How to Work Out the True Profit on a Job
Written for the UK tradesperson, but the principles apply in most English-speaking countries.
You finish a job, the customer pays, and there's a healthy amount left once you've paid for the materials. It feels like a good job. But was it?
Most tradespeople judge a job by the money left in the bank once the obvious bills are paid. That figure isn't profit. It still has to pay your wages, your van, your travel and your share of the business overheads. Once those are taken out, many jobs that felt profitable turn out to have made very little, and some have lost money.
This post shows you how to work out the true profit on a job, with a full worked example, and what to do with the answer.
Why the money in the bank doesn't tell you
Your bank balance after a job includes money that isn't yours to keep:
• VAT, if you're registered. It belongs to HMRC.
• Money for income tax and National Insurance, which you'll have to pay later.
• Your own wages. If you don't count your own time as a cost, every job looks more profitable than it is.
• Overheads you haven't paid yet: next month's insurance, the van service, the accountant's bill.
Turnover is what comes in. Profit is what's left after every cost, including you, has been paid. They are very different numbers.
What goes into the true profit on a job
Start with the price the customer paid, excluding VAT if you're VAT registered. Then take away every cost the job created:
• Materials: what you actually spent, including waste, consumables and anything you had to buy twice
• Your own labour: the actual hours you worked, costed at your wage rate
• Labourers and subcontractors: everything you paid them for this job
• Travel and van costs: the miles driven, at your real cost per mile
• Job-specific costs: skip hire, waste disposal, plant or tool hire, parking, certification fees
• Your share of overheads: a fair portion of your yearly business costs, based on the hours the job took
What's left is the true profit.
Costing your own labour is the step most people skip. Your time is not free. If you don't include it, you can't tell the difference between a job that paid you well and one that paid you nothing. If you're unsure what your hours really cost, read why your hourly rate is not the same as your wage.
A worked example
You've finished a job priced at £2,500 (excluding VAT). You planned it at 28 hours. It actually took 32.
Your figures, worked out from your yearly costs, are:
• Your own labour: £27.20 an hour (£34,000 income ÷ 1,250 chargeable hours)
• Overheads: £6.80 an hour (£8,500 overheads ÷ 1,250 chargeable hours)
• Van cost: 45p a mile
The "bank balance" view:
• Price: £2,500
• Less materials £720, labourer 2 days £240, skip £90
• Left over: £1,450
£1,450 for a week's work looks good. Now take out the costs that don't come with an invoice:
• Your labour: 32 hours × £27.20 = £870.40
• Overheads: 32 hours × £6.80 = £217.60
• Travel: 150 miles × 45p = £67.50
The true profit:
• Total costs: £720 + £240 + £90 + £870.40 + £217.60 + £67.50 = £2,205.50
• True profit: £2,500 − £2,205.50 = £294.50
• Profit margin: £294.50 ÷ £2,500 = 11.8%
The job did pay you your full wage, and it made a profit. But the profit was £294.50, not £1,450. That's a very different picture.
Compare it with what you planned
The job was planned at 28 hours and took 32. Those 4 extra hours cost you 4 × (£27.20 + £6.80) = £136.
If the job had run to plan, the profit would have been £430.50, a margin of 17.2%. The overrun cost nearly a third of the profit, and you'd never have known from your bank balance.
This is why comparing your forecast with the actual figures matters. It shows you exactly where the profit went: labour overruns, extra materials, more travel than expected, or a labourer you didn't plan for. Our guide on estimating labour times accurately shows how to use these results to make your next estimate more accurate.
Two numbers worth watching
• Profit margin: true profit as a percentage of the price. This tells you how much of every pound the customer pays you keep as profit.
• Hourly recovery: what the job earned for every hour you worked, after materials, labourers, travel and job costs. In the example, that's (£2,500 − £720 − £240 − £90 − £67.50) ÷ 32 = £43.20 an hour. If this is below your break-even rate (£34.00 in the example), the job lost money, however busy it kept you.
Tracked across all your jobs, these two figures show which types of work are worth doing and which aren't.
Where profit usually disappears
When a job makes less than you expected, the cause is usually one of these:
• Labour overruns: the job took longer than estimated
• Extra materials, return trips to the merchant, or materials wasted
• Small extras done for free
• More travel than planned
• An unexpected problem with no contingency to cover it
• A labourer or subcontractor who wasn't in the price
Each one has a fix. For unexpected problems, read how to build contingency into a quote. For the rest, our list of 20 common pricing mistakes tradespeople make covers them one by one.
How often to check
Work out the true profit on every job, as soon as possible after it finishes, while you still remember the details and have the receipts to hand. Waiting until the end of the year means you've repeated the same mistakes on dozens of jobs.
Then look at the overall picture once a month: your average profit margin, your average hourly recovery, and which types of job are doing best and worst.
What to do with the results
• Raise your prices on job types that regularly make a low margin.
• Improve your estimates where the same kind of overrun keeps happening.
• Go after more of the work that earns the most per hour.
• Stop doing, or re-price, work that regularly loses money.
Our guide on how to win more profitable work explains how to shift your business towards the jobs that pay best.
The short version
The money left in the bank after a job is not your profit. To find the true profit, take the price excluding VAT and subtract every cost: materials, your own labour at your wage rate, labourers, travel, job-specific costs and your share of overheads. Compare the result with what you planned, watch your profit margin and hourly recovery, and use what you find to change your prices, your estimates and the work you go after.
Know your true profit on every job, without the maths
TradeProfit does every calculation in this post for you. Set your hourly rate, overheads, van costs and working days once. For each job, enter the quote price, estimated hours, materials and travel miles, and see your forecast profit instantly. Toggle on a labourer and the margin updates. When the job's done, log the actual hours and costs and see your true profit against your forecast. Your dashboard shows your average profit and hourly recovery across all your work, and you can export everything as a PDF or spreadsheet for your accountant. It's free for your first 10 jobs, and no credit card is needed.
Know your real profit on every job.
Want to go further? The Complete Guide to Running a Profitable Trade Business is built around one idea: every decision in your business affects your profitability. Its free profit toolkit includes a Gross vs Net Margin Calculator, a Job Record-Keeping Template and a Monthly P&L Review Checklist.