Question 1

What is a good profit margin for a service business?

Accepted Answer

Most field service companies aim for a 15–25% net profit margin. According to IBIS World industry reports, the average profit margin for plumbing services is around 11%, and for HVAC contractors roughly 10–15%. A 20% margin is a solid starting point that covers unexpected job costs and allows for business growth. If your pricing consistently leaves you below 10%, you are likely not accounting for all your overhead.

Question 2

What is the difference between markup and margin?

Accepted Answer

Markup is the percentage added to your cost to reach a selling price. Margin is the percentage of the final selling price that is profit. For example, a 25% markup on a $400 cost results in a $500 price, which is only a 20% margin. A survey by Contractor Magazine found that confusing markup with margin is one of the top 3 pricing mistakes that cost contractors thousands in lost profit each year.

Question 3

Should I include overhead in my service price?

Accepted Answer

Yes. If you only price for labor and materials, you are paying your overhead out of what you think is profit. Insurance, rent, vehicle costs, and software all need to be baked into every job price.

Question 4

How do I calculate overhead per job?

Accepted Answer

Add up all monthly business costs (excluding direct labor and materials). Divide that total by the number of billable hours your team works in a month to get an hourly overhead rate. Then multiply by the duration of the specific job.

Question 5

How often should I update my service prices?

Accepted Answer

Review your prices at least twice a year. Material costs, fuel prices, insurance rates, and wages all change. If your costs went up but your prices did not, your profit margin is shrinking without you noticing.