Electrical Contractor Profit Margins: Benchmarks, Markup, and Where Profit Leaks
The average electrical contractor earns about 6% net profit (6.1% in IRS Statistics of Income data for 2022), while well-run shops target 10% or more net. Gross margin has to be much higher than that, because it must cover overhead plus profit before anything is left.
"Profit margin" means two different things in an electrical business, and mixing them up is how contractors price themselves into busy years with nothing in the bank. Gross margin is what's left of revenue after the direct cost of the jobs: labor, material, permits, equipment. Net margin is what's left after overhead too: the office, trucks, insurance, software, and the owner's salary.
The benchmark: about 6% net
The most authoritative public number comes from tax returns. VantaInsights, analyzing IRS Statistics of Income corporate tax data for NAICS 23821 (electrical contractors and other wiring installation contractors), reports an average net profit margin of 6.1% for 2022, the latest year in that data. The same source counts more than 83,000 establishments and over $249 billion in industry receipts.
A 6% average hides a wide spread. Well-run service companies commonly report double-digit net margins, and plenty of new-construction subcontractors finish a year at break-even. What moves a shop from one end to the other is rarely the markup percentage. It's labor productivity, material cost recovery, and the mix of work.
Gross margin vs. net margin
Here's a contractor with $1.8 million in annual revenue:
| Line | Amount | % of revenue |
|---|---|---|
| Revenue | $1,800,000 | 100% |
| Direct job costs (field labor, material, permits, rentals) | $1,350,000 | 75% |
| Gross profit | $450,000 | 25% |
| Overhead (office, trucks, insurance, owner salary, software) | $340,000 | 18.9% |
| Net profit | $110,000 | 6.1% |
A 25% gross margin sounds healthy until you see that overhead takes three-quarters of it. That's why a job priced at "direct cost plus 20%" can lose money: this contractor's overhead is 25.2% of direct cost (worked out below), so a 20% markup doesn't even cover overhead, let alone leave a profit.
How to calculate your overhead percentage
Most pricing errors start with a guessed overhead number. Build it from last year's books. For the $1.8 million contractor above, the $340,000 of overhead breaks down like this (illustrative):
| Overhead item | Annual cost |
|---|---|
| Office and estimating salaries (with burden) | $120,000 |
| Owner's salary at a market rate for the role | $95,000 |
| Vehicles: payments, fuel, maintenance, insurance | $48,000 |
| Business insurance (general liability, umbrella) | $28,000 |
| Rent and utilities | $24,000 |
| Software, phones and IT | $9,000 |
| Marketing | $8,000 |
| Accounting and legal | $6,000 |
| Other | $2,000 |
| Total overhead | $340,000 |
Two ways to express it:
- As a percentage of direct cost (for markup on an estimate): $340,000 ÷ $1,350,000 = 25.2%.
- Per field labor hour (for service billing rates): with 12 field workers at about 1,800 hours each, 21,600 hours, overhead is $340,000 ÷ 21,600 = $15.74 per field hour.
Watch what the number does to a bid. The pricing example later on this page uses 18% overhead. For this contractor, whose real overhead is 25.2% of direct cost, a job with $10,000 of direct cost needs a break-even of $10,000 × 1.252 = $12,520 and a price of $12,520 ÷ 0.90 = $13,911 for a 10% net margin, $800 more than the 18% calculation gives. Bid with the wrong overhead and every job quietly funds the gap.
Include the owner's salary at a realistic rate. If the owner's pay only comes from "profit," the business is less profitable than it looks, and a buyer or lender will see that immediately.
Markup vs. margin: the table every estimator needs
Markup is a percentage of cost. Margin is a percentage of price. They are not the same number.
- Markup = (Price − Cost) ÷ Cost
- Margin = (Price − Cost) ÷ Price
- Markup needed for a target margin = Margin ÷ (1 − Margin)
| Target margin | Markup on cost required |
|---|---|
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 35% | 53.8% |
If you want 20% of every sale to be gross profit, you have to mark cost up by 25%, not 20%. Marking up by 20% only yields a 16.7% margin.
Pricing a job for a target net margin
The cleanest method separates the three layers:
- Direct cost: material + labor (hours × burdened rate) + job-specific costs.
- Overhead recovery: your overhead as a percentage of direct cost, from last year's books.
- Profit: divide break-even by (1 − target net margin).
Example: a job with $10,000 of direct cost, overhead running 18% of direct cost, and a 10% net margin target.
- Break-even: $10,000 × 1.18 = $11,800
- Price: $11,800 ÷ 0.90 = $13,111
- Effective markup on direct cost: 31.1%
Run your own numbers with the electrical bid calculator.
Where electrical profit actually leaks
1. Labor overruns
Labor is the most variable cost on any electrical job. Say you bid 200 hours at $55/hour burdened, and the job needs 15% more: that's 30 extra hours, or $1,650. On a $40,000 job priced for 10% net ($4,000), the overrun wipes out 41% of the profit. Better labor units and job-cost tracking protect margin more than any markup change.
2. Unrecovered material costs
Copper and equipment prices move. Proposals held open 60–90 days, waste not included, and small parts left off the takeoff each shave a point or two.
3. Unbilled changes
Work done on a verbal "while you're here" that never becomes a signed change order is pure margin loss. Price changes at the same markup as the base bid, or higher.
4. Non-billable time
Drive time, supply-house runs, callbacks and warranty work. If your billing rate assumes 85% billable time and your techs actually bill 70%, you're underpriced before the job starts. See how to calculate your hourly rate.
5. Overhead creep
Overhead added during a good year (a second office person, another truck) raises break-even for every future bid. Recalculate your overhead percentage at least yearly.
Service vs. construction margins
Service and maintenance work generally carries higher gross margins than new construction: jobs are small, customers pay for speed and certainty, and flat-rate pricing rewards efficient crews. New construction brings volume but tighter margins, retainage and more exposure to labor overruns. Many profitable shops balance the two so service revenue covers overhead while construction adds volume.
Here's how mix drives the company's gross margin, with illustrative gross margins for each type of work:
| Service | Construction | Company | |
|---|---|---|---|
| Revenue, current mix | $600,000 | $1,200,000 | $1,800,000 |
| Gross margin | 40% | 17.5% | 25.0% |
| Gross profit | $240,000 | $210,000 | $450,000 |
| Revenue, shifted mix | $800,000 | $1,000,000 | $1,800,000 |
| Gross profit | $320,000 | $175,000 | $495,000 (27.5%) |
Shifting $200,000 of revenue from construction to service adds $45,000 of gross profit at the same total revenue. It isn't free: service needs dispatch, more trucks and more office time per dollar of revenue, so check the added overhead before chasing the mix.
WIP, over-billing and under-billing
On construction jobs, what you've billed and what you've earned are rarely the same number. A work-in-progress (WIP) schedule compares them job by job, usually monthly, using percent complete based on cost:
Example: a $200,000 contract with an estimated total cost of $160,000. Costs to date are $64,000, so the job is 64,000 ÷ 160,000 = 40% complete, and earned revenue is 40% × $200,000 = $80,000. Gross profit earned to date is $80,000 − $64,000 = $16,000.
- If you've billed $95,000, you're over-billed by $15,000. That's cash in the bank you haven't earned yet, and it's a liability on the balance sheet. Over-billing is common early in a job with front-loaded schedules of values; it becomes a problem if you spend that cash as profit.
- If you've billed $70,000, you're under-billed by $10,000. You've done work you haven't been paid for. Persistent under-billing often means a job is running over on cost, since cost-based percent complete rises faster than the work actually in place.
Review the WIP schedule with your estimator and project managers every month. Jobs whose projected margin keeps sliding are where profit leaks first, and the earlier you see it, the more you can recover through change orders or schedule fixes. Your CPA and surety will ask for this schedule too.
Why good jobs can still leave a thin company margin
Job margins and company margin are connected through three numbers: average job gross margin, overhead as a share of revenue, and volume. If revenue drops 15% while overhead stays the same, overhead's share of revenue rises and net margin can disappear even though every job hit its estimate. That's why overhead should be set from a realistic revenue forecast, not last year's best month.
How to raise your margin without raising prices
- Track estimated vs. actual hours by cost code and update your labor units.
- Stop bidding work you rarely win. Estimating time on 5%-hit-rate customers is overhead.
- Write exclusions and clarifications into every proposal so extras become change orders.
- Shorten proposal validity to 30 days when copper is volatile.
- Estimate faster, so the same estimator can be selective and still bid enough work.
Frequently asked questions
What is a good profit margin for an electrical contractor?
The industry average net margin is about 6% (IRS SOI data for NAICS 23821, 2022). Many well-run contractors target 10% or more net. Gross margin must be high enough to cover overhead plus that net profit, so set it from your own overhead percentage.
What markup should an electrician use?
Work backward from your overhead and target margin rather than using a fixed markup. With overhead at 18% of direct cost and a 10% net target, the markup on direct cost is about 31%.
What is the difference between markup and margin?
Markup is profit as a percentage of cost; margin is profit as a percentage of price. A 25% markup produces a 20% margin.
What is over-billing and under-billing?
Over-billing means you've invoiced more than the work you've earned based on percent complete; under-billing means you've earned more than you've invoiced. Both are tracked on a monthly WIP schedule, and persistent under-billing is often a sign a job is losing money.
Why is my gross margin good but net profit low?
Overhead. If overhead consumes most of the gross profit, either overhead is too high for your revenue or your jobs are priced at too low a markup to cover it.
Related
Price every job for the margin you need. SparkQuote applies your overhead and target margin to every estimate, and shows the margin impact before you send the proposal. See the electrical estimator.
Written by the SparkQuote editorial team. Source: VantaInsights, Electrical Contractor Profit Margins (IRS SOI, NAICS 23821). Example figures are illustrative. Last updated: October 6, 2026.