If you own or manage an electrical contracting business, you’ve probably wondered what a good average profit margin for electrical contractors looks like. It’s one of the most common questions we hear from trade business owners, and the answer isn’t as simple as picking a number off a chart.
Margins vary based on your costs, your market, and how tightly you run your operations. But there are solid benchmarks out there, and with the right systems, you can move your numbers toward the high end of the range.
Let’s walk through what those benchmarks are so you know where you stand.
Understanding Profit Margins
Before we can talk about averages, it helps to be clear on what we mean by profit margin. There’s gross profit margin and there’s net profit margin.
Gross profit margin is the difference between your revenue and your direct costs such as labor, materials, and subcontractors, divided by your revenue. It’s the foundation of your business model.
Net profit margin is what’s left after you pay all your overhead, which includes things like insurance, office expenses, vehicles, and taxes. This is your bottom line, the money you actually get to keep.
If your gross margin is weak, your net margin will almost always suffer, no matter how frugal you are elsewhere.
What The Benchmarks Tell Us
Across the industry, several reputable sources offer guidance on what healthy margins look like.
According to industry sources, electrical contractors should target to achieve a 10% – 20% net profit margin for their business. An exception to this rule would be when electrical companies are just starting up and may choose to invest in marketing or acquiring customers instead of being profitable.
When it comes to gross profit margin, electrical contractors should aim for 65-67% margin across their services. This will help them to achieve the desired 17 – 20% net profit margin after deducting their overheads.
If you’re operating at a net profit of under 10%, it’s a vulnerable place to be, considering all the risks and costs of running an electrical company. Let’s explore some common reasons why many electrical businesses operate at this level.
Why Many Electrical Contractors Miss The Mark
So if the benchmarks are out there, why do so many companies come up short?
One big culprit is inaccurate estimating. If your bids understate labor hours, material waste, or rework, you’re losing margin before the job even starts. Add in the temptation to underbid to win jobs and you have a recipe for low margins.
Overhead can also creep up quietly as your business grows. Without proper tracking, costs like office staff, software subscriptions, insurance, and vehicles can add up and eat into your profits.
Another common issue is scope creep, where you end up doing extra work that isn’t formally approved or priced.
Smaller companies face their own challenges, such as higher per-unit material costs and less leverage with suppliers, which make it harder to spread fixed costs across projects.
Finally, cash flow delays can force you to borrow or dip into reserves, which has its own costs.
Practical Steps To Improve Your Margins
The good news is that margins aren’t just a matter of luck. There are concrete steps you can take to push yours higher.
1. Nail Down Job Costing And Track Variances
From Day 1 of each project, track labor, materials, subcontractor costs, and compare to your budget. Learn where you overrun, and adjust future estimates accordingly.
2. Set Minimum Acceptable Margins For Bids
Decide for each project type the lowest gross and net margin you’ll accept. If a job doesn’t clear that, don’t take it, or renegotiate.
3. Layer Your Service Offerings
Split your work into types (service calls, full installations, specialty systems) and define margin targets per type. Don’t treat all work as equal.
4. Keep Tight Control Over Overhead
Every year, or even quarterly, review the overhead line by line. Ask whether this expense helps me get or deliver more work? Trim anything that doesn’t.
5. Formalize Change Orders
Make sure all extra work is documented, priced, and signed off before execution. Never let changes slip in free.
6. Leverage Better Material Purchasing
Negotiate with suppliers, join buying groups, bundle purchases, and improve just-in-time ordering to reduce waste. Even a few percent in material savings flows straight to the bottom line.
7. Improve Payment Terms & Collections
Ask for deposits, invoice by milestones, offer small incentives for early payments, and stay on top of receivables. Faster turnover of cash helps you avoid working capital drag.
8. Build A KPI Dashboard
Track metrics like gross margin per job, overhead as a percent of revenue, average job value, and net margin month to month. Use that data to spot trends and course correct.
9. Test Strategic Price Increases
Raise rates incrementally, say 3 %–5 %, and monitor whether you lose jobs. Often, clients will accept modest increases for quality and reliability.
10. Add High Margin Upsells
Look into adding services like EV charger installs, smart panels, preventative maintenance contracts, energy audits. Basically, areas where you can command premium margins.
Start Improving Your Profit Margin
Healthy profit margins aren’t out of reach for electrical contractors, but they do require discipline and systems. If you’re not sure where your margins stand or you suspect you’re leaving money on the table, you don’t have to figure it out alone.
At Atlas Accounting Group, we specialize in helping electrical contractors implement better job costing, set margin targets, and plan for taxes so you keep more of what you earn.
If you’d like to see how we can help, book a call with us.
We’d love to start that conversation with you.