Contractor Profit Margin Calculator
Gross margin, net margin, and required revenue to hit an annual profit target.
- Gross profit
- $5,000.00
- Gross margin
- 33.33%
- Net profit
- $3,500.00
- Net margin
- 23.33%
Gross margin vs net margin
Gross margin is revenue minus cost of goods sold, expressed as a percent of revenue. Cost of goods sold on a construction job includes materials, direct labor, equipment, and subcontractors: everything that only exists because that specific job exists.
Net margin subtracts overhead: the cost of being in business regardless of any single job. Truck payments, insurance, admin salary, marketing, software, office. Net margin is what actually shows up as profit at year end.
Most contractors track gross margin per job but never allocate overhead to individual jobs, then wonder why the business feels tight even when gross margins look healthy. Overhead allocation is what makes the two numbers reconcile.
Healthy margin targets by segment
Residential remodel: 30 to 40 percent gross, 10 to 20 percent net. Higher end custom work reaches 40 to 50 percent gross and 15 to 25 percent net.
Service trades (plumbing, electrical, HVAC service): 45 to 60 percent gross on service calls, 15 to 25 percent net across the business.
New construction subcontracting: 15 to 25 percent gross, 5 to 12 percent net. Compensated by volume and predictable scheduling.
Any contractor running net margins under 5 percent has either a pricing problem or an overhead problem, and probably both.
Working backward from a profit goal
If you want to net $150,000 next year and your net margin runs 15 percent, you need $1,000,000 in revenue. If your average job is $8,000, that is 125 jobs. If you convert 30 percent of qualified leads, you need to talk to 417 qualified leads. That is the math that tells you what your marketing has to produce.
Working backward from profit to revenue to job count to lead count is how experienced contractors set the year. Every step in the chain is a lever you can pull to improve results.
The four ways to raise net margin
Raise prices. The single most powerful lever. A 5 percent price increase on the same job flows almost entirely to net margin.
Reduce material waste. Ordering discipline and better estimation save 2 to 5 percent of material cost on most jobs.
Increase labor productivity. Route planning, better tools, and clear job scopes shave 5 to 15 percent off labor hours per job.
Reduce overhead. Renegotiate insurance, cancel unused software, share office space, run leaner admin. Overhead reductions flow straight to net margin.
For contractors ready to run tighter numbers
Peak Local Leads builds and operates local sites that put your phone in front of homeowners searching for your trade. Free week of calls, flat monthly if the work is real, one contractor per market.
Frequently asked.
- What is a good profit margin for a contractor?
- Residential remodel: 30 to 40 percent gross, 10 to 20 percent net. Service trades: 45 to 60 percent gross, 15 to 25 percent net. New construction sub work: 15 to 25 percent gross, 5 to 12 percent net.
- What is the difference between gross and net margin?
- Gross margin is revenue minus job costs. Net margin is gross minus overhead. Net is the number that becomes actual profit at year end.
- How do I improve profit margin?
- Raise prices, reduce material waste, improve labor productivity, cut overhead. Price increases have the largest single impact.
- Should overhead be allocated to jobs?
- Yes. If you do not allocate overhead into job pricing, you make gross profit but lose money after the fixed costs come out at year end.
Make the phone the busiest tool on the truck.
Peak Local Leads builds and ranks local websites for one contractor per Texas market. We cover the upfront cost, you answer the calls free for seven days, and only pay flat monthly if the work is real. No shared leads, no per-lead fees, no contracts.
Fill out the form and we will tell you honestly whether your area is still open.