What Profit Margin Should a Contractor Actually Make?
You priced the year's work at a healthy markup and still ended it wondering where the money went. Busy is not the same as profitable, and the gap is almost always in how the margin was set. Here is how to pick a number you can actually keep.
Gross margin and net margin are not the same thing
Gross margin is what a job keeps after its direct costs — material, labor and subs. Net margin is what the business keeps after everything, including overhead: the truck, the phone, the insurance, the hours you spend quoting. A job can show a fine gross margin and still lose the business money once overhead is shared across it. Price the gross margin high enough to cover overhead and leave a net profit.
Markup is not margin (and the difference is your paycheck)
This one line costs contractors more than any other. A 30% markup on cost is a 23% margin. A 50% markup is a 33% margin. If you have been marking costs up by a habit percentage and calling it your margin, you have been undercharging — quietly, on every job. To hit a target margin, divide the cost by (1 minus the margin): cost ÷ 0.65 for a 35% margin.
What's a realistic target?
It varies by trade, risk and how you run overhead, but many small trades and contractors aim for a gross margin in the 25-40% range and a net margin in the high single digits to mid-teens. The specific number matters less than choosing it on purpose, pricing back from it, and checking after the job whether you actually kept it.
Set it once, apply it everywhere
Decide the margin every job must earn, build it into how you quote, and then compare the estimate against what the job really cost when it's done. The estimate is a promise; the actuals are the truth. Contractors who track both stop repeating the jobs that lose money without knowing which ones they are.
Skip the maths on the next one
Compare what a job was estimated at against what it actually cost, find where the margin went, and track cumulative profit across every job.
See the Construction Job Cost & Profit Tracker · $59Common questions
- What is a good profit margin for a contractor?
- Many small trades and contractors target a 25-40% gross margin and a high-single-digit to mid-teen net margin, but the right number depends on your trade, risk and overhead. Choosing it deliberately and pricing back from it matters more than the exact figure.
- What's the difference between gross and net margin?
- Gross margin is what a job keeps after its direct costs — material, labor and subs. Net margin is what's left after overhead too, like insurance, vehicles and admin. A healthy gross margin can still leave no net profit if overhead isn't covered.
- Why isn't markup the same as margin?
- Markup is a percentage added to cost; margin is a percentage of the price. A 30% markup is only a 23% margin. Confusing the two means undercharging on every job. To hit a target margin, divide cost by (1 minus the margin).