Contractors should charge a minimum 50% gross profit margin on every job. A 50% margin means a 100% markup on job cost, so a job that costs $10,000 to produce gets priced at $20,000. Fifty percent is a floor, not a goal. Healthy contractors price at 55% to 70%.
Most contractors reading that just did quick math in their head and felt something drop.
Good. Keep reading.
Because here’s what’s actually happening in the trades right now: most contractors have no idea what margin they’re pricing at. They have a number they think they’re hitting, a number their gut says is fair, and a number their bank account quietly disagrees with. Those three are never the same.
And the ones who are most confident they’re priced right are usually the furthest off.
What’s the difference between gross margin and markup?
Gross margin is a percentage of the sale price. Markup is a percentage of the cost. A 50% gross margin equals a 100% markup. Adding 50% to a $10,000 job cost produces a $15,000 price and a 33% margin, not a 50% margin. Confusing the two is the most expensive mistake in the trades.
That’s not a technicality. That’s tens of thousands of dollars a year walking out the door.
Say it out loud: “I add 50% to my costs.” Sounds aggressive. Sounds like you’re a guy who charges. You’re at 33% margin. You’re in the gutter and you’re proud of it.
Here’s the whole thing on one table. Print it. Tape it inside the truck.
| Target gross margin | Markup on cost | Price on a $10,000 job cost |
|---|---|---|
| 30% | 42.9% | $14,286 |
| 35% | 53.8% | $15,385 |
| 40% | 66.7% | $16,667 |
| 45% | 81.8% | $18,182 |
| 50% | 100% | $20,000 |
| 55% | 122% | $22,222 |
| 60% | 150% | $25,000 |
| 65% | 186% | $28,571 |
| 70% | 233% | $33,333 |
Find the row you’re actually on. Not the one you want to be on.
What gross profit margin are most contractors actually charging?
Most residential contractors price between 25% and 40% gross profit margin, well below the 50% minimum needed to cover overhead and pay the owner properly. Anything under 35% means the business is covering materials and payroll with little left over. The 35% to 49% range is where most struggling contractors live.
It’s a gradient, not a switch. Here’s the real map:
Under 35% — the danger zone.
You’re not running a business. You’re running a pass-through account for suppliers and payroll. Materials and gas money. One job goes sideways, one truck throws a transmission, one customer slow-pays, and you’re borrowing to make Friday. Owners here work the hardest and take home the least.
35% to 49% — the financial gutter.
This is where most contractors live and it’s the most dangerous spot of all, because it works. Barely. Bills get paid. The lights stay on. You convince yourself the next year will be the one where it gets easier. It never is, because nothing structural changed. You just got busier. Don’t scale a turd.
50% — the floor.
Not a win. Not a target. The minimum entry fee for a business worth having. At 50% you can cover real overhead, pay yourself a real wage, and absorb a job that goes bad without it becoming a family crisis.
55% to 70%+ — war chest territory.
Now you can hire before you’re desperate. Buy the equipment instead of renting it. Train a guy for six months without panicking about his cost. Say no to the customer who’s going to be a nightmare. This is where reinvestment happens and where owners stop being the most fragile part of the operation.
Every contractor who has ever gotten free was standing on that last row.
Why doesn’t revenue tell you if you’re making money?
Revenue only measures how much work a contractor sold, not how much of it was kept. A contractor doing $2.5 million at a 28% gross margin can take home less than a contractor doing $1.2 million at 55%. Gross profit dollars, minus overhead, is the only number that pays a mortgage.
Revenue is loud. Profit is quiet.
Run two companies side by side:
Contractor A does $2.5M a year. Eight guys, four trucks, a yard, an office manager. 28% gross margin. That’s $700K of gross profit. Overhead eats $640K. He nets $60K. He’s the guy at the trade show everyone asks for advice.
Contractor B does $1.2M. Three guys, two trucks, works out of his garage. 55% gross margin. That’s $660K of gross profit. Overhead runs $380K. He nets $280K.
Half the revenue. Almost five times the take-home. Less risk, fewer headaches, fewer 5 a.m. phone calls.
Contractor A didn’t build a business. He built a very large, very expensive job for himself and hired eight people to help him hold it up.
If someone asks what you did last year and the first number out of your mouth is revenue, you’re answering the wrong question.
How do you calculate the price at your target margin?
Use this formula: Price = Total Job Cost ÷ (1 − Target Margin). For a 50% margin, divide total job cost by 0.50. A job costing $8,400 in labor, materials, and subs prices at $16,800. Total job cost must include every direct cost of producing that specific job, not just materials.
Worked all the way through:
- Materials: $3,200
- Labor (burdened, not just hourly wage): $4,100
- Subcontractor: $900
- Dump fees, equipment rental, permits: $200
- Total job cost: $8,400
At a 50% target margin: $8,400 ÷ 0.50 = $16,800
At a 60% target margin: $8,400 ÷ 0.40 = $21,000
Two notes that trip people up every time.
One: burden your labor. If you’re pricing a guy at his $28 hourly wage, you’re lying to yourself. Payroll taxes, workers’ comp, insurance, PTO, phone, the truck he drives. His real cost is closer to $38–$42. Price against the real number.
Two: overhead does not belong in job cost. Your office rent, your truck payments, your software, your salary, your marketing spend — that’s overhead. It gets covered by gross profit, not buried in the bid. When contractors stuff overhead into job cost, they lose the ability to tell if the job itself was any good.
Run your own numbers on the What Should You Charge calculator. Takes two minutes. Most contractors get a number back that makes them uncomfortable, which is exactly the point.
How much revenue do you need to break even?
Break-even revenue equals annual overhead divided by gross profit margin. A contractor with $180,000 in yearly overhead needs $360,000 in revenue at a 50% margin, but $600,000 at a 30% margin. Margin determines how much work a contractor has to produce just to stand still.
This is the part nobody connects, and it’s the whole ballgame.
Same overhead. $15,000 a month. Here’s what you have to sell just to get to zero:
| Gross margin | Monthly revenue to break even | Annual |
|---|---|---|
| 30% | $50,000 | $600,000 |
| 35% | $42,857 | $514,286 |
| 40% | $37,500 | $450,000 |
| 45% | $33,333 | $400,000 |
| 50% | $30,000 | $360,000 |
| 60% | $25,000 | $300,000 |
| 70% | $21,429 | $257,143 |
The contractor at 30% has to produce $240,000 more work per year than the contractor at 50% to arrive at the exact same place. Zero.
More jobs. More crews. More scheduling. More warranty calls. More chances for something to go wrong. For nothing.
Now push it into leads, because that’s where it hits home.
Say your average job is $12,000 and you close one out of every three estimates.
- At 50% margin: you need $30,000/month = 2.5 jobs = about 8 qualified leads a month to break even.
- At 30% margin: you need $50,000/month = 4.2 jobs = about 13 qualified leads a month to break even.
Five more leads a month. Fourteen more sales appointments a year you have to drive to, quote, follow up on, and close, before you’ve made a dollar.
That’s not a marketing problem. That’s a pricing problem wearing a marketing costume. Most contractors spend thousands trying to buy their way out of a margin they could have fixed for free before the next estimate went out.
What should a contractor do before sending the next estimate?
Three things, in order. None of them take a week.
1. Find out where you actually are. Pull your last five completed jobs. Not the best one. Five in a row. Subtract total job cost from what the customer paid. Divide by the price. That’s your real margin. Average the five. That number, not the one in your head, is the business you’re running today.
2. Price the next one correctly. Run it through the What Should You Charge calculator before it leaves your hands. Plug in your real costs, your real overhead, your target margin. See the number. Send the number.
3. Fix the system, not the one job. Pricing is one leak. Most contractors have three or four running at once — follow-up, qualification, job costing, scope creep. Take the Sales Leak Scorecard to find out which ones are yours before you spend another dollar on leads.
If you want the pricing piece built out properly — burdened labor rates, overhead recovery, job costing that actually closes the loop — that’s what Nail Your Numbers exists for. And if you want to build the whole thing with coaches and a room full of contractors who’ve already done it, that’s Battleground.
Strong You. Strong Home. Strong Business. In that order. None of it survives a broken margin.
FAQ
How much should I charge as a contractor?
Charge enough to hit a minimum 50% gross profit margin on every job. Take your total job cost, including burdened labor, materials, subs, and job-specific expenses, and divide by 0.50. A job that costs $8,000 to produce gets priced at $16,000. Below that, overhead and owner pay come out of your own pocket.
What’s a good profit margin for a contracting business?
A good gross profit margin for a residential contractor is 50% minimum, with 55% to 70% considered healthy. Net profit, after overhead, should land between 10% and 20%. Anything under 35% gross margin means the business is covering materials and payroll with almost nothing left for the owner.
How do I know if I’m charging enough?
Run the math on a finished job. Subtract total job cost from what the customer paid, then divide that number by the price. If the result is under 50%, the price was too low. Do this on the last five completed jobs, not the best one, to see the real pattern.
What is the difference between gross margin and markup?
Margin is a percentage of the price. Markup is a percentage of the cost. A 50% gross margin equals a 100% markup. Adding 50% to a $10,000 cost produces a $15,000 price and a 33% margin, not 50%. Confusing the two is the most common pricing mistake in the trades.
Related: What’s a good profit margin for a contracting business?