What is the difference between Markup and Gross Profit Margin?

Markup is the percentage added on top of your direct cost, while Gross Profit Margin is the percentage of the final selling price that is profit. For example, if a job costs $1,000 in labor and materials and you add a 50% markup ($1,500 quote), your gross profit is $500—which is only a 33.3% margin ($500 ÷ $1,500). To achieve a true 50% gross margin on a $1,000 cost, you must charge $2,000 (a 100% markup).

What is a healthy profit margin for a local service business or contractor?

Most healthy residential service trades (plumbing, HVAC, electrical, roofing, landscaping, cleaning) target a 45% to 55% Gross Profit Margin on labor and materials. After subtracting 15% to 25% in company overhead (trucks, insurance, fuel, software, marketing), that leaves a healthy 20% to 30% Net Profit Margin before owner taxes.

Why must my billable hourly rate be much higher than what I want to earn per hour?

In a service business, 30% to 45% of your 40-hour workweek goes toward unbillable work—driving between jobs, writing estimates, picking up parts, answering calls, and bookkeeping. Your billable hours have to pay for all 40 hours of your time plus truck, insurance, tools, and profit.

What is Labor Burden and why should I include it in job quotes?

Labor burden adds employer FICA payroll taxes (7.65%), workers’ compensation insurance, state unemployment insurance, and paid holidays/sick time on top of raw hourly wages—typically adding 15% to 25% to every crew hour.

Profit Margin, Markup & Contractor Hourly Rate Calculator

Sample Jobs:

1. Direct Job Costs (Materials, Crew & Permits)

Job / Service Name

Materials & Parts Cost (Your Cost $)

Permits, Dumpster / Subcontractor ($)

Crew Labor Cost 4 total hrs = $179

Techs / Crew

Hours on Job

Base Pay ($/hr)

Burden (%)

2. Profit Target & Overhead

Target Gross Profit Margin (%) 50% Margin (100% Markup)

15% (Thin) 35% (Modest) 45%–55% (Healthy Trade Target) 75%

Company Overhead Allocation (% of Revenue) 15% ($283)

Covers work truck, fuel, general liability insurance, software & marketing (typically 12%–20%).

Margin vs. Markup Trap Saved You $472 on This Job!

Your direct job cost is $944. If you mistakenly multiplied cost by +50% markup, you would have quoted $1,417 (only a 33.3% gross margin). Quoting $1,889 gives you a true 50% gross margin.

Recommended Customer Quote

$1,889

Healthy Service Benchmark

Gross Profit

$944

50.0% margin • 100% markup

Net Profit (After OH)

$661

35.0% net • $472/crew hr

Materials & Parts $680

Burdened Crew Labor (4 hrs) $179

Permits / Equipment / Sub $85