How do contractors calculate gross profit margin?
By the YardPilot team · Updated · 4 min read
Short answer
Gross profit margin = (price − job cost) ÷ price. To price a job for a target margin, divide the job's total cost by (1 − target margin). For example, a $500 job priced for a 40% margin sells for $500 ÷ 0.60 = $833.33.
The formula
Gross profit is what's left from the price after paying the job's direct and allocated costs. Gross margin expresses that profit as a share of the price:
- Gross profit = price − total job cost
- Gross margin = gross profit ÷ price
- Price for a target margin = total job cost ÷ (1 − target margin)
Worked example
A pressure washing job costs $300 in labor, chemicals, fuel and overhead. If you want a 50% gross margin, the price is $300 ÷ (1 − 0.50) = $600. Gross profit is $300, and $300 ÷ $600 = 50%.
Choosing a target margin
The right target depends on your overhead, how much you pay yourself, and your market. Many residential service businesses target gross margins somewhere between 30% and 60%, but your own numbers matter more than an industry rule of thumb. Track margins by service; you may find some services carry the business while others lose money.
Margin on every estimate
YardPilot calculates the price for your target margin on every estimate and warns you when a quote falls below it, using the cost profile you set up.
Price every job from your own numbers
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