Ask ten tradespeople what their profit margin is, and most will tell you their markup instead. It's an easy mix-up, and it's an expensive one — because if you're pricing jobs based on the wrong number, you could be working full weeks for a fraction of the profit you think you're making.
What Is Profit Margin?
Profit margin is the percentage of your revenue that's left over as profit once all your costs — materials, labour, overheads — are covered. It's calculated as a percentage of the price you charged the customer, not a percentage of your costs.
So if you invoice a customer £1,000 for a job, and your materials, labour and overhead costs come to £750, your profit is £250. Divide that by the £1,000 revenue and you get a 25% profit margin.
Margin vs Markup: The Distinction That Costs Tradespeople Thousands
This is the single biggest pricing mistake in the trades. Markup is the percentage you add on top of your costs to set your price. Margin is the percentage of the final price that's actually profit. They sound similar, but they are not the same number — and the gap between them gets bigger the higher the percentage.
| If your costs are | And you want this margin | You need this markup |
|---|---|---|
| £600 | 20% | 25% |
| £600 | 25% | 33.3% |
| £600 | 30% | 42.9% |
| £600 | 35% | 53.8% |
Notice what happens at the higher end: to actually land a 35% margin, you don't add 35% on top of your costs — you need to add nearly 54%. Tradespeople who add a flat 30% "markup" thinking that's their margin are often running closer to a 23% margin once it's worked back to a percentage of revenue.
What's a Healthy Profit Margin in the Trades?
Industry-wide, average net profit margins in construction and trade work sit surprisingly low — commonly quoted in the 5–10% range for the sector as a whole, largely dragged down by larger contractors operating on wafer-thin margins on big fixed-price contracts. That is not a target to aim for as an independent tradesperson or small firm.
For a well-run sole trader or small trade business, a healthier benchmark is a gross margin in the 20–30% range once materials and direct labour are covered, aiming to keep at least 10–15% as genuine net profit after overheads, tax, and your own drawings.
The thin-margin reality of the wider sector is also reflected in business failure data. Construction remained the hardest-hit sector for company insolvencies in the UK through 2025 and into 2026, accounting for around 16–17% of all company insolvencies in England and Wales — consistently the highest of any industry — despite construction firms making up only around 14% of all registered UK businesses.
Worked Example: Calculating Margin on a Real Job
Take a kitchen rewire quoted at £1,800. Here's how the margin actually breaks down once every cost is accounted for:
| Item | Cost |
|---|---|
| Materials (cable, consumer unit, fittings) | £420 |
| Labour (your time, at your real hourly cost) | £560 |
| Van, tools, insurance, admin (allocated overhead) | £180 |
| Total costs | £1,160 |
| Revenue (quoted price) | £1,800 |
| Profit | £640 |
| Profit margin | 35.6% |
How Tradespeople Quietly Lose Margin
1. Forgotten costs
Fuel, parking, waste disposal, small consumables, and admin time rarely make it into the quote — but they come out of the job's actual profit every time.
2. Underestimating your own labour cost
Many tradespeople price their own time far too cheaply, based on what they'd charge years ago rather than what their time genuinely costs the business today.
3. Material price creep
Quoting a job weeks before starting it, then absorbing material price increases rather than passing them on, silently eats into margin.
4. Variations done for free
Extra work agreed on-site "as a favour" that never gets invoiced is pure margin loss.
5. Chasing late payment
Every week spent chasing an invoice is unpaid admin time that was never priced into the job.