BuildWellWhat profit margin means
Profit margin is the share of the price you keep after paying for the job. If a client pays you $1,000 and the work cost you $750, you kept $250, and $250 is 25% of $1,000. That 25% is your margin.
Margin is the number that tells you whether the business is working. Revenue can grow every month while the business goes broke, if each job keeps too little of what it brings in. Margin also makes jobs of different sizes comparable: a $40,000 kitchen and a $400 repair can both be measured as a share of their price.
Two things trip people up. The first is that margin is measured against the price, not the cost, so it is always smaller than the markup for the same job. The second is that "cost" has to mean the full cost of doing the job. If the crew’s time goes in at the bare wage, the margin looks healthy on paper and disappears when the insurance bill arrives.
The profit margin formula
The calculator does three things with your numbers.
- Profit is the price minus your cost: $1,000 − $750 = $250.
- Profit margin is profit divided by price: $250 ÷ $1,000 = 25%.
- Price for a target margin is cost divided by one minus the margin: $750 ÷ (1 − 0.30) = $1,071.43 for a 30% margin.
It also shows the markup that gives the same profit, which is profit divided by cost: $250 ÷ $750 = 33.33%. Margin and markup describe the same dollars from two directions, and the table further down converts one into the other.
The third formula is the one most people get wrong. Adding 30% to a $750 cost gives $975, and $225 of profit on a $975 price is only a 23% margin. To keep 30 cents of every dollar the client pays, the price has to be $750 ÷ 0.70.
Worked examples
A water heater swap
Parts, fittings and haul-away cost you $430, and the crew’s time at your loaded rate is $320. Your cost is $750. You quote $1,000.
- Profit: $1,000 − $750 = $250
- Margin: $250 ÷ $1,000 = 25%
- Markup: $250 ÷ $750 = 33.33%
Pricing a deck to a target
You’ve added up a deck at $4,200 in materials and crew cost, and you want a 30% margin on jobs this size. The price is $4,200 ÷ 0.70 = $6,000. Check it: $6,000 − $4,200 = $1,800 of profit, and $1,800 ÷ $6,000 = 30%.
A discount that ate the job
A client asks for $150 off a $1,200 bathroom fan and light job that costs you $900. Before the discount the margin is $300 ÷ $1,200 = 25%. After it, the price is $1,050, the profit is $150, and the margin is $150 ÷ $1,050 = 14.29%. A 12.5% discount cut the profit in half. Run the calculator before you agree, and consider taking something off the scope instead.
The three jobs side by side
| Job | Your cost | Price | Profit | Margin | Markup |
|---|---|---|---|---|---|
| Water heater swap | $750 | $1,000 | $250 | 25% | 33.33% |
| Deck at a 30% target | $4,200 | $6,000 | $1,800 | 30% | 42.86% |
| Fan and light, discounted | $900 | $1,050 | $150 | 14.29% | 16.67% |
Margin and markup conversion
Use this table to find the markup that earns a target margin, and the price it gives on $1,000 of cost.
| Target margin | Markup needed | Price on a $1,000 cost | Profit |
|---|---|---|---|
| 10% | 11.11% | $1,111.11 | $111.11 |
| 15% | 17.65% | $1,176.47 | $176.47 |
| 20% | 25% | $1,250.00 | $250.00 |
| 25% | 33.33% | $1,333.33 | $333.33 |
| 30% | 42.86% | $1,428.57 | $428.57 |
| 35% | 53.85% | $1,538.46 | $538.46 |
| 40% | 66.67% | $1,666.67 | $666.67 |
| 45% | 81.82% | $1,818.18 | $818.18 |
| 50% | 100% | $2,000.00 | $1,000.00 |
| 60% | 150% | $2,500.00 | $1,500.00 |
Notice how fast the markup climbs. A 50% margin needs a 100% markup: the price is double the cost. That’s why a target margin should be set with care, and why quoting "cost plus 30%" and earning "a 30% margin" are different businesses.
What goes into your cost
The margin is only as honest as the cost you enter. For one job, count:
- Materials at what you paid, including fasteners, adhesives, consumables and the waste you’ll throw away.
- Labor at what an hour really costs you: the wage plus payroll taxes, workers’ comp, insurance and the time nobody pays for. The labor rate calculator works that out.
- Subcontractors at what they charge you.
- Permits, inspections, disposal, equipment rental and delivery for this job.
Leave out the costs that don’t change with the job, like the truck payment and your software. Those are fixed costs. Cover them in your labor rate or check them separately with the break-even calculator, so they aren’t counted twice.
Leave out sales tax as well. Tax you collect belongs to the state, so it isn’t part of your price for margin purposes.
Common mistakes
Treating markup as margin. "I put 25% on everything" is a 20% margin, not 25%. If your target is a 25% margin, the markup has to be 33.33%.
Costing labor at the wage. With 100% overhead, which is where BuildWell starts until you set your own, a crew member paid $30 an hour costs you $60 an hour once taxes, insurance, the truck and unbilled time are in. Cost the job at the loaded rate.
Forgetting the small stuff. Caulk, blades, screws, tape, dump fees and the second trip to the store add up. Your cost should have a line for them.
Measuring margin before change orders. Extra work priced at the same margin protects the job. Extra work done for free because it was "small" comes straight out of profit.
Never checking afterwards. The margin you planned and the margin you earned are different numbers. Compare them on finished jobs, and use what you learn on the next estimate.
Using your margin when you price
Work out a target margin from your own numbers, not from what someone else says is normal. Start from what you need the business to earn in a year, and from how much work you can realistically do. The break-even calculator shows the floor; your target sits above it.
Then price every estimate to that target and look at the result. If the price feels too high for the market, the answer is rarely to cut the margin. Look at the scope, the materials and the hours first. If a job can only be won at a margin that doesn’t cover your costs, it’s usually better to pass.
Different kinds of work can carry different margins. Small service calls tie up a truck and a trip for little work, so they often need a higher margin than a long project. Work with more risk, like old houses and hidden conditions, needs more room than work you’ve done a hundred times.
In BuildWell you set your labor overhead, labor markup and material markup once in Pricing settings. Every estimate applies them line by line: materials at store prices near the job plus your material markup, and labor at your area’s wage plus your overhead and markup. You can change the percentages on any estimate, and the totals update.
