May 1, 2023
Adam Hoeksema
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 2,363,763 tax returns that were filed in the specialty contractor industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their specialty contractor.
We hope that this data will be helpful for you as a “reality check” for your financial projections and specialty contractor business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Here is what we will cover in this article:
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How many Specialty Contractor businesses in the US are sole proprietorships
There are roughly 2.3 million specialty contractor businesses in the US organized as sole proprietorships. We specifically analyzed 2,363,763 companies based on the 2019 IRS tax return data.
Average annual revenue for Specialty Contractors
The average annual revenue for all sole proprietorship specialty contractor businesses in the U.S. was just $84,285.
This number seemed low to me. Depending on the different industries, this number could vary widely. In fact, in our blog How to Start a Roofing company, the average revenue ranges from 20k to 700k a year. However, this revenue number includes large and small companies which can have large differences in revenue streams. This would differ from the HVAC or electrician contractors.
So what gives?
I think we need to remember that this tax return data includes all sole proprietors that categorize themselves in the “Specialty Contractors”. Depending on location and region the potential revenue may vary.
This underscores the importance of actually creating your own specialty contractor projections based on your potential inventory.
Average annual expenses for a Specialty Contractor
The average annual expenses for all sole proprietorship specialty contractor businesses in the U.S. was $69,331.
For most types of contractors, the materials will be the major expenses as well as any additional labor needs to complete the job. What we can gain from this tax return data is an understanding of expenses and profits as a percentage of revenue rather than a specific dollar amount.
Average net profit margin for a Specialty Contractor business
The average net profit margin for a specialty contractor business was 18%.
How much can I make by owning a specialty contractor business?
In order to calculate the earnings potential of a specialty contractor you can take the following assumptions:
- # of jobs per day/week
- Length/Type of Jobs
- Billable rate per hour
- Average material cost per job
These assumptions will allow you to come up with a revenue forecast for your contracting business. From there you can apply the 18% profit margin.
Top 9 expenses for a Specialty Contractor business
Based on the tax returns of roughly 2.3 million sole proprietors operating in the specialty contractor industry, the following were the 9 largest business expenses as a percentage of revenue.
Average material costs expense for a Specialty Contractor business
The average specialty contractor business spent 26% of annual revenue on material costs.
The tools and materials are important and required to complete many of the jobs. This is something that should be budgeted into the quote offered to the customer to be able to achieve the necessary margin.
