BuildWellWhat a job really made
Every job has two profit numbers, and most contractors only ever look at one of them.
The first is gross profit: the price less what the job itself cost you. Materials, the crew’s wages and payroll costs, the subcontractor, the permit, the dumpster. If those come to $9,100 on a $12,000 job, the job grossed $2,900.
The second is net profit: what’s left after the job also carries its share of running the business. The truck, the insurance, the phone, the software, the bookkeeper and your own hours spent quoting and buying all cost money every month, and every job has to chip in. Take the job’s share of that out, and the $2,900 might be $1,500.
Gross profit tells you whether the work was priced above its own costs. Net profit tells you whether the job paid for the business. A company can show healthy gross profit on every job and still lose money, because the gross profit across the year didn’t cover the overhead.
This calculator works out both, and two more numbers that help compare one job with another: the return on everything the job cost you, and the net profit each crew hour earned.
The job profit and ROI formula
The calculator takes the price, four kinds of direct cost, an overhead share and the crew hours.
- Direct costs = materials + crew labor + subcontractors + other job costs (permits, disposal, rentals).
- Gross profit = price − direct costs. As a share of the price, that’s the gross margin.
- Total cost = direct costs + the job’s share of overhead.
- Net profit = price − total cost. As a share of the price, that’s the net margin.
- Return on cost (ROI) = net profit ÷ total cost.
- Net profit per crew hour = net profit ÷ crew hours on the job.
Return on cost is the same math as markup, measured after the fact: it’s how much the price ended up above everything the job cost. Margin divides the same profit by the price instead, so the two always differ. A 12.5% net margin is a 14.29% return on cost.
Use crew labor at what it really costs you: the wage plus the employer’s payroll taxes, workers’ compensation and any benefits, for the hours the job took. If you work the job yourself, count your time at what you’d pay someone else to do it, or the job will look more profitable than it was.
Worked examples
A kitchen remodel
A $12,000 kitchen job used $3,800 of materials, $3,200 of crew labor with payroll costs, a $1,500 electrical subcontractor and $600 of permits and dumpster. Direct costs are $9,100, so gross profit is $2,900, a 24.17% gross margin.
The business runs $35,000 a year of overhead across 2,000 crew hours, so each crew hour carries $17.50. The job took 80 crew hours, so its share is $1,400. Net profit is $1,500, a 12.5% net margin, a 14.29% return on the $10,500 the job cost all in, and $18.75 for each crew hour.
| Line | Worked out as | Amount |
|---|---|---|
| Contract price | Signed estimate plus approved changes | $12,000.00 |
| Direct costs | $3,800 materials + $3,200 crew + $1,500 sub + $600 permits and dumpster | $9,100.00 |
| Gross profit | Price less direct costs (24.17% of price) | $2,900.00 |
| Overhead share | 80 crew hours × $17.50 an hour of overhead | $1,400.00 |
| Net profit | Gross profit less overhead (12.5% of price) | $1,500.00 |
| Return on cost | $1,500.00 ÷ $10,500.00 all-in cost | 14.29% |
| Per crew hour | $1,500.00 ÷ 80 hours | $18.75 |
A two-day repair
A $2,400 repair used $600 of materials, $720 of crew labor and $80 of disposal. At $17.50 an hour of overhead, its 16 crew hours carry $280. Direct costs are $1,400, gross profit $1,000, and net profit $720: a 30% net margin, a 42.86% return on the $1,680 it cost all in, and $45 a crew hour.
The kitchen made more dollars. The repair made more than twice as much for each hour the crew spent on it. When the calendar is full, that difference decides which work to chase.
Before and after the job
Run the calculator twice. On the estimate, it shows the profit you’re pricing in. After the job, with the real material receipts, the real hours and any change orders, it shows the profit you kept. If the kitchen above ran 20 hours over, the extra crew cost and overhead share would take most of the $1,500.
Margin and return on cost
The same profit, measured two ways. Return on cost is always the bigger number, and the gap widens as profit grows.
| Net margin | Return on cost | Net profit on a $10,000 job | All-in cost |
|---|---|---|---|
| 5% | 5.26% | $500.00 | $9,500.00 |
| 10% | 11.11% | $1,000.00 | $9,000.00 |
| 12.5% | 14.29% | $1,250.00 | $8,750.00 |
| 15% | 17.65% | $1,500.00 | $8,500.00 |
| 20% | 25% | $2,000.00 | $8,000.00 |
| 25% | 33.33% | $2,500.00 | $7,500.00 |
| 30% | 42.86% | $3,000.00 | $7,000.00 |
Pick one to track and stick with it. Margin is easier to compare with what lenders, bonding companies and accountants ask for. Return on cost is easier to compare with what you’d earn putting the same money somewhere else.
Working out the overhead share
Overhead is every cost that keeps the business open but that no single job causes. There are two simple ways to spread it over jobs.
| Method | How | Fits when |
|---|---|---|
| Per crew hour | Yearly overhead ÷ yearly crew hours × the job’s hours | Labor is most of what you sell |
| Per dollar of revenue | Yearly overhead ÷ yearly revenue × the job’s price | Materials or subs are a big share of the price |
With $35,000 of overhead and 2,000 crew hours, the per-hour method charges $17.50 an hour. With the same overhead on $300,000 of revenue, the per-dollar method charges about 11.7 cents per dollar of price, so a $12,000 job carries $1,400 that way too.
Whichever you pick, use it on every job. Switching methods from job to job makes some jobs look better and others worse for no real reason.
Common mistakes
Counting crew at the bare wage. Payroll taxes, workers’ compensation and benefits are part of what an hour of labor costs. Leaving them out overstates every job’s profit.
Leaving out your own time. If you ran the job yourself and count your hours as free, the job looks profitable when it only paid you a wage.
Calling gross profit "profit". A 24% gross margin with 15% overhead is a 9% business, not a 24% one.
Skipping the after-job check. The estimate shows the profit you hoped for. Only the real numbers show what you got, and where the job ran over.
Ignoring time. A job that makes more dollars but ties the crew up for three weeks can earn less per hour than the small jobs you turned down.
Leaving change orders out of the price. Extra work you did and billed belongs in the price; extra work you did and didn’t bill comes straight out of profit.
Pricing the next job from this one
Finished jobs are the best data you have for pricing the next one. Compare the hours you planned with the hours the job took, the materials you planned with what you bought, and the profit you priced in with what you kept. Where a kind of job keeps running over, plan more hours for it next time.
Then work backwards: if you want a 12% net margin and your overhead runs 15% of revenue, the price has to carry a gross margin of about 27%. The profit margin calculator turns a target margin into a price, and the job cost calculator builds a price from materials, hours and your labor rate. The break-even calculator shows how many jobs a month cover your fixed costs.
BuildWell builds every estimate from the labor hours it plans for each line of work, materials priced at stores near the job and labor at your area’s wage. Your overhead and markups are set once in Pricing settings and added to every estimate, and you can change them on any job.
