Profit margin in plain English
Profit margin expresses profit as a percentage of revenue. If a job brings in $500 and the costs assigned to that job are $350, the profit is $150. The profit margin is $150 divided by $500, or 30%. That percentage makes jobs of different sizes easier to compare.
Margin and markup are different
Markup compares profit with cost; margin compares profit with selling price. A $100 cost marked up by 50% sells for $150. The profit is $50, which is a 33.3% margin, not a 50% margin. Confusing the two can make a target that sounds profitable produce less margin than expected.
What costs should you count?
For job-level decisions, start with direct labor, materials, job-specific travel and other costs caused by the work. Then decide how to allocate overhead such as insurance, software, equipment, marketing and administration. A quote that covers direct costs but contributes nothing to overhead may still lose money at the business level.
Calculate the selling price from a target margin
If you know the estimated total cost and the margin you want, use: selling price = cost / (1 - target margin). At $200 cost and a 25% target margin, the price is $266.67. At a 40% target margin, the same cost requires about $333.33.
Use margin as a diagnostic, not a magic number
There is no single correct margin for every service, market or business. Risk, demand, skill, equipment, customer acquisition cost and capacity all matter. Instead of copying a universal target, track your own jobs and learn which services produce healthy results for your operation.
Track estimates against reality
The useful loop is estimate → perform job → record actual cost and time → compare → update assumptions. If labor repeatedly exceeds the estimate, the issue may be scope, process or pricing. If material usage is lower than expected, you can make future quotes more competitive without guessing.