In one line
What is left of the price after the direct cost of the job, usually shown as a percentage.
Also called gross profit margin, or just margin.
What it means in practice
Gross margin is price minus COGS, divided by price. It is the number that tells you whether the work is worth doing, because overhead and profit both have to come out of it.
It is not markup. Markup is measured against your cost, margin against your price, and confusing the two is the most common way a job that looked fine ends up losing money.
Example. A job priced at $2,000 with $1,200 of direct cost has a gross margin of $800, or 40%.
Where it shows up on the paperwork
Margin is a number you carry into your prices rather than one you print. It shows up on the estimator as the difference between what a job costs you and what you charge for it.
What goes wrong
- Confusing it with markup, which is the same money measured against a different base.
- Including overhead in the cost, which makes every job look worse than it is.
- Setting one target margin for materials and labour when the two carry very different risk.
The tools for this
Related terms
- MarkupThe amount added to your cost to reach the price, expressed as a percentage of the cost.
- COGS (cost of goods sold)The direct cost of what you sold: the materials and the labour that went into the job.
- OverheadThe running costs of the business that no single job pays for directly.
- DiscountAn amount taken off a price, shown as a percentage or a figure on the line or the total.
Common questions
What is the difference between margin and markup?
Markup is measured against your cost, margin against your price. A 50% markup gives a 33% margin. Confusing the two is how a job that looked fine ends up thin.
What gross margin should a trade business aim for?
It varies too much by trade to give one figure, and anyone quoting a single number is guessing. What matters is that the margin covers your overhead per hour with something left, which the cost estimator shows as you price.