Margin One
What Is a Good Gross Margin for a Home Services Business?
A healthy gross margin for an HVAC, plumbing, or electrical business runs 50 to 60 percent, and dropping below 42 percent is your warning floor.
By John
A healthy gross margin for a home services business is 50 to 60 percent. The warning floor is 42 percent: fall below it and you are almost always underpriced on labor, underestimating materials, or eating callbacks you never charged for. These benchmarks come from the Home Services Metrics Scorecard, the KPI catalog M1COS dashboards run on.
A healthy gross margin for a home services business is 50 to 60 percent. The warning floor is 42 percent. If your gross margin sits below that, the problem is almost never "the market" and almost always your pricing, your estimating, or the callbacks you keep eating for free.
Gross margin is revenue minus cost of goods sold (COGS), divided by revenue. For a contractor, COGS is the direct cost of doing the work: field labor, materials, and subcontractors. It is not your office rent, your trucks, or your marketing. Keep those out or the number lies to you.
Gross Margin % = (Revenue − Direct Job Cost) ÷ Revenue
Why the 42 percent floor matters: below it, there is not enough gross profit left to cover overhead and still leave anything for the owner. When margin runs low, one of three things is usually happening.
| Symptom | Root cause |
|---|---|
| Jobs "feel" profitable but the bank account is flat | Labor priced at cost, not loaded cost |
| Material overruns on most jobs | Materials underestimated at quote time |
| Rework nobody billed for | Unpriced callbacks buried in COGS |
The most common mistake is pricing labor at the wage you pay, not the loaded cost of putting that tech on a job. A $35/hr tech does not cost you $35 on a billable hour once you add burden and account for utilization. Get that wrong and every job looks fine on paper while margin quietly bleeds.
One note on net profit: after overhead, net profit for a well-run home services business is typically a single-digit to low-double-digit percentage. That is a general industry range, not a Margin One benchmark, and it varies widely by size and structure. Gross margin is the number you can actually control job by job, which is why it is the one to watch.
These benchmarks come from the Home Services Metrics Scorecard, the KPI catalog the M1COS dashboards run on.
Want to see where your margin is leaking before you raise a single price? Run the Margin Leak Check, and if you suspect labor is the culprit, the Job-Costing Calculator shows you true cost per job. For the labor math specifically, see What Is Loaded Labor Cost?.
FAQ
What is included in cost of goods sold for a contractor?
Direct job costs only: field labor (at loaded cost), materials, and subcontractors. Overhead like office staff, rent, trucks, and marketing stays out of COGS and belongs below the gross margin line.
Is 42 percent gross margin bad?
It is the warning floor, not the target. At 42 percent you have just enough to cover overhead in most shops, but little cushion. Sitting there or below usually signals underpriced labor or unbilled rework.
How is gross margin different from net profit?
Gross margin is revenue minus direct job cost. Net profit is what remains after overhead too. A business can have a healthy 55 percent gross margin and still lose money if overhead is bloated.
Want these numbers on your actual books? Book a call.