Understanding your gross profit margin might sound like accountant talk – but if you’re running a construction business in the UK, it could be the most important number you look at all year.
At SGL Accountancy, we specialise in helping builders, contractors, and property firms get a clear handle on their finances. And one thing we find time and again? Many construction business owners either aren’t tracking their margins – or they’re undercharging without realising it.
Let’s change that.
What is gross profit margin, in simple terms?
Your gross profit margin tells you how much you’re making before overheads – like office rent, admin staff, fuel, and insurances – are taken into account. It’s a project-level profit figure.
Here’s the formula:
(Revenue – Direct Costs) ÷ Revenue × 100 = Gross Profit Margin %
Let’s break that down:
- Revenue = what you charged for the job
- Direct costs = labour, materials, subcontractors – anything specifically for that job
- The result = your profit before general business costs
Example: a typical UK builder job
Let’s say you quoted a client £50,000 for a loft conversion.
You spent:
- £20,000 on materials
- £10,000 on labour
- £5,000 on skips, scaffolding, and subcontractors
That’s £35,000 in direct costs.
£50,000 – £35,000 = £15,000 gross profit £15,000 ÷ £50,000 × 100 = 30% gross profit margin
Not bad! But what if those labour costs creep up next time, or material prices rise? If you’re not tracking margins, you could lose that 30% fast.
What’s a healthy margin in UK construction?
Generally speaking, a gross profit margin of 20–30% is considered good in UK construction.
But it varies:
- Specialist trades may command higher margins
- New builds and long-term contracts may work on tighter margins but higher volumes
- Smaller domestic projects often see higher margins due to faster turnaround
At SGL, we help our clients benchmark against realistic industry targets, not guesswork. That way, you can quote with confidence – not crossed fingers.
Why margin matters more than revenue
Lots of builders make this mistake: they look at turnover and think business is booming.
But high revenue with poor margins can actually mean you’re working harder for less.
🧱 Turnover is vanity. Margin is sanity.
Here’s why:
- A job that brings in £100k might only net you £5k if margins are off
- A smaller £40k project with a 30% margin nets you £12k – more money, less hassle
We help our clients spot these patterns in their projects and adjust their pricing or workflow accordingly.
5 signs your margin might be too low
- You’re busy but not making much money
- You regularly go over budget on labour or materials
- You feel pressured to lower quotes to win work
- Your cash flow is tight even after “profitable” months
- You’re doing more work each year but profits aren’t rising
If any of these sound familiar, it might be time for a margin health check.
How to improve your gross profit margin
Here are some builder-friendly ways to protect or increase your margin:
- Quote accurately
Don’t guess. Use actual data from previous jobs. Track what you really spent – not just what you planned to.
- Build in a buffer
Add a percentage for contingencies. Prices can change mid-job, and things often take longer than expected.
- Track job costs
Use simple software or spreadsheets to log spend as you go. It’s easier than untangling things later.
- Buy smart
Negotiate with suppliers, bulk-buy where possible, and don’t be afraid to switch if you’re overpaying.
- Avoid scope creep
Make sure clients understand what’s included. Changes mid-job should be priced and approved.
How SGL accountancy helps builders like you
We don’t just do tax returns. At SGL Accountancy, we help construction businesses:
✅ Track their margins job by job ✅ Spot where profits are leaking ✅ Quote more confidently ✅ Plan ahead using real numbers – not best guesses
And we do it all in plain English, with no financial jargon or boring spreadsheets.
Want to know your real margin?
We offer a gross profit margin check for UK builders and contractors.
Send us the numbers from a recent job, and we’ll show you what your real margin was – and what it should be.
Next in the series: 🧮 Net Profit Margin: What’s Left After the Dust Settles?