Gross margin is the percentage of revenue remaining after subtracting direct job costs like labor, materials, and equipment, showing how much each dollar of revenue contributes to overhead and profit.
Definition
Gross margin is the percentage of revenue remaining after direct costs of delivering a service. The formula is (Revenue − Direct Costs) / Revenue × 100. For example, a $10,000 job with $6,500 in direct costs has $3,500 in gross profit and a 35% gross margin. Direct costs may include labor, materials, equipment, or subcontractors, depending on the business’s accounting practices. Consistent cost classification matters when comparing jobs or periods.
Why It Matters for Your Business
Gross margin helps show how much revenue remains to cover overhead and other expenses. It can reveal differences between jobs or services, but it is not the same as net profit and does not by itself show whether a business is profitable.
How Gross Margin Works Across Industries
Comparing inspection, repair, and installation jobs can help identify differences in labor and material costs, provided costs are classified consistently.
Labor, equipment, and subcontractor costs vary by job. Comparing actual costs with estimates can highlight where pricing or estimating deserves review.
See how Ironback puts this into practice → Photo Documentation Workflow
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Frequently Asked Questions About Gross Margin
Gross margin considers direct costs; net margin also accounts for other expenses, including overhead and applicable taxes. Definitions and cost classification should be consistent with your accounting practices.
There is no universal threshold. Review your overhead, service mix, financing costs, taxes, and target profit with your accountant.
Review estimates against actual labor and material costs, investigate rework, and assess pricing and purchasing. The impact varies; changes should not compromise safety or service quality.
Both can be useful. Job-level data can reveal variation that an overall average hides, while company-wide figures help assess the full service mix.
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