For construction company owners and service-based contractors, strong customer demand is only part of the equation. While top-line revenue might look solid, the real question is: how much profit is your business actually keeping? If you are not tracking gross profit margin, net profit margin, and overhead costs—or if you do not know what your benchmarks should be—you may be leaving tens of thousands of dollars on the table each year.
At Brentwood Growth, we help business owners make informed business decisions by aligning their numbers with proven industry benchmarks. Here, we break down the target financial metrics for companies in the trades, showing you what healthy performance looks like across construction, installation, and service-based work.
Why Financial Benchmarks Matter
Too many business owners focus on total revenue, but revenue alone does not reflect a business’s financial health. To build sustainable profitability, owners need to understand cost of goods sold (COGS), operating expenses, and overhead costs. These numbers influence how you calculate profit margins and determine if you are operating at a healthy margin or falling behind.
Cost of Goods Sold Targets by Business Type
Cost of Goods (COGS) is typically the largest expense in any trades business. It includes labor, subcontractors, material costs, and other job-related costs. According to internal Brentwood Value Creator guidelines, the target COGS depends heavily on your business model.
Construction-type businesses (such as those focused on new builds or installation work) should expect COGS to be on the higher end—around 60 percent of total revenue. Installation departments (like HVAC install teams) tend to fall around 50 percent. Service departments (such as plumbing or electrical repair services) should target COGS closer to 40 percent.
This means that if your business brings in $1,000,000 in revenue, and you primarily perform construction work, you should be spending no more than $600,000 on direct costs. A service-heavy business, by contrast, should aim to keep direct costs under $400,000.
Breaking Down Labor and Material Costs
Labor is one of the most significant contributors to COGS. Target labor costs vary by business model but generally fall around 20 to 24 percent of revenue when factoring in wages, payroll taxes, workers’ compensation, and benefits. Material costs also vary: in construction, materials may account for up to 36 percent of revenue; in installation, up to 26 percent; and in service work, no more than 16 percent.
Additional job costs such as small tools, equipment rentals, permit fees, and vehicle-related expenses should be monitored carefully. While these are often just 0 to 3 percent of COGS, failing to track them accurately can distort gross margin reporting and make project costs appear lower than they are. If you are unsure how to account for these costs in your pricing, our Pricing Guide is a practical tool to help you calculate job costs and build pricing that supports healthy profit margins.
Gross Profit Margin Benchmarks
Once COGS is removed from total revenue, what remains is gross profit. Gross profit margin is a critical indicator of a company’s operational efficiency. For most trades businesses, the target gross profit margin should fall between 40 and 60 percent, depending on the business model. Construction companies tend to be on the lower end of the range, while service-based businesses should aim higher.
For example, if a service business generates $1,000,000 in revenue and has a gross profit of $550,000, the gross profit margin is 55 percent—well within a healthy range. If your business is below 40 percent, it may be time to reevaluate job pricing, material markups, or labor utilization.
Overhead and Office Payroll Benchmarks
Beyond direct job costs, trades businesses need to monitor overhead expenses and back-office payroll to ensure they are not cutting into operating profit. Overhead includes things like rent, insurance, utilities, software subscriptions, and administrative labor.
Target overhead should fall between 10 and 15 percent of revenue. Businesses focused on construction or subcontracting should be closer to 10 percent, while growing service businesses might fall near the 15 percent mark if they are building infrastructure for expansion.
Office payroll should also be tracked as a percentage of revenue. For most companies, this will range from 10 to 12 percent depending on whether they are investing in growth, building a project management layer, or maintaining lean operations.
Net Profit Margin Targets
Net profit is what remains after subtracting all expenses—COGS, overhead, payroll, and operating costs—from total revenue. A healthy net profit margin for trades businesses ranges between 15 and 25 percent.
Businesses doing primarily subcontractor or construction work may fall near 15 percent, while established service businesses focused on organic growth can push toward 25 percent. If your company is below these thresholds, it may signal a need to control costs, reassess project pricing, or improve internal processes.
What to Do If Your Margins Are Low
If your gross margin, operating margin, or net profit margin is falling short of the benchmarks outlined above, the first step is identifying which area is underperforming. Is your labor burden too high? Are you overpaying for materials? Are overhead costs out of control?
Brentwood Growth helps trades businesses analyze their financial statements, identify trends, and develop strategies that improve profitability. Whether you need help adjusting your pricing, lowering indirect costs, or reallocating resources, our team provides the clarity and structure needed to get results.
Take the First Step Toward Improving Your Financial Performance
Understanding your financial metrics is not just a backward-looking exercise. It is the foundation for every smart decision you make going forward. Whether you want to scale, prepare for a sale, or build a more profitable and resilient business, it starts with knowing your numbers.
Get your complimentary business valuation and access the tools you need to identify opportunities, improve margins, and increase your company’s long-term value. Schedule your valuation with us today.
