Contractor profitability is not measured by the money in the bank. You can have a full account on a Friday and still be losing money on your jobs.
This guide teaches you to calculate how much each job really leaves you. It also shows you how to compare your margin with other contractors.
In short
- Cash flow is the money coming in and going out. Profitability is what is left after you pay everything.
- To know your real profit, add up direct costs, a share of your fixed costs and your own pay.
- According to CFMA 2025, the average contractor earned 6.7% before taxes; the top 25% most profitable earned 12.0%.
- For a well-run small business, a goal of 10% to 15% net is reasonable (ODC goal).
- With up-to-date books you can see which jobs make money and which don't.
Cash flow and profitability: they are not the same
Cash flow is the money that comes in and goes out of your accounts. Profitability is what is left of your sales after you subtract all costs.
Say one customer gives you a deposit and another pays an old invoice on the same Friday. You have $25,000 in the bank. But that money is already spoken for by materials, payroll and a subcontractor.
If the job you are working on is priced too low, you lose money even when the bank account looks fine. That is why cash flow vs. profitability matters: watch the first so you do not run out of cash, and the second to know if your business is making money.
How to calculate the profit on a job, step by step
To learn how to figure the profit on a job, use this formula. It is the base of job costing: knowing what each job cost you and what it left you.
Net job profit = Price − (direct costs + share of fixed expenses + your salary)
Step 1: add up direct costs
These are the costs that exist only because you did that job:
- Materials.
- Labor, with payroll taxes and workers' compensation (workers' comp). According to the IRS, payroll taxes are a business expense.
- Subcontractors.
- Equipment rental.
- Permits and debris.
Step 2: spread your fixed costs
These are the costs you pay even when you have no job: insurance, truck, phone, office, software and the services of your bookkeeper or tax preparer.
Add them up by month and divide them among the month's jobs. You can also calculate a percentage of sales.
Step 3: include your pay
If you work on the job site or do the estimates, your time has a cost. If you leave it out, the "profit" you see is really your salary.
Example: a $40,000 kitchen remodel
| Item | Amount |
|---|---|
| Contract price | $40,000 |
| Materials | $14,000 |
| Labor with taxes and workers' comp | $11,000 |
| Plumbing subcontractor | $3,500 |
| Permits and debris | $1,000 |
| Share of fixed costs (10% of sales) | $4,000 |
| Owner's pay for this job | $1,500 |
| Net profit | $5,000 (12.5%) |
This job left 12.5% after paying everything. If the owner hadn't counted the fixed costs or his own salary, he would have thought he made 26%. That 26% is the gross margin: it only subtracts direct costs.
Profitability for contractors: how much do others earn? (CFMA 2025)
Each year, the Construction Financial Management Association (CFMA) publishes a survey of financial results. The 2025 edition, with fiscal year 2024 data from 1,558 companies, showed these margins before taxes (CFMA):
| Type of company | Net profit before taxes |
|---|---|
| All companies | 6.7% |
| Specialty trades | 7.7% |
| The top 25% most profitable | 12.0% |
These are medium and large companies that take part in the survey. They are a reference for profit margin in construction, not a rule.
For a small contractor, a goal of 10% to 15% net margin is reasonable if your prices cover all your costs. That goal is our recommendation at ODC, not an official number. Your real net margin depends on your trade and your size.
How to get your numbers ready to make decisions
- Set up each job as a “job” or “project” in your bookkeeping system.
- Record every materials invoice and every payroll hour under the job it belongs to.
- When you finish, compare what you estimated with what the job really cost.
- Review your basic reports every month. We explain them in our guide to bookkeeping for contractors.
Keeping your invoices and receipts in good order also protects you. The IRS explains how to keep your records. If you want someone to keep your books up to date, learn about our bookkeeping service.
Common mistakes when calculating profit
- Leaving out your own pay. To learn how to pay yourself, read how to pay yourself as an owner.
- Forgetting payroll taxes and workers' comp on labor costs.
- Not spreading fixed costs across jobs.
- Counting the deposit as profit.
- Comparing against the bank instead of the profit and loss (P&L) statement, the report that shows sales, costs and profit for a period.
Another costly mistake is not recording payroll correctly. See why in paying employees in cash.
What to do now
- Pick your last finished job.
- Fill in the example table with your real numbers.
- Compare your profit with what you thought you would earn.
- Adjust your next estimate with what you learned.
FAQ
What profit margin is good for a contractor?
According to CFMA 2025, the average was 6.7% before taxes and the top 25% most profitable reached 12.0%. For a small company, ODC considers 10% to 15% net a good goal, but it is not an official figure. It depends on your trade and your size.
What is the difference between gross margin and net margin?
Gross margin subtracts only the direct costs of the job, like materials, labor and subcontractors. Net margin also subtracts the fixed costs of the business and your salary. The net margin is the one that tells you if your business really makes money.
Should I include my salary in the job cost?
Yes. If you leave it out, the profit you see is really your salary, not the business's profit. Counting your time shows you whether the price covers everything. To learn how to pay yourself, read our guide on how to pay yourself as an owner.
When to talk to a professional
This article is a general guide. If your case involves a letter from the IRS, the FTB or the EDD, a lawsuit, an accident or a change in your business structure, talk to a lawyer, a tax preparer (CPA or enrolled agent) or the official agency. Every case is different.
How ODC helps you
At Oficina del Contratista we keep your bookkeeping up to date: we record your income and expenses, reconcile your accounts and explain your reports in Spanish. For taxes, payroll, insurance or legal matters, we connect you with independent partners; they provide those services, not ODC. See all services.
We help you keep your books up to date so you can measure the profit of your jobs. Message us on WhatsApp.
References
- CFMA – 2025 Construction Financial Benchmarker — 2025 pre-tax margins: 6.7%, 7.7% and 12.0%; 1,558 companies
- IRS – Publication 334, Tax Guide for Small Business — Business costs, including payroll taxes
- IRS – Recordkeeping — How to keep and store business records
- SBA – Plan your business — Planning and finances for a small business
Runs Oficina del Contratista, a Spanish-language bookkeeping service for contractors. Has experience in management, sales and construction consulting.
Important notice: this article is educational and informational only; it is not legal or tax advice. It may contain errors or be out of date. Before making decisions, check it with a licensed expert or attorney.
