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How to read your contractor P&L: what the numbers actually mean

A profit and loss statement isn’t just paperwork for your tax preparer. Read correctly, it tells you which jobs to take, which customers to fire, and when to raise prices. Here’s the contractor’s guide to actually using the report.

The short version
  • P&L has three big sections: Income, COGS, and Expenses. The order matters.
  • Gross profit = Income − COGS. The most important number on the P&L for a contractor.
  • Gross profit percentage tells you how efficient your job execution is. Below 25% concerning for most trades; over 40% suggests a healthy business.
  • Net profit = everything left after expenses. What your tax return is built on.
  • Run the P&L monthly, by job, and year-over-year. Three different ways to read the same numbers.

Most contractors look at their P&L once a year, in March or April, when their tax preparer asks for it. They check the bottom number, write a check to the IRS, and put it away. That’s like running a business with the dashboard taped over.

The three sections of a P&L

Income, Cost of Goods Sold (COGS), Expenses. Between sections: Gross Profit = Income − COGS. Net Profit = Gross Profit − Expenses.

Income: where the money comes in

If chart of accounts is set up well: Contract Revenue — New Construction, Remodel/Renovation, Service/Repair, plus Reimbursable Expenses Billed. Total Income line is gross revenue. Deceiving because it ignores what jobs actually cost.

COGS: what each job actually cost

The direct cost of delivering the work. Litmus test: if I didn’t have any jobs this month, would I still pay this cost? If no, it’s COGS. If yes (rent, insurance, accounting fees, phone bill), it’s an Expense.

Gross Profit: the most important number on the page

Gross Profit = Income − COGS. What’s left after direct costs. Gross profit pays your overhead, taxes, and take-home.

Gross profit % What it means for contractors
Under 20% Likely losing money. Pricing too low or job costs spiraling.
20–30% Tight. Overhead has to come out of this margin.
30–40% Solid range for most trades. Room for overhead and real profit.
40–50% Healthy. Strong pricing or efficient operations.
Over 50% Specialty service with low materials, or COGS is misclassified. Double-check.

Electrical and HVAC service often runs 50%+. New-construction GC work often runs 15-25%. Compare to your trade norms.

Expenses: the overhead

Office rent, insurance, vehicle expenses (if shared), phone, internet, accounting/legal fees, software subscriptions, office supplies, marketing, bank fees, interest, owner salary (if S-Corp).

As a contractor grows, overhead grows — but usually slower than revenue. If revenue doubles and overhead doubles, you have an overhead problem.

Net Profit: the final number

Net Profit = Gross Profit − Expenses. Net Profit Percentage healthy ranges: 10–15% for established GCs, 15–25% for specialty trades with lower COGS, 5–10% for high-volume operations.

The three views every contractor should run

1. P&L by month (trend view) — see seasonality, trends, anomalies. 2. P&L by job (project view) — see which jobs made money. Most actionable view. 3. P&L year-over-year (comparison view) — see where business is improving and degrading.

Practical habit

Block 30 minutes on the first Monday of every month to review last month’s P&L. Compare to same month last year. Note anything that looks off. This single habit separates contractors who run their businesses from contractors who hope their businesses run themselves.

Foad Nabi, EA
Enrolled Agent · Founder, Help With Tax

Foad is a federally licensed Enrolled Agent who writes about tax and bookkeeping for small businesses.