How much profit should a builder make? Aussie benchmarks
It's one of the first questions we get asked: what should my business actually be making? There's no single right answer, but there are benchmarks, and a lot of trade businesses sit well below them.
Gross profit vs net profit
Gross profit is what's left after the direct costs of the job: materials, labour and subcontractors. Net profit is what's left after everything else too: overheads, admin, vehicles, insurance and a fair wage for you.
Net profit is the number that matters. It's what the business actually earns once everyone, including you, has been paid.
The Australian ranges
Figures vary by trade, size and type of work. As a general guide:
- Many residential builders run net margins of around 3–7%
- Well-run building businesses often achieve 10–15% net
- Specialist trades such as plumbing and electrical can sit higher
- Plenty of trade businesses run at 5% or less, often without knowing it
These are general industry ranges, not targets for your business. Your accountant can tell you how your figures compare.
Why 5% isn't enough
On $1 million of work, a 5% net margin is $50,000. That's the entire buffer for a client who pays late, a job that runs over, a slow winter or a tool that dies. One bad job can wipe out a year's profit.
At 12%, the same turnover leaves $120,000. Same work, same hours, a very different business.
Turnover isn't the goal
A lot of trade businesses chase turnover: more jobs, more staff, bigger projects. But growing with thin margins just grows the risk. A $2 million business at 3% earns less than a $700,000 business at 10%, and works a lot harder for it.
What moves the number
Profit usually improves through a handful of levers working together: pricing jobs properly, controlling what each job really costs, keeping overheads in check, and choosing the right work. None is a single big fix. Small gains on each one add up.
Know your number
If you don't know your real net margin from last financial year, start there. Your accountant can pull it from your figures in a few minutes. Then you'll know where you stand, and how far there is to go.
General information only, not financial, tax or legal advice. Speak to your accountant or adviser about your own situation.