Target Gross Margin Calculator
Most contractors pick a target margin from a forum. This works it out from your own numbers: monthly overhead, what you need to pay yourself, the profit the business should earn — divided by the revenue you realistically expect. The result is the target margin to use on every job price.
Method and content reviewed October 1, 2026 · formulas checked against a test suite · runs entirely in your browser
Required gross margin = Overhead ÷ Revenue + (Owner income + Net profit) ÷ Revenue22.4% + 22.4% = 44.7%This is the number to use as the target margin in the Job Pricing Calculator and the Flat Rate Calculator — it's the margin that makes overhead, your income and the profit goal all true at the same time, on the revenue you actually expect.
Field services: where the number comes from
A two-truck operations business runs $8,500/month of overhead, the owner needs $6,000/month of income, and the goal is $2,500/month of net profit on top — on realistic revenue of $38,000 a month across about 8 jobs. (Illustrative example — use your own numbers.)
| Input | Value |
|---|---|
| Monthly overhead | $8,500 |
| Owner income goal | $6,000 / month |
| Target net profit | $2,500 / month |
| Monthly revenue | $38,000 |
| Jobs per month | 8 |
| Current average margin | 32% |
Result: Jobs must carry a 44.7% gross margin — current pricing delivers 32%
At $38,000 of revenue the 12.7-point gap is about $4,840/month — roughly $605 per job. A 23.0% price increase on the same costs would lift margins to the requirement; whether the market pays that is the real question, and the honest alternatives are lower overhead, more revenue, or a knowingly smaller profit goal.
Load this example into the calculatorThe calculation
| Net goal | $6,000 + $2,500 = $8,500.00 |
| Overhead % | $8,500 ÷ $38,000 = 22.4% |
| Net goal % | $8,500 ÷ $38,000 = 22.4% |
| Required gross margin | 22.4% + 22.4% = 44.7% |
| Gap vs. current 32% | 44.7% − 32% = 12.7 points |
| Price uplift that closes it | (1 − 0.32) ÷ (1 − 0.447) − 1 = 23.0% |
How this calculator works
Every result comes from the formulas below — the math shown is the math used. Change any input and results update instantly in your browser; nothing is sent to a server.
- Overhead as a share of revenue:
Overhead % = Monthly Overhead ÷ Monthly Revenue × 100 - Net goal as a share of revenue:
Net % = (Owner Income + Target Net Profit) ÷ Monthly Revenue × 100 - Required gross margin:
Gross Margin = Overhead % + Net %Gross profit pays overhead first, then the owner, then profit — so the margin must cover all three shares. - Margin gap:
Gap = Required Margin − Current MarginA positive gap is the margin your current pricing is failing to deliver. - Price increase that closes the gap:
Uplift % = (1 − Current Margin ÷ 100) ÷ (1 − Required Margin ÷ 100) × 100 − 100On the same costs, raising prices by this much lifts the margin to the requirement.
What the result means
The required gross margin is overhead plus owner income plus net profit, each as a share of expected revenue. It's the floor every job price has to clear for the business to end the year where you planned — and the gap row shows what today's pricing is missing.
When to use it
Use it once a year and after any cost shock, to reset the target margin you use in the job pricing and flat rate tools.
Want the concept behind the math in depth? Read What Gross Margin Should I Target? Work It Out, Don't Guess It or General Contractor Markup: What's Typical and What Yours Should Be.
Common mistakes
- Copying a target margin from a forum instead of deriving it from your own overhead and income.
- Leaving your own income out of the calculation entirely — the most common way owners end up working for free.
- Double-counting a owner salary that's already inside overhead.
Frequently asked questions
What gross margin should I target?
The one your own arithmetic produces, not a forum number. Add your overhead as a percentage of revenue to your income and profit goal as a percentage of revenue — that sum is the minimum gross margin every job must carry. If overhead runs 15% of revenue and you want 25% for income and profit, your floor is 40%; pricing jobs at 25% loses money on every one, quietly.
Why does revenue size change the required margin?
Because overhead is fixed and revenue scales. The same $8,500 of overhead is 28% of a $30,000 month but only 17% of a $50,000 month — so the margin the business needs falls as honest revenue rises. That cuts both ways: growing revenue at the same margin is genuine profit growth, but discounting to buy volume raises the margin you need and shrinks the one you get at the same time.
Should my own income be part of the margin?
Yes — unless you pay yourself a wage that's already inside overhead. The margin has to fund the owner's income somewhere; if it isn't in overhead, it belongs in the net goal. Putting it in both double-counts it; leaving it out of both is the most common way owners end up working for the business instead of being paid by it.
What do I do with the number this produces?
Use it as the target margin in the Job Pricing Calculator and the Flat Rate Calculator — those divide total cost by (1 − margin), which prices to this margin correctly. Then check real jobs against it with the Margin Calculator: the requirement is only real if the quotes actually carry it.
What if my current margin is below the requirement?
The calculator shows the gap in margin points, the dollars it costs per job, and the price increase that closes it on the same costs. A gap is a pricing problem only if your costs are right and the market pays it; if the market won't pay the required price, the honest answers are cutting overhead, raising revenue, or accepting a smaller profit goal — knowingly, not by default.
Have the required margin? Price a job to it from its real costs.
Price a job to this margin →Related tools and guides
Target Gross Margin Calculator is part of RateCraft, a set of free pricing and estimating tools for contractors and service businesses. Results are calculated entirely in your browser and are estimates for planning purposes — see our disclaimer and methodology.