The median pro-oriented building material dealer posted a gross margin of 26.62% and a pretax profit of just 0.62%, the 2009 Cost of Doing Business Report (CODB) reveals.
Those results come from responses by 91 dealers that got more than 75% of their sales from professional builders and remodelers. The CODB's survey of 33 "mixed dealers"--those getting half to three-quarters of sales from pros--showed a much higher median pretax profit margin (1.23%) on only a slightly better gross margin (27.72%).
The CODB was conducted by the American Association of Roundtables and sponsored by many of the nation's regional LBM associations. More than half the pro and two-thirds of the mixed dealers posted sales under $15 million in 2008. The survey results generally were reported in terms of medians, in which half the reported returns were higher, half lower.
Payroll expenses ate up 16.86% of the pro dealers' revenue and 17.3% of the mixed dealers', and occupancy expenses were nearly alike at 2.60% vs. 2.68%. It took 50.93 days for the pro dealer to collect on a bill, 44.78 for the mixed dealer. On the other hand, the typical cash cycle--the number of days it takes from purchasing the product to collecting on the sales invoice--stood at 81.6 days for the pro-oriented dealer and 87.87 days for the mixed dealer. This might be due in part to the fact that pro dealers turned over their inventory faster: a median of 6.92 times vs. 5.41 for the median mixed dealer. As a result, the median pro dealer held its inventory for 53.8 days compared with 69.17 for the mixed dealer.
The ratio of accounts payable to inventories was much higher for pro dealers (41.95%) than for mixed dealers (32.84%), The debt/equity ratio--a metric where survey manager Jim Enter says 1:1 is a prudent figure--stood at just 0.41 for the pro dealer and 1.11 for the mixed yard.
Sales by product category differed little in both groups, be it for lumber and plywood (36.5% for pro dealers, 34% for mixed retailers) or windows and doors (20% for pros, 16.4% for mixed). Mixed dealers got a higher percentage of seals from tools, roofing and siding.
The report also provides metrics for "high profit" pro-oriented contractors, a group that takes in those dealers in the top 25% of their class based on return on assets.
For more on the survey, contact the American Association of Roundtables' Jim Enter at email@example.com, or check with your region's building material dealer association.