How Much Profit Should a General Contractor Make?

If you want to know how much profit should a general contractor make, the math is non-negotiable: aim for a 30% to 40% gross profit margin and a 10% to 15% net profit margin. This net profit is what remains after every job cost, overhead expense, and your market-rate owner's salary is fully paid. Anything less than a 10% net margin leaves you one bad job away from bankruptcy.

Most contractors look at their bank account balance at the end of the month and assume that's their profit. It's not. If you are running a general contracting business, you are managing massive amounts of risk, coordinating complex schedules, and floating cash. You need to be compensated for that risk above and beyond your daily wage.

Let's break down the exact math, the difference between a paycheck and a profit, and how to price your next job to ensure you actually keep the money you make.

Gross Profit vs. Net Profit: Getting the Definitions Right

Before we look at the exact dollars and cents, you need to understand the difference between gross and net profit. If you mix these up, you will underprice your jobs and run out of cash.

What is Gross Profit?

Gross profit is the money left over after you pay the direct costs of a specific job. These direct costs are called Cost of Goods Sold (COGS). COGS includes:

• Direct Labor: The wages, payroll taxes, and workers' comp for the guys swinging hammers on that specific site.
• Materials: The lumber, drywall, fixtures, and hardware used on the job.
• Subcontractors: The plumbers, electricians, and HVAC techs you hire for the project.
• Equipment Rentals: The skid steer or boom lift rented specifically for this site.

The Target: Your gross profit margin should be between 30% and 40%.

What is Net Profit?

Net profit is what is left from your gross profit after you pay all of your company's overhead. Overhead includes every expense that doesn't stop when the jobs stop. This includes:

• Office Expenses: Rent, utilities, estimating software, and accounting fees.
• Vehicles: Truck payments, fuel, and maintenance.
• Insurance: General liability, auto policies, and umbrella coverage.
• Owner's Salary: Your paycheck for managing the business (more on this critical piece below).

The Target: Your net profit margin should be between 10% and 15%.

What Most Contractors Get Wrong: Your Salary is Not Profit

Here is the single biggest mistake contractors make when calculating how much profit should a general contractor make: They confuse their salary with their net profit.

If you are acting as the lead carpenter, the project manager, the estimator, and the bookkeeper, you are performing jobs that you would otherwise have to pay an employee to do.

Let's say your general contracting business brings in $1,000,000 in revenue this year. At the end of the year, after paying for materials, subs, labor, and overhead, there is $80,000 left in the bank.

A lot of contractors will look at that and say, "I made an $80,000 profit. That's an 8% net margin. Not bad!"

Wrong.

If you worked 50 hours a week running those jobs, estimating, and managing clients, your market rate as a Project Manager/Estimator is easily $80,000 to $100,000 a year. That $80,000 isn't business profit; it's your salary. Your business actually made $0 in net profit.

You took all the risk of running a $1M business, signing contracts, and holding liability, and you did it for free. You simply bought yourself a demanding, high-stress job.

A healthy $1,000,000 GC business should pay you an $80,000+ salary as an overhead expense, and then generate an additional $100,000 to $150,000 in pure net profit. That net profit is the reward for taking on the business risk. It's the cash you use to buy new equipment, weather winter slowdowns, or distribute to yourself as an owner's dividend at tax time.

The Math: Markup vs. Margin

If you want to hit a 40% gross profit margin, you cannot just multiply your estimated costs by 1.4. This is a mathematical error that costs contractors hundreds of thousands of dollars over their careers.

• Margin is a percentage of the sales price.
• Markup is a percentage of your costs.

If your estimated job costs (labor, materials, subs) are $50,000, and you multiply by 1.4 (a 40% markup), your sales price is $70,000.

Your gross profit is $20,000. What is your gross profit margin? $20,000 divided by the $70,000 sales price equals 28.5%.

You aimed for a 40% margin, but because you used the wrong math, you lost 11.5% of your target margin before you even swung a hammer.

The Correct Formula for Pricing

To calculate your sales price based on your target margin, use division, not multiplication.

Sales Price = Job Costs ÷ (1 - Target Margin)

If you want a 40% gross margin on that same $50,000 cost:

1. Convert 40% to a decimal: 0.40
2. Subtract from 1: 1 - 0.40 = 0.60
3. Divide your costs by 0.60: $50,000 ÷ 0.60 = $83,333

Now look at the difference. By using the correct margin math, your sales price is $83,333. Your gross profit is $33,333. That is exactly 40% of the sales price. You just found an extra $13,333 on the exact same job simply by doing the math correctly.

When you are pricing out materials, this math is just as critical. Many contractors just pass their trade discounts along to the client. Don't do this. You need to read up on What is the Standard Markup on Contractor Materials? to ensure you are covering the cost of sourcing, picking up, delivering, and warrantying those materials.

Real-World Example: The $125,000 Kitchen and Structural Remodel

Let's look at exactly what this looks like on a job. We'll break down a high-end kitchen remodel that includes removing a load-bearing wall.

We will aim for a 35% gross profit margin, which is standard for residential remodeling.

1. Calculating Job Costs (COGS)

• Permits & Dumpsters: $1,500
• Demolition Labor (In-house): 40 hours @ $45/hr fully burdened = $1,800
• Framing & Structural Labor (In-house): 60 hours @ $65/hr fully burdened = $3,900
• Structural Steel Beam: $2,200
• Rough Lumber & Hardware: $1,400
• Plumbing Subcontractor: $4,500
• Electrical Subcontractor: $5,200
• Drywall Subcontractor: $3,800
• Cabinets & Trim Materials: $28,000
• Finish Carpentry Labor (In-house): 80 hours @ $65/hr = $5,200
• Tile & Countertop Subs: $12,500
• Paint Subcontractor: $3,500
• Fixtures & Hardware: $7,750

Total Hard Job Costs: $81,250

(Note on Subs: When managing trades, you are taking on the liability for their work and schedule. You must ensure you are marking up their bids correctly. Review our guide on How to Subcontract Work Properly: The 20% Profit Margin Rule to understand the mechanics of sub margins).

2. Calculating the Sales Price

We want a 35% gross margin. Sales Price = $81,250 ÷ (1 - 0.35) Sales Price = $81,250 ÷ 0.65 = $125,000

3. Calculating the Gross Profit

Sales Price ($125,000) - Job Costs ($81,250) = $43,750 Gross Profit (35%)

4. Allocating Overhead

Your gross profit is not your take-home pay. You have to pay the overhead monster. Let's assume your company does $1.2M in annual revenue, and your annual overhead (including your $90,000 owner's salary, truck, office, and insurance) is $240,000.

Your overhead runs at 20% of your total revenue ($240k ÷ $1.2M = 20%).

This means that 20% of the sales price of this specific kitchen remodel must go toward paying your company's fixed overhead.

Overhead Allocation = 20% of $125,000 = $25,000

(Side note: A massive chunk of overhead for GCs is insurance. If you are underbidding because you think insurance is too expensive, you need to understand your true exposure. See our breakdown of Contractor Liability Insurance Cost: What $1M Actually Covers to make sure you aren't under-insured).

5. Calculating the Final Net Profit

Gross Profit ($43,750) - Overhead Allocation ($25,000) = $18,750 Net Profit

Your net profit margin on this job is $18,750 ÷ $125,000 = 15%.

This is a perfectly executed job. You paid your guys, you paid your subs, you paid a portion of your own salary through the overhead allocation, and the business retained $18,750 in pure cash to grow, invest, or distribute.

The 5% Net Margin Death Trap

When we tell contractors that they need to aim for a 10% to 15% net profit margin, we often hear, "My market won't bear those prices. I'm happy with a 5% net margin."

Operating a general contracting business at a 5% net margin is a death trap. You are simply one bad job away from bankruptcy. Here is why.

Construction is inherently risky. You are dealing with hidden site conditions, unreliable weather, supply chain delays, and human error. Margins are your shock absorbers. If you don't have thick margins, every bump in the road breaks your axle.

Let's say you run a $1,000,000 business at a 5% net margin. Your expected net profit for the entire year is $50,000.

Now, look at what happens when normal construction reality hits:

• Mistake 1: A client's custom $12,000 window package gets measured wrong by your lead carpenter. You have to eat the cost and reorder.
• Mistake 2: A plumbing sub ghosts you on a bathroom addition. You have to hire an emergency replacement sub who charges a $5,000 premium to fit you in.
• Mistake 3: Your enclosed trailer gets stolen from a job site. Insurance covers most of it, but your deductible and the lost time cost you $8,000.

Total unexpected costs: $25,000.

You just wiped out half of your entire year's profit on three relatively common industry headaches. If one of your clients refuses to pay a final $30,000 draw, your business is instantly underwater, and you won't be able to make payroll.

Low margins force you to use deposits from new jobs to pay for the mistakes on old jobs. This is the definition of a Ponzi scheme, and it's exactly how contractors go out of business during minor economic downturns.

To protect your cash flow and keep your margins secure, you must bill aggressively. Read our guide on how to Stop Playing Bank: How to Structure Progress Payments and Get Paid Faster. Never let the client get ahead of you on cash.

Job Costing: The Only Way to Know if Your Margins Are Real

It is incredibly easy to build a spreadsheet that shows a 40% gross profit margin. It is incredibly difficult to actually achieve it in the dirt.

The only way to know if you are hitting your target margins is through relentless job costing.

If you estimated that the framing on an addition would take 80 hours at $65/hr ($5,200), but it actually took 110 hours, you just lost $1,950 of your gross profit. If you don't track your labor hours daily and compare them to your estimate, you will never know where your money went.

To hit a 15% net profit, you must do the following on every single job:

1. Track every receipt: Do not throw Home Depot receipts on the dashboard of your truck. They must be logged to the specific job code immediately.
2. Track every hour: Your guys need to clock into specific phases of the job (e.g., Demolition, Framing, Trim). If you just track "total hours on site," you won't know which phase of your estimating is broken.
3. Conduct a post-mortem: When the job is done, put your estimated costs next to your actual costs. If your margin dropped from 35% to 22%, find exactly where the bleed happened. Was it a slow sub? Did you underestimate the material waste? Fix it on the next bid.

Actionable Steps to Fix Your Margins Tomorrow

If you are currently operating at a low margin and want to fix your business, do not wait until the end of the year. Make these changes tomorrow morning.

1. Calculate Your True Overhead

Pull your P&L (Profit and Loss) statement for the trailing 12 months. Add up every single expense that is not tied to a specific job. Make sure you add a market-rate salary for yourself into this number. Divide that total overhead number by your total revenue. If your overhead is 22%, you now know that you must price your jobs at a minimum of a 22% gross margin just to break even.

2. Switch from Markup to Margin Math

Delete the "x 1.3" or "x 1.4" from your estimating process. Start dividing your costs by your target margin. If you want a 35% margin, divide your costs by 0.65. You will instantly see your sales prices increase to where they need to be.

3. Raise Your Prices on the Next Bid

Contractors are terrified of raising prices because they think they will lose every bid. You should be losing bids. If you are winning more than 30% to 40% of the jobs you estimate, your prices are too low. You are leaving money on the table. On the very next estimate you write, use the correct margin math to hit a 40% gross profit. Present the number with confidence. If you lose the job, you saved yourself from working for free.

Next Steps

Stop guessing at your numbers. Open your last completed job, pull up every receipt, sub invoice, and labor hour, and calculate your actual gross profit. If it is below 30%, identify exactly where the money leaked out, adjust your estimating multiplier, and apply the new pricing structure to the very next lead you walk.