Margin percentage is a critical metric for any business owner, but it is often misunderstood. At its core, margin percentage represents exactly how much of the total job revenue you get to keep after all of your direct costs have been paid.
Rather than simply looking at how much money you made in total, margin reveals how efficiently you made that money relative to the size of the specific job. It is a practical way to view the portion of a job’s revenue that your business actually retained.
What Costs Are Included?
To calculate an accurate margin, you must account for all direct costs associated with a job. These costs include:
- Materials
- Your personal labor
- Employee labor
- The portion of business overhead assigned to each hour worked
A Simple Example: In simple terms, if a customer pays you $100 for a job and your combined costs total $70, you are left with $30. Because you kept $30 of the $100, your margin is 30 percent.
How to Calculate Margin in “Know Your Number”
Within the Know Your Number system, finding your margin percentage requires a straightforward calculation:
Margin Percentage = Base Profit ÷ Job Revenue
To find your Base Profit, you take the total job revenue and subtract your material costs and total labor cost. This gives you a clear, unobstructed view of how much of each dollar earned is actually retained by your business.
Margin vs. Pricing Accuracy: Knowing the Difference
It is critical to understand that margin percentage and pricing accuracy are not the same thing.
- Margin tells you how efficient the job was.
- Revenue per labor hour tells you whether the job was priced correctly.
Because these measure two different things, a job can show a very strong margin and still be underpriced if it failed to meet the required revenue per labor hour.
Consider how efficiency impacts different types of jobs:
- Large Jobs: A large job may produce a high total profit, but it can still have a low margin if it required excessive labor time to complete.
- Small Jobs: Conversely, a smaller job can yield a high margin if it was completed efficiently with minimal cost relative to the revenue brought in.
Benchmarking Your Performance
How do you know if your margins are good? Lower margins indicate that costs consumed most of the revenue, while higher margins point to strong efficiency and better retention of revenue.
Here is a general guide to evaluating your margin percentages:
| Margin Percentage | What It Indicates |
| Negative Margin | Indicates a financial loss on the job. |
| Below 10% | Indicates weak performance. |
| 25% to 35% | Considered a healthy margin. |
| Above 40% | Indicates strong performance. |
The Ultimate Goal
The purpose of tracking margin within the Know Your Number system is not to evaluate jobs in isolation. Instead, the goal is to combine your margin data with your revenue per labor hour to make smarter, better-informed business and pricing decisions.
Ultimately, a job is only truly successful when it accomplishes two things simultaneously: it meets or exceeds the required hourly rate, and it produces a healthy margin.
Do your margins actually mean anything?
Tracking your margin is useless if your base hourly rate is a guess. If you don’t know the exact revenue your business needs to produce per hour, you cannot price consistently. Stop guessing. Take 30 seconds to find your number.
