Profit margin is profit divided by sales, shown as a percent: (price minus cost) divided by price, times 100. A $100 job that costs you $80 leaves $20 of profit, a 20% margin. For the whole business, divide net profit (income minus all expenses) by income for the same month or year: $2,800 profit on $8,000 of income is a 35% margin. ProfitDrawer's free price per job calculator works with margin the same way.
Two margins are worth knowing:
- Gross margin = (sales minus direct costs of the work, such as materials) / sales. It shows whether each job or product is priced well.
- Net margin = (sales minus all expenses) / sales. It includes overhead such as insurance, phone, software and advertising.
Steps for a monthly net margin:
- Total income for the month.
- Total every business expense for the same month, including mileage or vehicle costs.
- Subtract to get net profit, then divide by income.
Decide whether your own pay is in the costs. If you are a sole proprietor and do not count your time, a margin can look high while the business pays you very little. The price per job calculator includes your hourly pay as a cost first, so its margin is what the business keeps on top of paying you.
Track margin month by month; a falling margin with steady sales usually means costs are rising faster than prices.
Source: Price Per Job Calculator for Service Businesses · Updated
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General information, not tax, legal or financial advice. Check the rules for your state and your situation.