Margin is what is left of the price after the costs of the job are paid, expressed as a share of the price. If you sell a job for $5,000 and it costs you $3,500 in labour, materials and other direct costs, the gross margin is $1,500, which is 30 per cent of the price. Net margin goes one step further and takes out your overheads too: insurance, the vehicle, the phone, accounting, the tools you replace every year. Net margin is the figure that tells you whether the business is making money, as opposed to whether each job is.
Margin is always measured against the price, so it can never reach 100 per cent. Markup is measured against the cost. The two are often confused, and the confusion costs money: a trade aiming for a 30 per cent margin who adds 30 per cent to cost ends up with less.
In practice
Take the same job with $3,500 of direct costs. To make a 30 per cent margin, divide the cost by 0.7: the price is $5,000. Add 30 per cent to the cost instead and the price is $4,550, which leaves $1,050, a margin of about 23 per cent. On a year of jobs like that, the difference between those two methods is the difference between a good year and an ordinary one.
Now the overheads. If running the business costs 18 per cent of everything you sell, the $5,000 job leaves 30 less 18, so 12 per cent, or $600, as net margin. At the $4,550 price, overheads at the same 18 per cent take $819 and the job leaves $231. The work and the hours are identical.
Knowing your margin by type of job is more useful than one figure for the whole business. Small call-out work, large fixed-price jobs and subcontract work for builders usually carry very different margins. A look back over your last few dozen accepted quotes, grouped by kind of job, shows which ones carry the business and which ones only keep you busy. The guide on building a price list from your invoices walks through that exercise.