The Math They Don't Teach You
Three numbers matter. Most people only look at one.
- Gross margin: Revenue minus direct costs (labor, materials, subs). This tells you if your pricing covers the work.
- Operating margin: Gross profit minus overhead. This tells you if your pricing covers the business.
- Cash margin: What actually lands in your bank account after everything. This is the only number that pays your mortgage.
You can have positive gross margin and negative cash margin. It happens all the time. That's what this calculator shows you.
Why This Matters
The average contractor operates on 5% net margins. Some industry experts say 1.5% to 2% is the new normal.
At 5% margin, if your costs run 6% over estimate, you didn't make less money. You lost money. The job that was supposed to pay you actually cost you.
Only 36% of construction businesses survive to their fifth year. The usual explanation is "it's a tough business." The real explanation is margin erosion—businesses that look busy go broke because they never see the bleed until it's too late.
Industry Benchmarks
According to the CFMA 2025 Construction Financial Benchmarker, the median net income before tax margin for construction companies is 6.7%. Gross profit margins typically range from 20-35% depending on trade and project type.
The Autodesk Construction Cloud research shows that only 36% of construction businesses survive to year five, with margin erosion being a primary factor.
Where Margin Goes to Die
1. Scope Creep
You quoted a job. The customer asked for "one small thing." Then another. None of it got billed. The gap between Quoted and Billed is where this shows up.
2. Labor Leakage
Industry data shows 40% of contractors underestimate labor by at least 10%. That eats directly into your gross margin.
3. Ghost Costs
Drill bits. Blades. Fasteners. Each one trivial. Together, they're a truck payment that never shows up in job costing.
4. Overhead Hiding
Most contractors know their overhead number. Few allocate it to jobs. That's the gap between gross margin and operating margin.
5. Collection Issues
The gap between Billed and Received. Slow payers, disputes, write-offs. This is why cash margin is the only number that matters.
Sources
- CFMA Construction Financial Benchmarker — Industry profit margin benchmarks
- Bureau of Labor Statistics Business Employment Dynamics — Business survival rates by industry
- Investopedia: Gross Margin — Definition and calculation methodology
- NIST Manufacturing Extension Partnership — Small business profitability resources