Quick Answer
What is a good profit margin for a contractor?
Typical gross and net profit margins for trade contractors, why material-heavy work carries lower percentages, and the four reasons contractor margins come in low.
The short answer
- Labor-heavy service work targets 45 to 55 percent gross margin; material-heavy build work targets 25 to 35 percent.
- Net profit of 8 to 12 percent is healthy for an established trade contractor.
- Owner pay must be a real wage in the numbers, or the profit line is fiction.
- Most low margins trace to wage-only labor costing and uncounted unbillable hours.
Gross margin by type of work
The right target depends on how much of the invoice is material passing through.
- Service and repair: 45% – 55%
- Mixed service and replacement: 35% – 45%
- New construction and material-heavy installs: 25% – 35%
- Net profit for the company: 8% – 12%
Why the percentage alone can mislead
A 28 percent margin on a $90,000 job produces more gross profit dollars than 52 percent on a $6,000 job. Percentages tell you about pricing health; dollars per crew day tell you what to schedule.
The four common leaks
Nearly every under-margin contractor has at least two of these.
- Labor booked at wage instead of loaded cost
- Drive time, shop time and callbacks never charged to a job
- Change orders performed but never invoiced
- Overhead recovery never added into the price
What you see inside LedgerDude
This is the page you get each month once your books are closed — the numbers behind every answer on this site.
In one sentence
Most trade contractors should run 25 to 45 percent gross margin depending on how material-heavy the work is, and 8 to 12 percent net profit.
Try it with your own numbers
Use one month, one quarter, or one job. Nothing is saved and nothing is sent anywhere.
What customers paid you.
Units, parts, filters, refrigerant.
Wages, payroll taxes and benefits for time on jobs.
Office, trucks, ads, software, owner pay.
Commissions, permits, subs, disposal — anything that only happens when you do a job.
How many jobs or calls you completed in this period.
Hours your techs actually spent on customer work.
Your target: cents of profit per dollar of sales, after everything.
Gross margin
33.3%
$40,000 left after job costs
Net profit margin
15.0%
$18,000 left after everything
Job costs
66.7%
$80,000 of materials and labor
Materials share
31.7%
Healthy HVAC shops sit near 25–35%.
Labor share
35.0%
Healthy HVAC shops sit near 25–35%.
Overhead share
18.3%
Aim to keep this under 30%.
Contribution margin and labor productivity
Contribution margin
28.3%
$34,000 left to cover overhead and profit
Contribution per job
$243
$857 average sale per job
Sales per labor dollar
$2.86
Most healthy shops make $3 or more of sales per $1 of tech pay.
Sales per tech hour
$109
Your billable rate in real life, after slow days.
Gross profit per tech hour
$36
What one hour of tech time really earns you.
Hours to cover overhead
605 hrs
Tech hours needed before the shop starts making money.
What if costs move?
Drag a slider to see what happens to your margin if labor or materials go up or down.
$42,000 of tech labor
$38,000 of materials
Gross margin, what-if
33.3%
+0.0 points vs now
Net profit, what-if
15.0%
$18,000 left after everything
Both sliders are at zero, so this matches your numbers above.
Your 12% profit target
You are already there. These numbers keep 15.0% after everything.
What this means
Close, but thin. A few points of price or less overhead makes a big difference.
At this margin you need about $66,000 in sales just to break even.
Numbers to watch every month
- • Gross margin per job type — service work should beat installs.
- • Contribution margin — what is left after every cost that moves with the work.
- • Sales and gross profit per tech hour — the fastest read on productivity.
- • Labor cost as a share of sales, including payroll taxes and benefits.
- • Overhead share of sales — it should shrink as you grow.
- • Unpaid customer invoices over 30 days old.
- • Cash in the bank compared with one month of costs.
Related answers
Straight answers to the other questions roofing owners ask us.
How do you price a roofing job?
Add up squares of material, crew labor, dumpster, permit and subs to get job cost, add your overhead recovery rate, then divide by one minus your target margin.
What is a good profit margin for a roofing company?
Residential roofing should run 30 to 40 percent gross margin and 8 to 12 percent net profit; repair work carries higher margins than full replacements.
How do you calculate overhead and profit in roofing?
Overhead is last year's operating costs divided by revenue, added to job cost. Profit is applied by dividing that total by one minus your target margin.
What KPIs should a roofing company track?
Track gross margin by job, material cost share, close rate, average job size, weeks of cash and days to get paid. Six numbers, once a month.
What is labor burden rate and how do you calculate it?
Labor burden is everything an employee costs beyond wages — taxes, insurance, benefits, vehicle and tools — and it usually adds 25 to 60 percent on top of the hourly wage.
Run a different trade?
Questions people ask
Is 10 percent net profit really enough?
For an owner also drawing a market wage, yes; that profit is the return on the business itself. If owner pay is missing, 10 percent is not profit at all.
Should I compare myself to industry averages?
Use them once as a sanity check, then track your own trend month over month. Your cost structure is not the average.
How fast can margin improve?
Splitting revenue lines, loading labor cost properly and repricing the weakest line typically moves gross margin three to six points within a quarter.
What does this cost?
One flat monthly price. No hourly bills, no surprises. Founding plans start at $149 a month, and your rate stays locked.
Keep reading
What is labor burden rate and how do you calculate it?
Labor burden is everything an employee costs beyond wages — taxes, insurance, benefits, vehicle and tools — and it usually adds 25 to 60 percent on top of the hourly wage.
How do contractors manage cash flow?
Forecast cash weekly for thirteen weeks, invoice the day work is complete, collect deposits on material-heavy jobs, and keep a cash floor equal to six to eight weeks of outflow.
What is a good profit margin for an HVAC business?
Aim for 45% to 55% gross margin on service, 30% to 40% on installs, and 8% to 12% net profit for the whole company.
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