What KPIs Should a Construction Company Track?
A construction company should track financial KPIs that help management understand project performance, liquidity, backlog, cash flow, and emerging risk before year-end financial statements arrive.
Useful contractor KPIs may include:
gross margin by job;
backlog;
WIP;
margin fade or gain;
working capital;
current ratio;
days sales outstanding;
underbillings;
overbillings;
cash balance;
forecasted cash; and
revenue concentration.
The right dashboard is not the one with the most metrics.
It is the one that helps management identify exceptions, ask better questions, and take action.
Why Construction Companies Need KPIs
Financial statements tell management what has already happened.
KPIs can help explain:
where performance is changing;
which projects need attention;
whether cash is tightening;
how much work remains;
and what could affect future results.
Construction is particularly well suited to KPI-based management because project economics can change materially before those changes become obvious in company-level financial statements.
Start With Job-Level Gross Margin
Gross margin by job is one of the most useful construction metrics.
For each project, management should understand:
contract value;
estimated cost;
expected gross profit;
expected gross margin;
actual cost to date;
and current projected margin.
A company can report acceptable overall gross margin while one or two large jobs are deteriorating underneath it.
Track Original Margin vs. Current Margin
Do not look only at the current expected margin.
Compare it with the original estimate.
For example:
Original expected margin: 18%
Current expected margin: 13%
That five-point decline deserves investigation.
Possible causes may include:
labor overruns;
material increases;
change-order issues;
rework;
schedule delays;
subcontractor problems;
or weak cost-to-complete estimates.
Related Resource: What Causes Construction Job Margins to Fade? →
Track Margin Fade and Margin Gain
Margin fade shows deterioration in expected project profitability.
Margin gain shows improvement.
Both matter.
A dashboard may show:
jobs with more than 2% margin fade;
jobs with unusually large margin gains;
total projected gross-profit movement;
and recurring patterns by estimator, project manager, or job type.
The objective is not only to identify bad projects.
It is to understand why estimates are moving.
Use WIP as a Management KPI
WIP is more than a year-end accounting schedule.
It can be one of the most useful recurring management reports.
A WIP schedule may show:
percentage complete;
earned revenue;
billings;
gross profit;
overbillings;
underbillings;
backlog;
and margin trends.
Management should look for exceptions rather than simply reviewing every line equally.
Related Resource: What Is a Construction WIP Schedule? →
Track Underbillings
Underbilling occurs when earned revenue exceeds cumulative billings.
Large or growing underbillings may indicate:
billing delays;
unresolved change orders;
contract restrictions;
customer disputes;
or weak project administration.
Underbillings can consume working capital and should be monitored closely.
Useful dashboard metrics might include:
total underbillings;
underbillings as a percentage of revenue;
jobs with the largest underbilling;
and aging of significant balances.
Track Overbillings
Overbilling occurs when cumulative billings exceed earned revenue.
Overbillings can help support cash flow.
But they also represent future performance obligations.
Management should understand:
which projects are overbilled;
remaining cost to complete;
whether cash is being preserved;
and whether large overbillings are masking future liquidity needs.
Related Resource: What Is Overbilling vs. Underbilling in Construction? →
Track Backlog
Backlog represents contracted work that has not yet been completed.
It can provide visibility into future activity.
Useful backlog metrics may include:
total backlog;
backlog by project;
expected backlog gross profit;
backlog by customer;
backlog by market;
backlog by project manager;
and expected timing of completion.
Backlog is not simply a revenue number.
It is also a future capacity and cash requirement.
Track Backlog Gross Margin
Two contractors can each have:
$20 million of backlog
and have very different economics.
One may expect:
20% gross margin
while the other expects:
10%.
Backlog quality matters as much as backlog quantity.
Management should understand the expected profitability embedded in future work.
Track Backlog Burn
Backlog burn measures how quickly existing backlog is expected to convert into revenue.
That can help management evaluate:
future staffing;
production capacity;
estimating needs;
and revenue visibility.
A contractor with significant backlog concentrated in the next three months faces a different operating challenge than one whose backlog is spread over 18 months.
Track Working Capital
Working capital generally reflects:
Current assets − Current liabilities
It helps management understand short-term financial capacity.
For a contractor, this may affect:
liquidity;
growth;
bonding;
banking;
and project capacity.
Track both the absolute amount and the trend.
Related Resource: What Is Working Capital and Why Does It Matter to Contractors? →
Track the Current Ratio
The current ratio is:
Current Assets ÷ Current Liabilities
It provides another view of short-term liquidity.
For example:
Current assets: $3 million
Current liabilities: $2 million
Current ratio:
1.50
That means the company has $1.50 of current assets for every $1 of current liabilities.
The ratio should be interpreted together with the quality of those current assets.
Quality Matters More Than the Ratio Alone
A strong current ratio can still contain:
stale receivables;
large underbillings;
slow-moving inventory;
or related-party balances.
Management should understand what is actually supporting the ratio.
A KPI without context can be misleading.
Track Cash Balance
Cash is an obvious metric.
But it should not be viewed in isolation.
A contractor may have substantial cash while also carrying:
large payables;
heavy overbillings;
significant upcoming payroll;
equipment purchases;
or project mobilization needs.
The more useful question is not:
“How much cash do we have?”
It is:
“How much cash is available relative to what is coming next?”
Track Forecasted Cash
Forecasted cash is often more useful than current cash.
A dashboard may show:
current cash;
13-week low point;
expected ending cash;
minimum liquidity threshold;
and line-of-credit availability.
That makes the dashboard forward-looking.
Related Resource: What Is a 13-Week Cash-Flow Forecast for a Contractor? →
Track Days Sales Outstanding
Days sales outstanding, or DSO, is commonly used to understand collection speed.
A simplified DSO calculation may compare average accounts receivable with credit sales over a period.
The exact calculation can vary.
What matters operationally is whether collections are getting faster or slower.
Watch DSO Trends
Suppose DSO moves from:
38 days
to
52 days
to
67 days.
Revenue may still look strong.
But cash is taking longer to arrive.
That trend can signal:
customer payment issues;
billing delays;
documentation problems;
or collection weakness.
Track Receivable Aging
DSO is useful, but the aging report provides additional detail.
Management should monitor:
current receivables;
31–60 days;
61–90 days;
over 90 days;
retainage;
and disputed amounts.
One large overdue customer can materially affect liquidity.
Track Cash Conversion by Major Project
For significant jobs, management may also track:
costs incurred;
billings submitted;
cash collected;
and remaining expected cost.
Two jobs with identical margins may have very different cash profiles.
That matters for working-capital planning.
Track Revenue Concentration
Revenue concentration measures how dependent the contractor is on:
one customer;
one project;
one market;
one industry;
or one geographic area.
For example:
Largest customer: 35% of revenue
Top three customers: 65% of revenue
That concentration may create risk if one relationship changes.
Track Backlog Concentration Too
Revenue concentration looks backward.
Backlog concentration looks forward.
Management should know:
largest customer as a percentage of backlog;
largest project as a percentage of backlog;
and top customer concentration.
Future concentration may matter even if historical revenue was diversified.
Track Customer Profitability
High revenue does not necessarily mean high value.
A large customer may create:
low-margin work;
slow collections;
heavy retainage;
excessive administrative burden;
or frequent disputes.
Customer-level analysis can help leadership evaluate where growth is actually creating value.
Track Gross Margin by Project Manager
Depending on the business, it may be useful to compare:
original estimated margin;
final margin;
margin fade;
and completed-job results
by project manager.
The goal should not be simplistic ranking.
It is to identify:
coaching needs;
process differences;
estimating issues;
and repeatable strengths.
Track Gross Margin by Job Type
Margins may vary significantly across:
service work;
design-build;
public work;
private work;
tenant improvement;
new construction;
specialty projects;
or other categories.
Segmenting performance can help management make better pricing and growth decisions.
Track Estimate Accuracy
Completed jobs provide valuable feedback.
Compare:
Original estimated gross profit
with
Final gross profit
and
Original estimated cost
with
Final cost.
Repeated variances may reveal:
estimating weakness;
poor production assumptions;
incomplete scope;
or operational issues.
Track Labor Performance
For labor-intensive contractors, useful measures may include:
estimated labor hours;
actual labor hours;
labor cost variance;
overtime;
and productivity trends.
Labor problems often appear before they are fully visible in total project margin.
Track Committed Costs
Actual costs alone are incomplete.
Management should also understand:
subcontract commitments;
purchase orders;
material commitments;
and other known future costs.
This helps prevent WIP and forecasted margins from looking artificially strong.
Track Change Orders
A useful change-order dashboard may include:
approved change orders;
pending change orders;
rejected change orders;
change-order revenue;
related cost;
aging;
and billing status.
Large unresolved changes can affect:
margin;
cash;
billing;
and WIP.
Related Resource: How Should Contractors Account for Change Orders? →
Track Revenue per Employee Carefully
Revenue per employee can provide a high-level view of scale and productivity.
But it should be interpreted cautiously.
Different contractors have different:
subcontracting models;
labor intensity;
equipment usage;
and project types.
Use it as a trend indicator, not a universal benchmark.
Track Overhead as a Percentage of Revenue
Overhead percentage can help management understand whether administrative infrastructure is scaling appropriately.
For example:
Overhead: $2 million
Revenue: $20 million
Overhead percentage: 10%
The trend may matter more than one month's result.
Growth often requires overhead investment before revenue fully catches up.
Track Gross Profit Dollars, Not Just Margin Percentage
A project with:
8% margin on $10 million
may generate more gross profit dollars than:
20% margin on $2 million.
Management should consider both:
margin percentage;
and gross profit dollars.
Both matter for overhead coverage and cash generation.
Track Break-Even Revenue
Break-even analysis can help management understand the level of gross profit needed to cover overhead.
A simple framework considers:
fixed overhead;
expected gross-margin percentage;
and required revenue.
This can support annual planning and pricing discussions.
Track Debt and Line-of-Credit Usage
Useful financing KPIs may include:
total debt;
current debt;
monthly debt service;
line-of-credit balance;
available borrowing;
and covenant measures.
Rising line-of-credit usage can be an early sign of cash pressure.
Track Owner Distributions
Owner distributions can materially affect:
cash;
equity;
working capital;
and bonding capacity.
A management dashboard may compare:
net income;
distributions;
taxes;
and retained earnings.
This helps leadership understand how much profit is staying in the business.
Track Bonding-Relevant Measures
Contractors using surety bonding may monitor:
working capital;
equity;
current ratio;
debt;
backlog;
WIP;
margin performance;
and financial statement requirements.
Those measures can help management identify factors that may influence future bonding discussions.
Related Resource: How Can a Contractor Improve Bonding Capacity? →
Do Not Track KPIs Without Targets
A metric without context may not drive action.
For important KPIs, management may establish:
target;
warning range;
critical threshold;
and responsible owner.
For example:
Receivables over 90 days:
Target: <5%
Warning: 5%–10%
Critical: >10%
The appropriate thresholds should reflect the contractor's own business and risk profile.
Use Exceptions Instead of Reviewing Everything Equally
A useful dashboard should make unusual items obvious.
Examples:
jobs with margin fade greater than 2%;
underbillings over a defined threshold;
receivables over 60 days;
cash below minimum target;
backlog concentration above a defined level;
or projects with material forecast changes.
Exception-based reporting focuses management attention where it matters.
KPIs Should Lead to Questions
The purpose of the dashboard is not to admire the numbers.
It should trigger questions such as:
Why did this job lose three margin points?
Why is this customer paying slower?
Why did underbillings increase?
Why is working capital falling?
Why is the line of credit increasing?
Why is one customer becoming such a large share of backlog?
Why does the cash forecast drop sharply in six weeks?
Those questions lead to decisions.
Historical and Forward-Looking KPIs Should Be Combined
A strong dashboard includes both.
Historical
revenue;
gross margin;
net income;
receivables;
working capital;
completed-job results.
Forward-Looking
backlog;
estimated margin;
cost to complete;
forecasted cash;
new project starts;
pending change orders;
and expected financing needs.
Construction management requires both views.
Review KPIs Monthly
For many contractors, a monthly financial review is a practical baseline.
That meeting may include:
financial statements;
WIP;
cash forecast;
receivables;
backlog;
KPI dashboard;
and material exceptions.
Certain metrics, particularly cash and collections, may need weekly attention.
A Practical Contractor Dashboard
A useful dashboard might include:
Profitability
Revenue
Gross profit
Gross margin
Job margin fade/gain
Projects
WIP
Backlog
Underbillings
Overbillings
Change orders
Liquidity
Cash
Working capital
Current ratio
DSO
Receivable aging
Forecast
13-week cash low point
Forecasted ending cash
Expected project starts
Backlog burn
Risk
Revenue concentration
Backlog concentration
Debt
Line-of-credit availability
The exact dashboard should reflect the contractor's business model.
Avoid Dashboard Overload
A dashboard with 50 KPIs may be less useful than one with 12.
Too many metrics can make it difficult to identify what matters.
Start with measures connected to the company's primary decisions.
Then add detail only when it improves action.
Assign an Owner to Each KPI
Each important metric should have someone responsible for understanding it.
For example:
Project Managers
project margins;
cost to complete;
change orders.
Accounting
receivables;
WIP reconciliation;
close;
working capital.
Leadership
cash;
backlog;
growth;
debt;
concentration.
Clear ownership makes the dashboard operational.
KPIs Should Evolve as the Contractor Grows
A $3 million contractor may not need the same dashboard as a $50 million contractor.
As the business grows, leadership may need more visibility into:
project concentration;
cash forecasting;
bonding capacity;
working capital;
departmental performance;
and operational capacity.
The KPI system should scale with complexity.
The Bottom Line
Construction companies should track KPIs that help management understand:
profitability
project performance
backlog
WIP
liquidity
cash flow
collections
and
risk.
Useful measures may include:
gross margin by job
margin fade or gain
backlog
working capital
current ratio
DSO
underbillings
overbillings
cash
forecasted cash
and
revenue concentration.
The best dashboard is not the one with the most numbers.
It is the one that shows leadership where attention is needed while there is still time to act.
How Bilotta & Company Can Help
Bilotta & Company, CPAs, LLC works with construction contractors on KPI dashboards, WIP reporting, job costing, cash-flow forecasting, working-capital planning, accounting, tax, financial statement assurance, and financial leadership.
Through our Contractor Compass® Financial Stewardship program, we help contractors build a recurring management rhythm that connects:
historical results
project performance
cash
forecasting
and
business decisions.
Our Financial Stewardship as a Service® rhythm is:
Close → Analyze → Forecast → Decide.
Because financial reporting becomes much more valuable when management receives it early enough to change the outcome.
Related Resource: What Is a Construction WIP Schedule? →
Related Resource: What Is Working Capital and Why Does It Matter to Contractors? →
Related Resource: What Is a 13-Week Cash-Flow Forecast for a Contractor? →
Visit the Construction Contractor Financial Resource Center →
This article is provided for general educational purposes and should not be considered accounting, tax, legal, bonding, lending, estimating, or financial advice for a specific contractor. Appropriate KPIs, calculations, targets, and thresholds vary based on company size, project mix, business model, financing arrangements, and management objectives.