Profit Margin Benchmarks for Trade Businesses (2026)

You're working 50-hour weeks, your calendar is full, customers are paying on time. But when you look at your bank account, there's barely enough left after expenses. You're busy, but are you profitable?

This guide shows you what profit margins should look like in your trade, how to calculate yours accurately, and practical strategies to improve profitability without working harder.

1. Gross Margin vs Net Margin Explained

Most contractors confuse these two numbers. Understanding the difference is critical because they tell you different things about your business health.

Gross Profit Margin

What it is: Revenue minus cost of goods sold (COGS), expressed as a percentage of revenue.

COGS includes:

• Materials and supplies used on jobs
• Subcontractor labor
• Direct job costs (permits, equipment rental for specific jobs)

COGS does NOT include:

• Your salary or employee wages (these are operating expenses)
• Van costs, insurance, rent (operating expenses)
• Marketing, accounting, software (operating expenses)

What it tells you: How efficiently you're pricing jobs and controlling direct costs. This is your first line of defense against unprofitability.

Net Profit Margin

What it is: What's left after ALL expenses are paid, expressed as a percentage of revenue.

Operating expenses include:

• Salaries and wages (you and employees)
• Van payments, fuel, maintenance, insurance
• Office/workshop rent and utilities
• Marketing and advertising
• Software subscriptions
• Accounting and legal fees
• Equipment depreciation
• Loan interest payments

What it tells you: Your actual profitability after running the business. This is the money you can reinvest, save, or take as distributions.

2. Profit Margin Benchmarks by Trade

These benchmarks come from industry data, accounting firms specializing in trades, and real business financials. Use them as targets, not guarantees.

Cleaning Services

Plumbing

HVAC / Heating Engineering

Electrical

Carpentry / Joinery

Landscaping

General Building / Construction

Roofing

3. How to Calculate Your Margins

Monthly Calculation Process

Do this every month to track trends and catch problems early.

Step 1: Calculate Total Revenue

• All invoices paid during the month
• Don't include unpaid invoices (track separately for cash flow)

Step 2: Calculate COGS

• Materials purchased for jobs completed this month
• Subcontractor invoices paid
• Direct job costs (permits, equipment rental)

Step 3: Calculate Gross Profit

• Revenue - COGS = Gross Profit
• Gross Profit ÷ Revenue = Gross Margin %

Step 4: Calculate Operating Expenses

• Wages and salaries (including your own if you take one)
• Van costs (fuel, insurance, maintenance)
• Rent/mortgage for business premises
• Utilities, software, marketing, accounting
• Everything NOT included in COGS

Step 5: Calculate Net Profit

• Gross Profit - Operating Expenses = Net Profit
• Net Profit ÷ Revenue = Net Margin %

Per-Job Margin Tracking

Track margins on individual jobs to spot which types of work are most profitable.

4. What's Eating Your Profit

Common Margin Killers

1. Underpricing Jobs

• Forgetting to mark up materials (minimum 20-30% markup)
• Underestimating time required for jobs
• Competing on price instead of value
• Not raising rates annually with inflation

2. Material Waste and Theft

• Ordering excess materials that aren't returned
• Poor van stock management leading to duplicate purchases
• Theft from vans or job sites
• Not tracking material usage accurately

3. Inefficient Operations

• Poor route planning wasting fuel and time
• Callbacks for incomplete or poor-quality work
• Admin time not being tracked or billed
• Too much time between jobs (scheduling gaps)

4. Overhead Creep

• Van payments on vehicles you don't need yet
• Software subscriptions you barely use
• Commercial space larger than necessary
• Equipment sitting idle instead of being rented out

5. Scope Creep

• "While you're here..." requests done for free
• Not charging for change orders
• Extras included to make customers happy
• Warranty work extending beyond reasonable terms

6. Unpaid Invoices

• Work completed but payment never collected
• Bad debt eating 2-5% of revenue
• No deposit policy allowing customers to cancel after work starts

5. Improving Gross Margins

Pricing Strategies

Mark up materials properly:

• Minimum 20% markup on all materials
• 30-50% markup on small items (covers handling and shopping time)
• Consider flat-rate pricing instead of time-and-materials

Charge what you're worth:

• Calculate your true cost per hour (wages + overhead ÷ billable hours)
• Add profit margin on top of costs (don't just cover costs)
• Raise rates 3-5% annually minimum
• Don't compete solely on price

Value-based pricing:

• Price based on value delivered, not just time spent
• Emergency work deserves premium pricing (1.5-2x normal rate)
• Complex or specialized work commands higher rates
• Warranty and guaranteed results justify premium pricing

Cost Control

Material cost management:

• Buy in bulk for frequently used items (negotiate discounts)
• Track inventory to prevent duplicate purchases
• Return unused materials within return windows
• Get quotes from multiple suppliers

Reduce waste:

• Measure twice, cut once (literally and figuratively)
• Plan jobs carefully to minimize material waste
• Use leftover materials on future jobs when possible

Subcontractor management:

• Negotiate rates based on volume of work you provide
• Use subcontractors strategically (not for everything)
• Consider hiring employee for high-volume sub work

6. Improving Net Margins

Reduce Overhead

Vehicle costs:

• Can you use an older, paid-off van instead of financing new?
• Optimize routes to reduce fuel consumption
• Preventive maintenance cheaper than emergency repairs
• Shop insurance annually (can save £200-£500)

Workspace:

• Do you need dedicated office space or can you work from home?
• Can you share workshop space with another contractor?
• Sublet unused space if you have extra capacity

Software and subscriptions:

• Audit all subscriptions quarterly - cancel unused ones
• Negotiate annual pricing (often 15-20% cheaper than monthly)
• Consolidate tools (one system for scheduling + invoicing instead of two)

Marketing efficiency:

• Track which marketing actually generates customers (stop spending on the rest)
• Focus on referrals and repeat customers (lowest cost acquisition)
• Google My Business is free but highly effective

Increase Billable Hours

Better scheduling:

• Group jobs by area to minimize travel
• Book jobs tighter together (fill scheduling gaps)
• Use scheduling software to optimize routes automatically

Reduce admin time:

• Digital invoicing faster than paper
• Automate payment reminders
• Template emails for common customer questions
• Mobile app for job notes instead of paper then retyping

Minimize callbacks:

• Get it right first time (rushing causes expensive mistakes)
• Job checklist before leaving site
• Quality control process
• Train employees properly

7. When Low Margins Are Acceptable

Sometimes lower margins make strategic sense. But be intentional about it.

Acceptable Reasons for Lower Margins

Building reputation (first 6-12 months):

• Lower prices to get first customers and testimonials
• Time-limited strategy with clear end date
• Still must cover costs - never work at a loss

Strategic loss leader:

• Low-margin initial service that leads to high-margin repeat work
• Example: Discounted first clean for cleaning service (subsequent visits full price)
• Must track whether strategy actually generates repeat business

Filling capacity gaps:

• Slow season work at lower margins better than zero revenue
• Only if it covers direct costs and contributes to fixed overhead
• Don't let this become your normal pricing

Learning new service line:

• Lower margins acceptable while learning new service
• Gain experience and refine processes
• Raise rates once proficient

8. Margin Tracking Systems

Monthly Tracking Template

Track these metrics every month and compare to previous months and same month last year:

Software Tools

Integrated job management systems:

• Track revenue, costs, and margins per job automatically
• Generate monthly reports with one click
• See which service types are most profitable
• Examples: Toolfy, Jobber, Housecall Pro

Accounting software:

• QuickBooks, Xero, FreeAgent
• Good for overall financial picture
• Often need to export data to spreadsheet for margin analysis

Spreadsheet template:

• Simple and free option
• Requires manual data entry
• Easy to customize for your specific business

9. Red Flags to Watch For

Warning Signs of Margin Problems

Declining gross margins over time:

• Material costs rising but you haven't raised prices
• Bidding jobs too low to win work
• Giving too many discounts

Good gross margins but poor net margins:

• Overhead costs out of control
• Too many non-billable hours
• Inefficient operations eating profit

Revenue growing but profit flat or declining:

• Taking on low-margin work to hit revenue targets
• Adding overhead faster than revenue
• Hiring before you're ready

Busy but always cash-tight:

• Calendar is full but bank account is empty
• Working hard but not making money
• Sign that margins are too thin

10. Real Trade Business Case Studies

Case Study 1: Cleaning Business (Residential)

Case Study 2: Plumbing Business (Service & Repairs)

Case Study 3: Electrical Business (Commercial Focus)

Conclusion: Know Your Numbers

You can't improve what you don't measure. Profit margins are the clearest indicator of business health - more important than revenue, more important than how busy you are.

Key takeaways:

• Gross margins show pricing health: If below industry benchmarks, you have a pricing or cost problem
• Net margins show business health: Under 5% is unsustainable, 10-15% is healthy, 20%+ is excellent
• Track monthly: Catch problems early before they become crises
• Price for profit: Don't compete on price alone - deliver value and charge accordingly
• Control costs: Every pound saved is a pound of profit (doesn't require selling more)

Calculate your margins this week. If they're below benchmarks, pick one strategy from this guide and implement it. Measure again next month. Small improvements compound over time into significant profit growth.