Profit margins in subcontracting vary widely by trade, market, and project type. Understanding where you stand and how to improve is essential for building a sustainable business. Too many subcontractors focus on revenue without tracking whether they're actually making money.
Industry Benchmarks by Trade
Average net profit margins for subcontractors typically range from 2% to 15%, though top performers consistently hit 20% or higher. Electrical contractors average 8-12% net margins. Plumbing contractors average 10-15%. HVAC contractors average 8-14%. General carpentry averages 5-10%.
These are net margins after all expenses, not gross margins. If your margins are below these benchmarks, you're likely leaving money on the table through underpricing, inefficient operations, or untracked costs.
Calculating Your True Job Cost
Most subcontractors underestimate their true costs. Direct labor costs include wages, but also payroll taxes, workers compensation insurance, benefits, and non-billable time like travel and setup. Materials costs should include waste, delivery charges, and returns. Overhead costs like insurance, vehicle expenses, tools, office costs, and administrative time must be allocated across your projects.
A common mistake is bidding jobs based on direct labor and materials alone, forgetting that overhead typically adds 30-50% to your base costs.
Strategies to Improve Your Margins
Track every job's profitability individually to identify which types of projects, clients, and geographic areas are most profitable. Use time tracking to understand your true labor costs per task. Negotiate better material pricing through volume purchases. Reduce waste through better planning and inventory management.
Most importantly, price your work based on value and market rates, not just cost-plus. If your work quality is above average, your prices should be too.
The Cash Flow Connection
Profit margins mean nothing if cash flow kills you first. A project with a 15% margin that takes 90 days to collect payment may be less valuable than a 10% margin project that pays in 15 days. Factor payment speed into your profitability analysis and prioritize clients who pay promptly.
Tracking Margins with Technology
Modern profitability tracking tools let you monitor margins in real-time by project, client, and trade. Instead of discovering at year-end that a project lost money, you can spot trouble early and adjust. Pair profitability tracking with payment prediction, and you have a complete picture of which projects actually build your business.