What Gross Margin Should I Target? Work It Out, Don't Guess It
Forum numbers — '30% is standard' — can't know your overhead or your income goal. The right target margin falls out of your own arithmetic in about four lines.
"What margin should I aim for?" gets answered on forums with numbers — 30%, 35%, "whatever the market takes." None of those answers can be right in general, because the correct margin isn't a property of the trade. It's a property of two numbers only you have: what the business costs to run, and what it has to pay you.
The four-line derivation
- Overhead % = monthly overhead ÷ monthly revenue
- Net % = (owner income + target net profit) ÷ monthly revenue
- Required gross margin = Overhead % + Net %
A two-truck operation runs $8,500 a month of overhead. The owner needs $6,000 of income and wants $2,500 of profit on top — a $8,500 net goal. On realistic revenue of $38,000 a month: overhead is 22.4% of revenue, the net goal is another 22.4%, and the required gross margin is 44.7%.
Now the uncomfortable part — the check. If that business's quotes currently carry 32%, the gap is 12.7 margin points. At $38,000 of revenue that's about $4,840 a month that exists in the plan but not in the accounts: roughly $605 per job across eight jobs. The pricing wasn't 'fine with a bit of profit' — it was structurally below the business's own arithmetic, every month.
Closing the gap
On the same costs, the price increase that lifts a 32% margin to 44.7% is (1 − 0.32) ÷ (1 − 0.447) − 1 = 23.0%. That's a big correction, and whether the market pays it is the real question. If it won't, the honest alternatives are the only three that exist: cut overhead, raise revenue at the current margin, or accept a knowingly smaller profit goal. What isn't honest is carrying on at a margin the arithmetic has already voted down.
| Monthly revenue | Overhead % | Net goal % | Required margin |
|---|---|---|---|
| $30,000 | 28.3% | 28.3% | 56.7% |
| $38,000 | 22.4% | 22.4% | 44.7% |
| $50,000 | 17.0% | 17.0% | 34.0% |
Where the number goes
The required margin is the target margin for every price you build: the Job Pricing and Flat Rate calculators divide total cost by (1 − margin), which prices to this number correctly. Then audit real quotes against it with the Margin Calculator — a requirement that live quotes don't carry is a plan, not a practice.
Derive your required margin with the target margin calculator →
Frequently asked questions
What gross margin should a contractor target?
The one your own numbers produce: overhead as a percentage of revenue, plus your income and net profit goal as a percentage of the same revenue. If overhead runs 22.4% of revenue and income plus profit needs another 22.4%, your floor is about 44.7% — a forum's '30%' isn't a benchmark, it's someone else's arithmetic.
Should my own salary be in overhead or in the margin?
In exactly one of them. If you pay yourself a wage that sits in fixed costs, it's overhead. If it isn't, it belongs in the net goal the margin must fund. In both places double-counts it; in neither is the most common way owners end up working for the business for free.
Why does my required margin change when revenue changes?
Overhead is fixed and revenue scales. The same $8,500 is 28% of a $30,000 month but 17% of $50,000 — so the margin you need falls as honest revenue rises. Discounting to buy volume moves both numbers the wrong way at once: revenue needed rises and the margin you collect falls.
Tools for this
Ready to run the numbers?
Open the Target Gross Margin Calculator and apply this guide with your own figures.
Open the Target Gross Margin Calculator →