What do you want to calculate?
Enter your selling price and total cost to calculate margin and markup
What you charge the client
Materials + labor + subs + expenses
Office, insurance, vehicles, admin costs as % of revenue
Enter your numbers on the left to see your profit margin, gross profit, and markup results.
Profit Margin Guide for Contractors
Industry benchmarks, the markup vs. margin distinction, and practical steps to improve profitability on every job.
Understanding Profit Margin vs. Markup
Margin and markup measure the same gross profit from two different angles. Markup is the amount added to cost; margin is that same profit expressed as a percentage of the selling price. They will never be the same number, and confusing them is one of the most expensive mistakes a contractor can make.
- Markup formula: (Selling Price - Cost) / Cost x 100
- Margin formula: (Selling Price - Cost) / Selling Price x 100
- Example: A $10,000 job with $6,500 in costs has a 53.8% markup but only a 35% margin
A 30% markup produces only a 23% margin. A contractor who targets "30% profit" but uses the markup formula instead of the margin formula is systematically underpricing every job. Over dozens of jobs, that gap destroys profit.
Key Takeaways
- Markup is based on cost; margin is based on selling price
- A 30% markup gives you only a 23% margin - not 30%
- To convert: Margin = Markup / (1 + Markup) as decimals
Healthy Profit Margins for Contractors
Industry benchmarks vary by trade, but most residential contractors should target 30-50% gross margin to stay profitable after overhead. Net margins of 8-12% after all overhead are considered healthy for small to mid-size contractors.
- New home builders: 15-25% gross margin (high volume, thin margins)
- Commercial general contractors: 10-20% gross margin
- Residential remodelers: 30-40% gross margin is the common target range
- Service trades (plumbing, HVAC, electrical): 40-55% gross margin
- Handyman and small job contractors: 40-60% gross margin
Gross margin must cover your overhead first. If overhead runs 20-25% of revenue, a contractor with 30% gross margin only nets 5-10%. That leaves little cushion for slow seasons, warranty callbacks, or equipment replacement. Aim to know your actual overhead percentage before setting your markup.
Key Takeaways
- Residential remodelers: 30-40% gross margin is the standard benchmark
- Service trades can justify 40-55% gross margin due to expertise and response time
- Net margin of 8-12% after overhead is a healthy target for most small contractors
How to Improve Your Profit Margin
Most contractors improve margin by tightening estimating accuracy and recovering overhead correctly, not by working faster or taking more jobs. Volume alone does not fix margin problems - it just compounds them.
- Know your actual overhead rate: Add up all fixed monthly costs (insurance, vehicle, office, admin, tools) and divide by monthly revenue. Most contractors underestimate this by 5-10 points.
- Reduce scope creep: Unpriced extra work is one of the biggest margin killers. Use a change order for anything outside the original scope, even small additions.
- Improve material buyout: Better supplier relationships, buying in bulk, and accurate take-offs reduce waste and lower job costs without cutting quality.
- Price by value, not by hours: Specialized skills and quick turnaround times command premium prices. Track which job types are most profitable and pursue more of them.
- Review job costing after every project: Estimated margin vs. actual margin tells you exactly where the gap is. Over time, this data improves every estimate you write.
The most effective single action for most contractors is simply tracking job costs accurately. You cannot improve what you do not measure.
Key Takeaways
- Calculate your real overhead rate - most contractors underestimate it by 5-10%
- Scope creep without change orders destroys margin on otherwise profitable jobs
- Job costing every completed project is the fastest way to find and fix margin leaks
How to Use This Calculator
Choose Your Calculation Mode
Select "Revenue & Cost" to analyze a completed job, "Cost + Markup %" to price from cost up, or "Selling Price + Margin %" to work backwards from a target margin.
Enter Your Job Numbers
Input your selling price, cost, markup percentage, or target margin depending on the mode you chose. Cost should include materials, labor, subcontractors, and direct job expenses.
Add Your Overhead Rate (Optional)
Enter your business overhead as a percentage of revenue to see net profit after office costs, insurance, vehicles, and administrative expenses are deducted.
Review Margin, Markup, and Net Profit
See gross margin percentage, gross profit in dollars, markup percentage, and net margin side by side. Use the visual rings to quickly gauge whether your pricing hits your targets.
Profit Margin Formulas
Margin % = ((Revenue - Cost) / Revenue) x 100
Markup % = ((Revenue - Cost) / Cost) x 100
Net Profit = Gross Profit - OverheadWhere:
- Revenue
- = Total selling price charged to the client
- Cost
- = Total job cost (materials + labor + subs + direct expenses)
- Gross Profit
- = Revenue minus cost (before overhead)
- Margin %
- = Gross profit as a percentage of revenue
- Markup %
- = Gross profit as a percentage of cost
- Overhead
- = Fixed business costs (office, insurance, vehicles, admin) as a % of revenue
- Net Profit
- = What remains after subtracting overhead from gross profit
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Frequently Asked Questions
What is the difference between profit margin and markup?
Markup is the percentage added on top of cost, while profit margin is the profit expressed as a percentage of revenue. A $10,000 job costing $7,000 has a 42.9% markup and a 30% margin. The two numbers are never equal. Many contractors accidentally target a 30% margin but apply 30% markup, which only yields a 23% margin.
What is a good profit margin for a contractor?
For residential remodelers and general contractors, a 30-40% gross margin is a healthy benchmark. Service trades (plumbing, HVAC, electrical) typically run 40-55% gross margin. After overhead, a net margin of 8-12% is considered solid for small to mid-size contracting businesses. If your gross margin is below 20%, it is very difficult to cover overhead and stay profitable.
How do I calculate gross profit margin?
Use the formula: Margin % = ((Revenue - Cost) / Revenue) x 100. For example, if you charge $15,000 for a job that costs $9,750, your gross profit is $5,250 and your gross margin is ($5,250 / $15,000) x 100 = 35%. The calculator above handles this automatically in "Revenue and Cost" mode.
What markup percentage gives me a 30% profit margin?
A 42.9% markup produces a 30% gross margin. To find the required markup for any margin target, use the formula: Markup = Margin / (1 - Margin). So for 30%: 0.30 / (1 - 0.30) = 0.429, or 42.9%. Use the "Cost + Markup %" mode in the calculator to verify with your actual job costs.
Should overhead be included in my markup or tracked separately?
Tracking overhead separately gives you clearer visibility into true profitability. Apply markup to cover your gross profit target, then use the overhead field in this calculator to confirm that your gross margin exceeds your overhead rate. If your overhead runs 20% of revenue, you need at least a 30%+ gross margin to net any profit. Many contractors embed overhead into their markup without realizing it is insufficient.
How do I improve my profit margin as a contractor?
The three highest-impact actions are: 1) Calculate your real overhead rate and price it in explicitly. Most contractors underestimate overhead by 5-10 points. 2) Use change orders for any scope beyond the original bid - unpriced extras silently drain margin. 3) Do job costing on every completed project. Comparing estimated vs. actual costs shows exactly where your estimates are leaking profit, and that data makes every future estimate more accurate.
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