Owners often ask what margin they should aim for. The honest answer is that it depends on your costs, your size and your goals. A number copied from somewhere else will not know any of that. You can work out a better one from your own books.
Job margin vs net margin
These two get mixed up all the time. They measure different things.
- Job margin (gross margin). What is left from the price after the direct costs of the job. Direct costs include crew labor (labor), materials, fuel and equipment used on that job.
- Net margin. What is left after you also pay overhead: office costs, insurance, software, vehicles, admin wages and everything else that keeps the doors open.
Job margin pays for overhead. Whatever remains after overhead is your net profit. A job margin that looks healthy can still produce no net profit if overhead is high.
Do not confuse margin with markup either. A 25% markup is a 20% margin. See profit margin vs markup for the full explanation.
Why there is no single right number
- A business with big equipment and many vehicles has more overhead to cover than a one-truck business.
- A business with steady repeat work needs less margin per job than one with a few big jobs a year.
- An owner who wants to grow needs profit left over to reinvest. One who wants income now needs something different.
- Risk matters. Jobs that can run over need more cushion than fixed, simple ones.
So the question is not what is normal? It is what do I need?
How to set your own target
- Add up your yearly overhead. Include everything that is not a direct job cost, and a fair wage for yourself.
- Decide the profit you want. This is money left after all costs, for reserves, growth or owner return.
- Estimate your yearly sales. Be realistic. Use what you actually sold, not what you hope to sell.
- Divide. (Overhead + wanted profit) ÷ sales = the job margin you need.
Illustrative example. A company expects $500,000 in sales. Yearly overhead is $120,000. The owner wants $30,000 in profit.
| Step | Amount |
|---|---|
| Overhead | $120,000 |
| Profit wanted | $30,000 |
| Job margin needed in dollars | $150,000 |
| Expected sales | $500,000 |
| Job margin target | $150,000 ÷ $500,000 = 30% |
How the margin target is built
Dollars at each step of the example.
Illustrative numbers, from the table above.
If your sales fall, the same overhead is spread over fewer dollars, and your target margin has to go up. Rerun the numbers when your sales plan changes. The job price calculator can help you turn a target margin into a price.
Why an average margin hides losers
Your overall margin can look fine while some jobs lose money. Good jobs cover for bad ones, and nobody sees it.
Illustrative example. A company does three kinds of work. Type A earns a 40% margin. Type B earns 30%. Type C earns minus 5%. Together they may blend to something that looks acceptable. But every Type C job costs you money, and you are working hard to do more of it.
To find your losers, look at margin by job type, by size, and by customer. The goal is to fix the price, reduce the work, or stop doing the jobs that never earn. Job costing is how you see this.
Common mistakes when setting a margin
- Leaving your own wage out of overhead. If you do the work or run the business, your time has a cost. Leave it out and the target looks lower than it is.
- Using a hopeful sales number. Overhead is paid whether or not the work arrives. Plan on the sales you can count on.
- Treating profit as what is left over. Decide the profit first and price to reach it. Leftovers are often zero.
- Forgetting payroll costs. Wages are not the full cost of a crew member. Use the how to price a job steps to include them in direct cost.
How often to review your margin
- After every job: compare the real cost with what you expected. This is where bad estimates show up first.
- Monthly: look at margin by job type and note any that fall below target.
- Each quarter: check whether overhead has changed and whether your sales plan still holds.
- Each year: reset your target from scratch, using the method above.
CrewBrain tracks the real cost and profit of each job, so you can compare every job to your target margin instead of relying on an average.
Keep reading
- Overhead cost calculator: what each crew hour and job must carry
- Profit margin vs markup
- Hourly rate calculator
- How to price a service job so it actually makes money
- All guides and free calculators
Questions owners ask
What is the difference between gross margin and net margin?
Job (gross) margin is what is left after the direct costs of the job. Net margin is what remains after you also pay overhead such as insurance, software and admin wages.
How do I set a target profit margin for my business?
Add your yearly overhead to the profit you want, then divide by your expected yearly sales. The result is the job margin you need on average.
Is there one right profit margin for every service business?
No. The right margin depends on your overhead, your sales volume, your risk and your goals. Calculate it from your own numbers rather than copying one.
How often should I review my profit margin?
Check each job against your estimate, review margin by job type monthly, review overhead each quarter, and reset your target once a year.