What profit margin should a contractor be making?

It varies by service type, so useful targets are set per trade rather than as a single number. The more useful test is whether you know your actual margin at all — most owners quote a figure they have never calculated.

What is the difference between gross, operating and net margin?

Gross is what is left after the direct cost of doing the job. Operating is what is left after running the business. Net is what is actually yours. Owners typically track the first and are surprised by the third, which is where the trouble hides.

How do I work out what I am really making on a job?

Charge every real cost to the job — labour at true loaded cost including payroll taxes, materials, vehicle time, and the hours spent quoting it. Jobs look profitable mainly because the owner's own unpaid time was never counted against them.

What most commonly destroys margin?

Underpricing, unbilled change orders, callbacks, and time lost between jobs. None of them appear as a loss on any single invoice, which is why they persist — they only become visible once you measure margin per job rather than revenue per month.

Finance

Profit Margins Decoded: What You Should Actually Be Making

Moil Team · 9 min read · Published 2025-12-18

Most contractors don't know their real profit margins - and it's killing them. Learn the target margins by service type and how to calculate what you're actually making in 2026.

Profit Margins Decoded: What You Should Actually Be Making

The Question Nobody Can Answer

Ask a contractor: "What's your profit margin?" Most will say "I don't know exactly," or "I'm profitable, isn't that enough?". The scarier truth: 40% of contractors are accidentally losing money on some jobs because they don't measure what matters.

The Three Margins That Matter

Margin 1: Gross Profit Margin

What it is: Revenue minus direct costs (before overhead). Formula: (Revenue - COGS) ÷ Revenue × 100.

COGS (Cost of Goods Sold) includes: Materials/parts, Labor (tech wages + payroll taxes), Subcontractors, and Direct job costs only.
Example: $1,000 Revenue - $500 COGS ($250 mats, $250 labor) = 50% Gross Margin.
Target by trade: HVAC Repair (50-60%), HVAC Install (35-45%), Plumbing (55-65%), Electrical (50-60%), Landscaping (40-50%), Cleaning (55-70%).

Margin 2: Operating Profit Margin

What it is: Revenue minus ALL costs (including overhead). Includes: Rent/mortgage, Insurance, Marketing, Office staff, Utilities, Van payments, Equipment, Accounting/legal, and Software.

Example: $500,000 Revenue - $225,000 COGS - $150,000 Overhead = $125,000 Operating Profit (25%).
Target: 15-30% for most trades. Warning signs: <10% (pricing problem), <5% (failing), Negative (bankruptcy path).

Margin 3: Net Profit Margin (After You Pay Yourself)

What it is: What's actually left after everything, including owner salary. This is your wealth-building money for reinvesting, emergency funds, growth capital, or retirement.

Example: $500,000 Rev - $375,000 Costs - $75,000 Owner Salary = $50,000 Net Profit (10%).
Target: 10-20% is good/sustainable. 15-20% is excellent. >20% is outstanding.

The Margin Killers (Why Your Margins Suck)

Killer 1: Not Tracking Job-Level Costs

The problem: "I'm profitable overall" hides jobs that lose money. Job costing basics: track materials used (every part, every trip) and labor hours x loaded rate for every single job.

Killer 2: Labor Loaded Rate Miscalculation

The mistake: "My tech makes $25/hour, so labor cost is $25". Wrong. The true cost includes payroll taxes (7.65%), workers comp (5%), benefits ($3-5/hr), PTO (4%), and trucks/tools allocation ($2-3/hr). True loaded rate: $34-37/hour. If you charge based on $25, you're losing $12/hour in hidden costs.

Killer 3: Hidden Material Costs

What contractors forget: $200 part + $16 Sales Tax + 30 min drive to supplier ($37.50) + $8 Fuel + $10 Restocking fees = $271.50 real cost. If you marked up the $200 by 50% ($300), you only made $28.50 profit (9% margin).

Killer 4: Unbilled Time

The leak: Drive time not charged, callbacks (warranty), quoting time, administrative tasks. Example: 8 clocked hours but only 4.5 billable jobs = 56% utilization. You need 75%+ to hit healthy margins.

Killer 5: Overhead Creep

Bloat: Too-nice office (ego), unnecessary staff, premium software when cheaper works, unused subscriptions. Goal: Overhead <30% of revenue.

The Bottom Line

Most contractors don't know their real margins. Start Monday by calculating your gross margin for last month. Goal: Know your numbers, improve 5% each quarter.

Frequently asked questions

What profit margin should a contractor be making?: It varies by service type, so useful targets are set per trade rather than as a single number. The more useful test is whether you know your actual margin at all — most owners quote a figure they have never calculated.
What is the difference between gross, operating and net margin?: Gross is what is left after the direct cost of doing the job. Operating is what is left after running the business. Net is what is actually yours. Owners typically track the first and are surprised by the third, which is where the trouble hides.
How do I work out what I am really making on a job?: Charge every real cost to the job — labour at true loaded cost including payroll taxes, materials, vehicle time, and the hours spent quoting it. Jobs look profitable mainly because the owner's own unpaid time was never counted against them.
What most commonly destroys margin?: Underpricing, unbilled change orders, callbacks, and time lost between jobs. None of them appear as a loss on any single invoice, which is why they persist — they only become visible once you measure margin per job rather than revenue per month.

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