Picture this: your schedule is full, your crew is busy, you’re signing contracts and delivering homes. By every surface measure, business is good. But behind the scenes, your bank account is quietly bleeding out.
This isn’t a hypothetical. According to the 2026 State of Residential Construction Industry (SORCI) Report, released by the Association of Professional Builders (APB), this is the reality for more than half of all residential builders in the United States right now.
The Statistic That Should Stop Every Builder in Their Tracks
The headline finding from the 2026 SORCI Report is stark: while only 17.1% of U.S. builders self-reported operating at a loss, deeper financial analysis tells a very different story.
Once accounting accuracy was applied, 51.4% of residential builders were found to be effectively unprofitable.
That’s not a rounding error. That’s a gap of over 34 percentage points between what builders think is happening in their business and what is actually happening.
In other words — for every 10 building companies operating in the U.S. today, more than five are losing money. And most of them have no idea.
The report, now in its sixth year, draws on data from 8,462 participants collected since 2020 across the United States, Australia, Canada, and New Zealand, making it one of the most comprehensive benchmarking studies in the residential construction industry.
Busy Doesn’t Mean Profitable
This is perhaps the most dangerous myth in the building industry: that a full pipeline equals a healthy business.
It doesn’t.
A builder can win every tender, complete every project on time, and still be running at a loss — if the numbers underneath aren’t right. Revenue is vanity. Profit is sanity. And for far too many builders, the profit simply isn’t there.
So why is this happening at such scale? The SORCI Report points clearly to one root cause: financial literacy.
The Financial Literacy Crisis Hidden in Plain Sight
Here’s where the data gets particularly sobering. The 2026 SORCI Report found that only 12% of builders correctly understand all four critical financial metrics that determine whether a building business is actually profitable:
- Work In Progress (WIP) adjustments
- Markup versus margin
- Fixed expense ratios
- Net profit margins
Each of these metrics matters. Together, they paint the complete financial picture of a building business. Miss any one of them and you’re navigating without a full map.
But it gets worse. Of the builders who said they understood WIP adjustments — one of the most important accounting concepts in construction — 79.2% were unable to correctly explain how WIP is calculated when tested.
This isn’t a criticism of builders as people. Most builders got into this industry because they’re exceptional at constructing homes.
They’re craftspeople, problem-solvers, project managers. They weren’t trained as accountants.
The problem is that running a building business requires financial fluency, and the industry has never done a great job of providing it.
What Is a WIP Adjustment and Why Does It Matter So Much?
Work In Progress (WIP) accounting is the process of accurately recognising revenue and costs at the correct point in time during a construction project.
Without it, your financial reports can show a profit in months where you’re actually losing money — and a loss in months where you’re actually profitable.
This creates a dangerously misleading picture of your business health. Builders making decisions based on inaccurate financials are essentially flying blind.
They may underprice future jobs, fail to notice cash flow problems building up, or — worst of all — assume the business is fine right up until it isn’t.
The fact that nearly 80% of builders who believed they understood WIP couldn’t actually explain it suggests this is not a case of a few people being caught out. It’s a systemic knowledge gap across the industry.
Markup vs. Margin: A Costly Confusion
Another major trap revealed in the report is the confusion between markup and margin — two terms that sound similar but produce very different financial outcomes.
Markup is the percentage you add on top of your costs. Margin is the percentage of your selling price that represents profit.
They are not the same number, and confusing them can mean systematically underpricing every single job you quote.
For example: if your costs on a project are $800,000 and you apply a 25% markup, you quote $1,000,000 and make $200,000 gross profit.
But if you mistakenly believe a 25% margin requires the same calculation, you’re actually quoting too low — and leaving significant money on the table on every single project.
Do this across dozens of projects a year, and the losses compound fast.
Fixed Expense Ratios: The Silent Overhead Killer
Many builders price jobs based on direct costs — labour, materials, subcontractors — without accurately accounting for the fixed overhead costs that run regardless of how many projects are on the go.
Office rent, insurance, vehicles, administration staff, software, loan repayments — these costs don’t pause when a project finishes.
When fixed expenses aren’t properly built into job pricing, every project slowly chips away at the business. The jobs look profitable. The business isn’t.
The SORCI Report highlights fixed expense ratios as one of the four critical financial metrics builders consistently misunderstand, and it’s easy to see why.
These costs are invisible on a job-by-job basis. They only become visible — painfully so — when you look at the business as a whole.
Net Profit Margin: The Number That Actually Matters
After all costs are accounted for — direct costs, overheads, wages (including the owner’s fair-market salary) — what’s left is net profit. This is the real measure of whether a business is sustainable.
Industry benchmarks suggest residential building companies should be targeting a net profit margin of at least 8–15%.
Yet the SORCI data suggests the majority of builders aren’t achieving this — and many don’t even have a clear picture of what their net margin actually is.
This matters beyond just the builder’s own income. Low net margins mean low business resilience.
When a project runs over, when a client disputes a variation, when a supplier increases prices mid-build — businesses without healthy profit margins have no buffer. That’s when companies fail.
Are You on the Right Side of the 51%?
The uncomfortable truth is that most builders reading this article don’t know with certainty which side of the line they’re on. That’s exactly the point.
Here are three questions worth sitting with honestly:
1. Can you calculate your WIP adjustment right now? Not approximately — can you sit down, open your accounts, and produce an accurate WIP figure for this month?
2. Do you know the difference between your markup and your margin — and are you applying the right one when you price jobs? A 25% markup is not the same as a 25% margin. If you’ve been using them interchangeably, your pricing may be systematically off.
3. Do you know your fixed expense ratio? That is — what percentage of your revenue goes to fixed overhead costs, and is that figure built into every quote you produce?
If you hesitated on any of those questions, you may be among the 51%.
The Path Forward: From Unprofitable to Thriving
The good news is that financial literacy is learnable. The builders who are thriving — the ones on the right side of that statistic — aren’t necessarily smarter or more experienced. They’ve simply taken the time to understand the numbers that drive their business.
The 2026 SORCI Report also contains encouraging data for those who get this right. Builders using a fixed-price model earn 5% more gross margin than those using cost-plus pricing.
Builders who move beyond referral-only marketing achieve a markup of 33.7% compared to 25.9% for those relying on word of mouth alone.
The gap between the builders who are struggling and the builders who are flourishing often comes down to systems, knowledge, and the willingness to treat the business side of building as seriously as the construction side.
The Bottom Line
The 2026 SORCI Report is a wake-up call for the residential building industry. A sector where more than half of operators are unknowingly running at a loss is not a healthy sector. It’s a sector where financial education is urgently needed — not as a luxury add-on, but as a fundamental survival skill.
If you’re a residential builder, the single most valuable thing you can do for your business this year is get honest about your numbers. Not your revenue.
Not your turnover. Your actual net profit, calculated correctly, with WIP adjustments applied.
Because the builders who know their numbers aren’t just surviving. They’re pulling ahead — while their competitors quietly wonder where the money went.
The 2026 State of Residential Construction Industry (SORCI) Report was produced by the Association of Professional Builders (APB), drawing on data from 8,462 participants across the United States, Australia, Canada, and New Zealand since 2020.
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