Profit margins are the lifeblood of your construction business. Understanding them—how to calculate, track, and protect them—determines whether you thrive or just survive.
What is a healthy construction profit margin?
Typical construction profit margins range from 5% to 20%. Residential contractors often target 15-20%, while commercial contractors may work at 5-10% due to higher volume. Remodelers and specialty contractors often achieve 20%+ margins. Anything below 5% means you are one bad project away from losing money.
Gross vs net margin
Gross margin is your revenue minus direct project costs (materials, labor, subcontractors). Net margin is what is left after overhead, taxes, and indirect costs. A 20% gross margin can shrink to a 5% net margin once overhead is factored in. Track both.
How to calculate margin
For example, if you bill $100,000 and your direct costs are $75,000, your gross margin is 25%. If your overhead is $15,000, your net margin is 10%.
Strategies to protect margins
- Accurate estimating — Use AI estimating tools to avoid underestimating
- Track budgets in real time — Catch overruns before they eat your margin with project management software
- Document change orders — Every change should have a written, signed change order
- Control overhead — Review monthly expenses quarterly
- Improve project profitability with targeted strategies