Include wages, payroll taxes, overtime, and benefits paid for this job or period.
IRONGRID tracks labor hours and materials on every work order so you always have the data to run this calculation.
What your gross margin means
Gross margin does not include overhead costs like insurance, vehicle expenses, office rent, or administrative salaries. A 45% gross margin might translate to a 15–25% net profit margin once overhead is accounted for, depending on how lean your business runs.
Frequently asked questions
What is a good gross profit margin for a contractor?
Most healthy contracting businesses target a gross profit margin between 40 and 55 percent. Gross margin measures how much revenue remains after paying for the direct costs of completing a job (primarily labor and materials) before overhead expenses like insurance, vehicles, rent, and administration are deducted.
What is the formula for gross profit margin?
Gross profit margin is calculated as: (Revenue minus Direct Labor Cost minus Materials Cost) divided by Revenue, multiplied by 100. For example, if a job generates $15,000 in revenue with $5,500 in labor costs and $2,500 in materials, the gross profit is $7,000 and the gross margin is 47 percent.
Does gross profit margin include overhead?
No. Gross profit margin only covers direct job costs: labor and materials. Overhead expenses such as insurance, office rent, vehicle costs, administrative salaries, and loan payments are subtracted after gross profit to arrive at net profit. A gross margin of 40 to 55 percent needs to cover all overhead before any net profit remains.
Why is my gross margin below 40 percent?
Common causes of low gross margin include underbidding jobs to win more work, scope creep where extra work is completed without a change order, labor hours that exceed estimates without matching revenue, materials cost increases that were not reflected in updated pricing, and excessive callbacks that consume unbilled labor time.
What is the difference between gross margin and net profit margin?
Gross margin measures profitability before overhead. Net profit margin measures what is left after all expenses including overhead, interest, and taxes. A contractor with a 45 percent gross margin might have a net profit margin of 10 to 20 percent once overhead is deducted. Tracking gross margin tells you whether individual jobs are priced correctly; net margin tells you whether the business as a whole is profitable.