Most tradies know what they charge per hour. Far fewer know what they actually keep after all costs are paid. Profit margin — the percentage of revenue you keep as profit — is the single most important number in any trade business. Yet it's also one of the least understood.

This guide explains what a healthy profit margin looks like for Australian trade businesses, how to calculate yours, why yours might be lower than it should be, and the practical levers to pull to improve it.

Why Profit Margin Matters More Than Revenue

"I turned over $600,000 last year" sounds impressive. But if your costs were $590,000, your profit was $10,000 — barely minimum wage.

Revenue is vanity. Profit is sanity. Cash is reality.

Tradies who focus on growing revenue without understanding their margin often find themselves working harder, managing more people, and taking on more risk — while actually earning less per hour than when they were a one-person operation.

Understanding your margin tells you:

  • Whether your pricing is actually covering your costs
  • Which types of jobs make money (and which lose it)
  • How much capacity you have to invest back into the business
  • Whether growth will make you more profitable or just bigger and busier

The Key Margin Concepts

Gross Profit Margin

Gross profit is revenue minus the direct costs of doing the work — labour (if you have staff), materials, subcontractors, and direct job expenses.

Gross Profit Margin = (Revenue – Direct Costs) ÷ Revenue × 100

Example:

  • Revenue: $400,000
  • Materials: $120,000
  • Subcontractor costs: $40,000
  • Employee wages: $80,000
  • Direct job costs total: $240,000
  • Gross Profit: $160,000
  • Gross Profit Margin: 40%

Net Profit Margin

Net profit is what remains after ALL costs — direct costs AND overhead costs (rent, insurance, vehicle, admin, accounting, marketing, etc.)

Net Profit Margin = Net Profit ÷ Revenue × 100

Example (continuing above):

  • Gross Profit: $160,000
  • Overheads (insurance, vehicles, admin, software, accounting): $70,000
  • Net Profit Before Tax: $90,000
  • Net Profit Margin: 22.5%

What Are Typical Margins for Australian Trade Businesses?

Benchmarks vary significantly by trade type and business model, but here are realistic targets:

  • Electrician (sole trader) — 45–60% — 25–40% — Lower material costs vs labour-heavy trades
  • Electrician (5–10 staff) — 35–50% — 10–20% — Higher overheads, labour complexity
  • Plumber (sole trader) — 40–55% — 25–38% — Varies by service vs project work
  • Builder/Carpenter (project) — 15–30% — 5–15% — High material costs, tight margins
  • Concreter — 30–45% — 15–25% — Labour-intensive, material costs vary
  • Painter — 40–55% — 22–35% — Lower materials, higher labour margin
  • Landscaper — 35–50% — 18–30% — Highly variable by job type
  • HVAC technician — 45–60% — 25–38% — Good service margins, recurring revenue
  • Roofer — 30–45% — 15–25% — High material and safety costs

These are benchmarks, not guarantees. Your margins depend on your pricing, location, job mix, and overhead structure.

Why Many Tradie Margins Are Lower Than They Should Be

Underpricing

The most common cause. Most tradies price based on:

  • "What my boss used to charge"
  • "What my competitors are charging"
  • "What I think the client will accept"

None of these starts from your actual costs. Pricing correctly starts from knowing your all-in cost to complete a job — including overheads, not just materials and labour.

The real cost of a tradie's hour: If you're a sole trader billing $75/hour, your real cost isn't just your time. It includes:

  • Vehicle running costs ($0.88/km ATO rate, or actual)
  • Tools depreciation and replacement
  • Insurance (public liability, tools, income protection)
  • Accounting and software fees
  • Marketing (time and money)
  • Unpaid admin time
  • Super contributions (if self-employed)
  • Tax provisions

When you factor all these in, many tradies discover they need to charge $95–$110/hour to genuinely make 25% net margin at "solo tradie" scale.

Not Tracking Job Costs

Without job costing, you don't know which jobs are profitable. Some jobs are excellent — high margin, easy to complete, happy clients. Others are disasters — cost more than estimated, difficult clients, scope creep. Without tracking, you'll repeat both types equally.

Overheads Growing Without Margin Growing

When a trade business scales from 1 to 5 staff, overheads typically increase by 60–80% (vehicles, payroll processing, safety compliance, insurance, admin). If revenue doesn't grow proportionally — or margin doesn't increase through better pricing and efficiency — net margin shrinks dramatically.

This is why many tradies who grow from $200,000 to $500,000 in revenue feel worse off. They've added complexity, stress, and cost without proportionally adding profit.

Cash Accounting Confusion

Many tradies confuse cash in the bank with profit. If you receive a $50,000 payment in June, it feels like you made money. But if you've got $30,000 in materials to pay for that job, $10,000 in wages, and $5,000 in overheads, your actual profit was $5,000 — not $50,000.

How to Calculate Your Actual Profit Margin

Step 1: Get all your revenue for the year
Total from your accounting software or tax return.

Step 2: Calculate direct costs

  • Materials and supplies used on jobs
  • Labour costs (wages if you have employees, or your own "labour rate" if sole trader)
  • Subcontractor costs
  • Specific job costs (equipment hire, waste disposal, etc.)

Step 3: Calculate overheads
These are costs that exist regardless of how much work you do:

  • Vehicle (ute finance, insurance, fuel, servicing)
  • Business insurance (public liability, tools, income protection)
  • Accounting and software fees
  • Phone and internet
  • Marketing
  • Admin time
  • Superannuation (your own, if self-employed)
  • Tools and equipment (depreciation/replacement allowance)
  • Any rent or workshop costs

Step 4: Calculate gross and net margins

  • Gross Margin = (Revenue – Direct Costs) ÷ Revenue
  • Net Margin = (Revenue – Direct Costs – Overheads) ÷ Revenue

Practical Strategies to Improve Your Margin

1. Know Your Real Hourly Rate Requirement

Calculate the minimum hourly rate you need to charge to hit your target net margin.

Formula: (Annual overhead costs + target annual profit) ÷ Billable hours per year = Minimum charge-out rate

Example:

  • Annual overheads: $60,000
  • Target personal income: $100,000
  • Total needed: $160,000
  • Billable hours per year: 1,500 (approx. 30 per week, 50 weeks)
  • Minimum charge-out rate: $160,000 ÷ 1,500 = $106.67/hour

If you're charging $75/hour, you're working at a loss — or making it up in volume that's slowly burning you out.

2. Track Margin by Job Type

Use job costing software to record actual costs vs estimated costs per job. After 6 months, you'll see patterns:

  • Residential renovations: 35% margin
  • New constructions: 18% margin
  • Maintenance and service calls: 45% margin
  • Commercial fitouts: 28% margin

This data allows you to focus on higher-margin work and either reprice or decline lower-margin work.

3. Mark Up Materials Correctly

Many tradies charge materials at cost — zero margin on materials. This is leaving money on the table. Industry standard material markups range from 10–30%, which reflects the time, capital, and risk involved in sourcing and managing materials.

If you spend $40,000 per year on materials and apply a 15% markup, that's $6,000 in additional revenue with no additional labour.

4. Charge for All the Time

Tradies often give away time without realising:

  • Travel to and from jobs (beyond reasonable commute)
  • Time spent quoting
  • Waiting for client decisions or inspections
  • Scope creep — extra work not in the original quote

Every hour given away free is margin lost. Price your quotes to account for realistic completion time including all the small extras.

5. Build Recurring Revenue

Service agreements, maintenance contracts, and regular client relationships provide higher-margin, lower-acquisition-cost revenue. A plumber with 40 annual service agreement clients (hot water, preventive maintenance) at $350/year has $14,000 in predictable, pre-arranged revenue before turning on a single new call.

6. Review Your Supplier Relationships

Materials costs significantly impact margin. Negotiating better terms with your primary suppliers — particularly if you're buying consistently at volume — can shift margin meaningfully.

  • Ask for account discounts (often 5–10% for trade accounts)
  • Compare suppliers quarterly, not just at the start
  • Pay invoices on time to maintain terms and access to early payment discounts

Using Accounting Software to Track Margin

Without software, margin tracking is guesswork. With the right tools:

Xero with job codes: Attach all revenue and direct costs to specific job codes. Run a profitability report per job at month end. Immediately see which projects hit your margin targets.

Tradify or ServiceM8: Purpose-built job management tools that track quotes, actual costs, and profit per job. If you're serious about margin improvement, this level of job costing pays for itself quickly.

MYOB with job tracking: Similar to Xero, job codes allow per-project profitability reporting.

The investment in job costing software ($25–$50/month) is one of the best financial decisions a growing trade business can make.

What "Good" Looks Like: Target Benchmarks

  • Solo tradie — 30–45% — High efficiency, low overheads
  • 2–3 staff — 18–28% — Managing people adds costs
  • 4–8 staff — 12–20% — Scaling overhead, focus on systems
  • 10+ staff — 8–15% — Volume matters more, thin margins possible

As your business grows, net margin often shrinks — which is normal. But gross margin should remain stable or improve as you price correctly and operate more efficiently.

Frequently Asked Questions

Q: My revenue is $300,000 and I take home $60,000 — is that a healthy margin?
$60,000 on $300,000 is a 20% net margin. That's reasonable but toward the lower end. For a sole trader, 25–35% is more typical. Review your overheads to find where the other 80% is going.

Q: How do I compete with cheaper tradies without wrecking my margin?
Compete on value, not price. Reliability, quality photos, strong Google reviews, fast quotes, and professional invoicing all justify a price premium. Clients paying $10/hour more for a tradie who shows up on time, does quality work, and communicates well aren't shopping on price.

Q: Should I charge more for urgent or after-hours jobs?
Yes, absolutely. Emergency calls, same-day service, and after-hours work should attract a premium — typically 1.5–2× the standard rate. Your margin should be higher on these jobs because the client values the urgency.

Q: How often should I review my margins?
Monthly at minimum, once you have job costing in place. Quarterly review at minimum if you don't have detailed job tracking. Margins drift downward over time without attention — costs increase, pricing stays static. An annual pricing review is essential.