Profitability can shift quickly from one phase of a construction job to the next. As project costs change and labor demands evolve, leaders need timely visibility into work in progress, cash flow and margin performance. Key performance indicators, or KPIs, help your team track project performance against budget and identify risks before they affect profitability. With a construction-specific accounting system, such as Sage Intacct, your team can calculate key metrics more efficiently and gain better visibility into project performance, cash flow and operational health.
Construction Finance KPIs Contractors Should Track
Percentage-of-Completion Method
Construction companies use the percentage-of-completion method to account for long-term projects by recognizing revenue and expenses based on the percentage of work completed during a reporting period. This method is common among construction companies because it recognizes income and profit as the project progresses, rather than waiting until the project is complete. By measuring each project’s percentage-of-completion, your business can gain a more accurate view of its long-term financial position.
Percentage-of-completion = total costs to date ÷ total project estimate
Revenue Recognized
Revenue recognized uses the same percentage-of-completion formula. Depending on your construction business, you can calculate revenue recognition based on variables other than cost, such as units or labor hours. Sage Intacct Construction can automate these calculations and support revenue reporting based on the metrics that fit your business. With work-in-progress reports in Sage Intacct, your team can bill clients on time and accurately recognize revenue.
Revenue recognized = percentage-of-completion × contract amount
Overbilling and Underbilling
Construction companies often struggle to maintain consistent cash flow. Overbilling and underbilling can help your team understand whether billings align with earned revenue. Companies usually show overbilling on the balance sheet as a liability account, such as billings in excess of costs, and underbilling as an asset account, such as costs in excess of billings. The calculation subtracts revenue recognized from total billings. With Sage Intacct Construction, your team can track overbilling and underbilling to better forecast when cash will come in.
Overbilling or underbilling = total billings – revenue recognized
Gross Profit
Gross profit measures a project’s profitability and the efficiency with which your team uses resources to produce and deliver services. When you understand your margins, you can make faster decisions that support growth and strengthen your business’ resilience. That makes gross profit an important KPI for construction companies to monitor.
Gross profit margin = (total revenue – total project costs) ÷ total revenue
Executed Contracts and Change Orders
Executed contracts help confirm the contractual relationship between parties and reduce the risk of delayed or missed payment for completed work. Change orders also give your team a structured way to document approved changes to the contract scope. When you understand total contract value and your company’s obligations, you can more accurately predict long-term revenue and support business growth.
Planned vs. Actual Hours
Construction companies can compare budgeted hours with actual hours after project completion to create more accurate budgets for future projects. Measuring planned versus actual hours helps your team evaluate performance against the project baseline and produce earned value metrics, such as schedule variances and cost variances. When actual hours match scheduled hours, your team can confirm that resources are scheduled appropriately across projects. When you identify a variance, you can shift resources to maximize time spent on billable work. These earned value metrics can help your team identify project trends, improve scoping and spot risks earlier in the project lifecycle, giving operations teams more time to respond.
Measuring the performance and productivity of construction projects is important for long-term business success. By monitoring the right construction finance KPIs, your team can focus on the metrics that matter most and use that insight to improve performance. Sage Intacct Construction can help your business calculate and monitor key construction KPIs that support stronger operations.
CBIZ is a leading Sage Diamond Partner with more than 30 years of experience migrating and implementing Sage solutions. Our certified Sage Intacct Construction consultants have the knowledge, resources and methodology to support your team. Sage Intacct recognized CBIZ as a top-performing Sage Intacct partner in 2022 for helping clients to improve their businesses with Sage Intacct.
To see these metrics in a customized demo for your organization and learn how Sage Intacct Construction can help streamline business processes and support growth, contact us.
Frequently Asked Questions
The most important construction finance KPIs help contractors understand profitability, billing position, cash flow and project performance. Common examples include gross profit margin, work in progress, percentage-of-completion, overbilling and underbilling, revenue recognized, change order activity and planned versus actual hours. Tracking these metrics regularly can help your team identify cost overruns, improve billing accuracy and make more informed project decisions.
Work in progress, or WIP, is a construction accounting report that shows the financial status of active jobs. A WIP report typically compares contract value, costs incurred, estimated total costs, percentage complete, revenue earned and billings to date. Contractors use WIP reporting to evaluate job profitability, monitor cash flow and determine whether a project is overbilled or underbilled.
Overbilling occurs when a contractor bills more than the revenue earned based on work completed. Underbilling occurs when a contractor earns more revenue than it has billed. Overbilling can support short-term cash flow, but it also represents work the contractor still owes. Underbilling can signal that the contractor has completed work without billing for it, putting pressure on cash flow. Monitoring both helps contractors understand billing accuracy and protect project margins.
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