Key takeaways:
Understanding what makes a good profit margin is key for small business owners who want long-term success and stability.
- Profit margin shows your business’s profitability. It’s the percentage of money left after all expenses are paid. Net profit margin is the key metric to track overall financial health.
- Calculating your profit margin is straightforward. Add up your total expenses, determine your gross revenue, subtract expenses from revenue to find net profit, and then use the profit margin formula: (net profit / gross revenue) x 100.
- Profit margin matters for business growth. A strong margin not only signals the health of your business but is also important to banks and investors, and helps you make informed business decisions.
- A healthy profit margin varies by industry, but 30% or higher is a good benchmark. Factors like your pricing strategy, job costing, seasonal demand, operating expenses, service offerings, customer base, and overall market conditions will also influence your margins.
- Monitor and adjust to improve margins. Regularly reviewing pricing strategies, tracking expenses, and streamlining operations can boost profitability.
Sign up for the Jobber Newsletter to stay ahead with more expert insights. Join here.
Originally published in March 2020. Last updated on July 29, 2025.
As a small business owner, you need to set a healthy profit margin to cover your business expenses, reinvest in growth, and achieve financial stability. But many home service providers struggle to calculate, set, and stick to a number that balances pricing, costs, and growth.
Read through this guide to learn how to come up with a small business profit margin that keeps you in the black and helps you set competitive prices to stay on the path to success.
Set a healthy small business profit margin:
What is a profit margin?
Your profit margin is the percentage of money you keep after covering costs like overhead and operating expenses. For example, if you charged $500 for a job and your costs were $400, your profit margin would be 20%.
From an accounting perspective, profit margin is typically broken into three categories:
- Operating profit margin (or operating margin): The total amount you make on a job after expenses are covered but before any applicable taxes or interest charges.
- Gross profit margin: How much money you have left over after subtracting the cost of goods (COGS), which are expenses directly related to a job, like labor and materials.
- Net profit margin: Your total profit after all expenses are deducted, including COGS, overhead and operating costs, taxes, and interest.
While it’s good to be aware of the different types of profit margins, the most important for small businesses is your net profit margin. It’s the best way to track your overall profitability to ensure you’re making more money than you’re spending.
Revenue vs profit
Revenue and profit are related, but provide different insights into your business’s financial health.
Revenue, or net sales, is the total amount you earn before expenses.
Profit is what’s left after all costs—like labor, materials, and overhead—are deducted.
A profit margin shows how much of your revenue is profit, expressed as a percentage.
For example, if you charge $10,000 to install a new fence, your revenue for that job would be $10,000. After labor, materials, and overhead are deducted, you have $1500 profit, or a 15% profit margin.
When it comes to understanding revenue vs profit, profit is the most important number to focus on. It gives you a better idea of your business’s financial health by showing you how much you’ve grown, whether you have money to reinvest, and when you need to make changes.
If you’re struggling to monitor these numbers, use reporting software like Jobber to stay on top of revenue and profit, as well as expenses, payments, and projected income.
It gives you a clear overview of your finances in one place, so you can see which jobs bring in the most money, track trends, and identify issues before they impact your bottom line.
How to calculate revenue
Before you can calculate your profit margin, you need to know your gross revenue, which you can calculate using this formula:
Gross revenue = Hours worked x Hourly rate
For example, if you worked 50 hours and your hourly rate was $75, your revenue would be $3,750.
If you work on a flat rate, you would need to calculate your revenue as follows:
Revenue = Flat rate x Number of jobs
For example, if you charged $500 per job and did eight jobs, your revenue would be $4,000.
How to calculate profit margin
To calculate your net profit margin, follow these steps:
1. Add up your expenses
Combine your total expenses, including labor, materials, taxes, overhead, and operating costs.
2. Calculate gross revenue
Revenue is the combined total amount you earn before costs are subtracted.
To calculate it, use the formula that applies to your pricing model (either hourly or flat rate) for a specific period, like a week, month, or year.
For example, if you completed ten jobs in a week and charged $500 each, your gross revenue would be $5000.
3. Find your net profit
Next, find your net profit by subtracting your total costs from your gross revenue.
Net profit = gross revenue – total expenses
This will tell you how much money you have left after all your costs are covered.
4. Calculate your profit margin
From there, calculate using this profit margin formula:
Profit margin = (net profit / gross revenue) x 100
You can also use Jobber’s free profit margin calculator to do the math for you. Just enter your labor and material costs, overhead expenses, and service prices to see how profitable your current pricing strategy is.
Why profit margin matters
Having a good profit margin is essential not only for running your business but growing it.
Monitoring your profit margin allows you to:
1. Track overall profitability
Your profit margin tells you how much money you are (and aren’t) making. You can use it to monitor trends, like increasing material costs, rising labor expenses, and changes in demand, so you can make adjustments before they impact your bottom line.
It also shows you how much room you have to grow by hiring new employees, generating leads, or building out your service list.
2. Inform pricing
Your company’s profit margin tells you whether your prices are high enough to cover costs and put money in your pocket, or if you need to increase them. It helps you strike a balance between staying competitive and generating profit.
3. Improve efficiency
When you start digging into your numbers, it helps you identify areas where you could improve efficiency by cutting costs or developing better standard operating procedures. This prevents you from wasting resources and makes it easier to reach your profit margin without increasing prices.
Pro Tip: Get instant access to your business data with Jobber AI. Use it to analyze your total revenue, expenses, quotes, and invoices to help you stay on top of your profit margins.
4. Keep track of your business’s health
Understanding profit margin gives you an overview of your business’s health, but you aren’t the only one who might care about that information. Banks, lenders, and investors use this financial metric to evaluate your company when you apply for a business loan or seek funding.
It also gives you insights you can use to make better decisions as a business owner when it comes to growth, planning, and making investments, like new tools or equipment.
5. Protect your business
Monitoring your profit margin ensures you always turn a profit, better preparing you for unexpected costs or seasonal fluctuations. It’s a tool you can use to track and improve cash flow, get ahead of changes in expenses, and make more strategic decisions in unforeseen situations.
What is a good profit margin?
For most service businesses, a healthy profit margin is more than 30%.
For example, here are some target profit margin ranges for different industries:
- Cleaning services: 50–70%
- Lawn care/landscaping: 40–60%
- Handyman/skilled trades: 40–60%
- Pressure washing: 50–70%
It’s important to keep in mind that the profit margin you set will be impacted by various factors, including:
1. Your pricing strategy
The profitability of every job is directly impacted by your business model and how you price your services.
To maximize profits, you’ll need to focus on being efficient in the field and keeping your overhead costs under control.
Your profit margin is going to be helped by selling at the right price and being efficient in the field and not having too much overhead.
2. Job costing
Knowing how profitable each job is tells you whether you’re charging enough for your services and whether you need to renegotiate or reduce material costs. It can also show you how to price new services profitably, like when you start offering bundles or tiered packages.
You start job costing and you’re going to get clarity real quick on if the juice worth the squeeze.
Use Jobber’s job costing software to track material, labor, and expenses for each job to price each job for profit so you don’t end up in the red.
3. Seasonality
If your business is seasonal, like lawn care, snow removal, or holiday light installation, your profit margin will fluctuate based on your off-season. That means you may need to adjust it to be higher during your busiest months and lower when you typically book fewer jobs.
4. Fluctuating expenses
Changing costs—such as rising material prices or the need to bring on a specialized subcontractor for a job—can reduce profit margins overall and on individual jobs.
5. Your industry
Some industries, like HVAC, have higher operating expenses because they require specialized labor, expensive equipment, and licenses and permits, lowering their profit margins.
Other industries, like house cleaning, have less overhead and fewer regulations, allowing them to maintain a higher profit margin.
6. The services you offer
Specialized or premium services typically have a higher profit margin because they cater to a specific customer base.
For example, high-end landscaping design or home automation businesses typically have higher profit margins because they provide custom solutions to client problems and use specialized tools and materials.
7. Your customers
Knowing who your target market is and how much they’re willing to pay for your services directly impacts your profit margin.
If you cater to budget-friendly clients, they may expect lower prices, resulting in a lower profit margin.
8. Market conditions
Local market conditions also play a part in how much your profit margin is.
For example, if you don’t have any competitors, you may be able to charge higher prices and turn a better profit.
But if the market is saturated with other companies offering similar services, you may need to price lower or find a way to set yourself apart to maintain a healthy profit margin.
Ways to increase your profit margin
Growing profit doesn’t always mean increasing revenue. Instead, you can boost it by:
1. Adjusting your pricing
One of the easiest ways to increase earnings is to raise prices. But it’s only worthwhile if you approach it strategically by considering:
- Competitor pricing, like what others in your area are charging for the same services
- Material and labor costs, such as employee salaries, subcontractor fees, job supplies
- Market conditions, like inflation or changes in demand that may impact business operations
- Your customers, as in what kind of clients you typically attract and how much they’re willing to pay
For example, if you’ve positioned yourself as a value-based service provider and have a loyal customer base, they may not appreciate a significant price hike.
On the other hand, if you’re offering a new premium service to a different subset of clients, you may be able to price it higher without any issues.
2. Tracking expenses
Improving profit doesn’t always mean raising prices. Sometimes it means reducing costs.
But you can only do that if you track your expenses. When you know how much you have going out, it’s easier to see what you can cut back on.
For example, can you find a lower-cost supplier, renegotiate contracts, or use fleet management to optimize fuel efficiency?
Identify where your bills are highest or where they’ve grown over time to determine where you may be able to lower them, making it easier to increase profit.
3. Streamlining operations
Boosting efficiency can have a major impact on your profit without affecting pricing.
For example, you can use field service management software like Jobber to:
- Optimize employee scheduling so the right people are assigned to each job
- Create and send quotes and invoices to reduce admin work
- Track job costs and expenses to help with job costing and reporting
- Manage jobs through online booking, payment processing, and automated follow-ups
While both revenue and profit are important and worth tracking, profit is the best way to gauge your business’s financial performance. All the revenue in the world won’t matter if you’re not profitable.