As DSO increases, more of your cash can become tied up in accounts receivable. That can make it harder to cover payroll, purchase materials, or fund your next project.
For contractors, DSO can be more complicated than it is for some other businesses because of progress billing, retainage, deposits, and longer commercial payment terms. That's why DSO is best reviewed alongside an accounts receivable aging report.
A rising DSO is often more important than a single DSO number. If customers are taking longer to pay than they were several months ago, it's worth investigating why.
Where to find it: Your accounting software may calculate DSO automatically. If it doesn't, you can calculate it using your accounts receivable and sales data.
Also review your accounts receivable aging report each month so you can identify overdue invoices based on their actual payment terms.
5. Backlog
What it is: Backlog is the value of contracted work that has not yet been completed.
Depending on how your business tracks projects, backlog may include work that hasn't started as well as remaining work on projects already underway.
Why it matters: Backlog gives you a view of the work already committed to the business.
A healthy backlog can help with staffing, scheduling, purchasing, and capacity planning. A shrinking backlog may indicate that your future workload is declining, even if the business is currently busy.
For example, a contractor may have several crews working at full capacity today while having very little contracted work scheduled for the following months. The current workload looks strong, but the backlog could reveal a future slowdown.
Backlog should also be considered alongside your crew capacity. A large backlog isn't necessarily good if you don't have enough employees, equipment, or time to complete the work within the required schedules.
Where to find it: Your project management or estimating software may track signed contracts and remaining project value. If you're using a spreadsheet, update it whenever a contract is signed, a project starts, or completed work changes the remaining value.
Don't Look at KPIs in Isolation
These KPIs are most useful when you look at them together.
A contractor could have a strong backlog but weak gross margins. That means there may be plenty of work coming in, but not enough profit in that work.
Another business could have healthy margins but rising DSO, creating a cash flow problem as more money becomes tied up in unpaid invoices.
You might also see revenue per field employee decline while backlog is increasing. That could indicate a staffing or scheduling issue rather than a lack of demand.
Looking at the trends together gives you more context than any single number can provide.
A Simple Monthly KPI Routine
You don't need a complicated dashboard full of metrics to start tracking your business more closely. Pick a consistent day each month, ideally after your books are closed, and review the same five KPIs.
A simple routine is:
Review gross profit margin by job for projects completed during the month.
Check overhead percentage against the level you need your pricing to support.
Compare revenue per field employee with recent months to identify productivity or staffing trends.
Review DSO and accounts receivable aging for changes in collection times and overdue invoices.
Update backlog and compare it with your crew capacity for the next 60–90 days.
The goal isn't to react to every monthly fluctuation. Instead, look for patterns that continue over several months.
Know Your Numbers Without Becoming a Bookkeeper
Tracking these five KPIs only works if the underlying financial records are accurate and current.
If job costs aren't being recorded consistently, accounts receivable isn't up to date, or expenses are categorized incorrectly, your KPI report can give you a misleading picture of the business.
That's where consistent bookkeeping and reporting become important.
TradesPro Services provides bookkeeping and reporting support for contracting businesses, helping contractors keep their financial information organized and turn it into useful monthly reports. Schedule a free consultation to discuss your bookkeeping and reporting needs.
Frequently Asked Questions
What's a healthy gross profit margin for a contracting business?
There isn't one gross profit margin that applies to every contracting business. The appropriate target depends on the trade, labor structure, material costs, subcontracting, overhead, pricing strategy, and other factors.
Rather than relying on a generic industry benchmark, compare your actual gross margin with the margin your business needs to cover overhead and produce your target profit.
How is backlog different from pipeline?
Backlog is contracted work that has not yet been completed. Pipeline is potential work that hasn't been contracted yet, such as leads, estimates, or proposals still being pursued.
Both are useful, but backlog provides a more concrete view of future workload because it represents work the business has already been hired to perform.
What's a good Days Sales Outstanding number for contractors?
There isn't one DSO target that applies to every contractor. Payment terms vary by trade, customer, project size, and contract structure. Commercial projects may also involve progress payments or retainage that affect collection times.
The more useful approach is to establish what is normal for your business and watch for a sustained increase in DSO or a growing amount of overdue receivables.
Do I need accounting software to track these KPIs, or can I use a spreadsheet?
A spreadsheet can work for some basic metrics, particularly backlog and revenue per employee. However, gross profit margin by job and DSO are generally easier to track accurately when your accounting and job-costing systems are set up properly.
The important thing is not which software you use, but whether your underlying financial information is complete, accurate, and consistently categorized.
How often should I review these KPIs?
Monthly is a good minimum for most contracting businesses. Review them after your books are closed for the month so you're working with complete financial information rather than a partial snapshot.
You may want to monitor certain metrics more frequently during periods of rapid growth, cash flow pressure, or significant changes in workload.
Disclaimer: This article provides general business and financial management information and is not accounting, tax, legal, or financial advice. KPI definitions and calculations can vary depending on the business, accounting method, contracts, and reporting system. Consult your accountant or financial professional for advice specific to your business.
