Gross Margin
Definition
Gross margin is revenue minus the direct cost of labor and materials, expressed as a percentage of revenue.
What Gross Margin Means for Your Business
What it means
Gross margin measures how much is left after you pay the tech and buy the parts. It is the most important operating metric in field service because it is the ceiling on everything that follows.
Why it matters
Healthy field service businesses target 40% to 55% gross margin. Below 35%, there is nothing left to cover overhead and leave a profit. Above 55%, you are pricing strong and operating lean.
How contractors use it
Managers track gross margin monthly, by department, by tech, and by job type. They hunt for the low-margin buckets and either raise prices or cut costs to bring them into line.
Real-World Example
A plumbing shop with $4.2 million in revenue ran at 38% gross margin. Raising prices 6% on common tasks lifted gross margin to 43%, adding $210,000 to the bottom line with no cost changes.
Related Terms
Net Margin
Net margin is the percentage of revenue that remains as profit after all operating expenses, taxes, and interest are paid.
Cost of Goods Sold
Cost of goods sold, or COGS, is the direct cost of labor and materials required to deliver the services you billed, excluding overhead.
Labor Burden
Labor burden is the total cost of employing a technician beyond base wages, including payroll taxes, benefits, insurance, uniforms, and workers' compensation.
Job Costing
Job costing is the practice of tracking every labor, material, and overhead cost tied to a specific job so you can measure its true profitability.
Price Book
A price book is a standardized catalog of labor and material tasks with pre-set flat rate prices that technicians use in the field.
Put This Into Practice with Free Software
Kaldr Tech handles gross margin and everything else you need to run your shop. $0/month, 3.5% + 30¢ per transaction.