Busy is not profitable—calculate your real net margin after direct costs, overhead, owner compensation, and taxes so you know whether you're building a business or running a very expensive job for yourself.
A contractor doing $240,000/year in revenue sounds successful. But if their direct costs are $108,000, overhead is $42,000, owner draw is $72,000, and taxes are $8,000, they have $10,000 left — a net margin of 4.2%. That's less than a savings account earns. The business is generating $240K in cash flow and turning a fraction of it into actual profit. This isn't uncommon — it's the default trajectory for contractors who price by "what the market charges" without calculating what their business actually costs to operate. Net margin of 10–15% is the functional target for a sustainable trade business. Below 8%, you're vulnerable to any disruption — a slow month, a bad debt, an equipment failure. Below 5%, you're working for the business rather than running it.
Many solo contractors mistake their owner's draw for profit. It isn't. Owner's draw is compensation — what you pay yourself to do the work. If you weren't doing the work, you'd have to pay someone else to do it. True profit is what remains after all costs including your compensation. A contractor who pulls $6,000/month from the business and calls it "making $72K a year" is confusing revenue recovery with profit. If the business makes $12,000 before their draw and $6,000 after, the net profit is $6,000 — not $72,000. Track these separately. Pay yourself a consistent amount from the business. Profit is what's left after that payment is made. This distinction matters for business valuation, tax planning, and whether you can afford to hire.
Revenue increases are visible and hard. Cost reductions are often invisible and easy. A 2% reduction in material costs on $108,000/year in materials saves $2,160 — roughly 1% of margin at $240K revenue. Three actions that typically improve margin without raising rates: (1) Track material costs by job — most contractors discover 15–20% of materials are being consumed on callbacks and waste; (2) Reduce callbacks from 10% to 5% — at $250/callback and 20 jobs/month, that's $30,000/year recovered; (3) Review your overhead annually — subscriptions, insurance rates, and vehicle costs often grow quietly over time. None of these require raising prices. Combined, they can move a 5% margin to 10–12% without a single customer conversation about price.
The Trades Business Starter Kit includes a P&L tracking spreadsheet, overhead calculator, and pricing guide to help you hit 15%+ net margin. Guide from $19 — Complete Kit with all 19 templates, $49.
Get the Business Kit — $19Net profit margin is the percentage of revenue left over after every expense is paid — it's the truest measure of whether your business is healthy. Enter your total revenue and total expenses to see your net margin, then compare it to industry benchmarks (10–15% is solid for most trades). Use it monthly to track whether your profitability is improving or eroding over time.