Is Your Gross Profit Too Low? Here’s Why -If your gross profit is low, it’s not a mystery
When I talk to contractors who are barely scraping by, one number usually tells the whole story — their gross profit margin.
Gross profit is what’s left after you pay your direct job costs — labor, materials, subcontractors — but before you pay for rent, marketing, admin, and everything else. It’s the oxygen your business needs to breathe. Without a healthy gross profit, there’s no way to pay overhead, let alone take home a solid paycheck.
So here’s the million-dollar question:
Why is your gross profit too low?
Truth is, there are only two possible causes — and sometimes both are in play:
- Your pricing is too low.
- Your cost of sales is too high.
Let’s break it down.
If you’re underpricing jobs, you’re not leaving yourself enough room to make money. You might be bidding based on what competitors charge or what the client expects — not based on your actual costs and the margin you need to survive. That’s like building a house on a cracked foundation.
On the flip side, if your material costs are bloated, or if your labor hours are running long due to inefficiency, lack of planning, or scope creep, your costs eat into your margin like termites. Even if your pricing is decent, you’ll still come up short.
Real World Mistake & Lesson: One HVAC contractor I worked with was hitting $1.5M in annual sales, but his gross profit was barely 20%. We discovered he hadn’t raised prices in three years and his material vendors had increased costs by 15%. On top of that, his crews were being scheduled inefficiently, leading to overtime and wasted trips.
By tightening up labor tracking, revisiting vendor pricing, and finally updating his job quotes to reflect today’s reality — his gross margin jumped to 32% in just 90 days. That alone added over $180,000 to the bottom line.
Pick up your free copy of my new book, “The 7 Minute Conversation-How to Hear the Story Your Small Business Financial Statements Are Telling You-CONTRACTOR EDITION”. Go to www.7MinuteConversationBook.com
Ready to find out where your cash and profits are really going? Book your free 15-minute Profit and Cash Flow Call with me. No pressure. Just real clarity. I’ll help you see where your money’s hiding — and what to do about it. Schedule at www.CashFlowCallWithLarry.com