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Now that we’ve discussed the various ways to calculate Direct Costs, it is now time to look at the various margins for a healthy business. In this article we will discuss some of the most common margins to be aware of to gauge the profitability of your business. 



We’re going to break down the different costs associated with a job and your business. It is extremely important to understand these different costs and how to calculate them to accurately estimate jobs. 

Direct Costs 

All the costs directly associated with a product or service. This includes Material, Trucking, Labor, Equipment and other Additional costs that go into completing a project. 

Indirect Costs

Costs that are associated with items that are absolutely necessary for running and maintaining your business. This can be maintenance on your vehicles, new tires, insurance, etc. These typically run between 5 – 15%. 

Overhead Costs

Often Overhead and Indirect Costs can be lumped together. However, many think of Overhead as more of the administrative items of operating a business. A lease or monthly payment on a building, office supplies, administrative salaries, advertising, taxes, etc. Depending on the size of your business this can be around 10-15%. 

Total Cost

This is the sum of all costs together. Direct Costs + Indirect Costs + Overhead Cost. 


Profit Markup Percentage

This is the premium you would like to charge on top of the Direct Costs associated with the product or service. This percentage will vary depending on your costs outlined above. Whatever this is set to, you will want to make sure you are aiming for a healthy Profit Margin outlined below. 


This is the monetary value that will be determined based on your Profit Markup Percentage. This is Direct Costs * Profit Markup Percentage. 

Total Revenue

The Total monetary amount of products or services that have been sold. This is Direct Costs + Indirect Costs + Overhead Costs + Profit = Revenue. 


Gross Margin

This is the total amount of money a company earns from its products or services minus the cost of producing or providing them. This is an indication of the profitability of a given product or service. 

Gross Margin %

A percentage that shows how much money a company keeps as profit from each sale of their product or service, after subtracting the Direct Costs. It’s calculated as (Gross Margin / Revenue) x 100%. A healthy Gross Profit Margin % for a service company is around 30%. 

Operating Margin

The percentage of revenue a company retains as profit after covering all its operating expenses, such as salaries, rent, and utilities. We are referring to these expenses as Direct Costs and Indirect Costs. This is calculated by Revenue – Direct Cost – Indirect Costs = Operating Margin. 

Operating Margin %

This is a measure that indicates how efficiently a company is running its day-to-day operations. It’s calculated as (Operating Margin / Revenue) x 100%. This should be lower than your Gross Margin because it is accounting for more costs. This should exceed 15-20%. 

Net Margin

The percentage of revenue a company keeps as profit after deducting all expenses, including operating costs, interest, taxes, and other non-operational expenses. All these expenses are referred to as Direct Costs, Indirect Costs, and Overhead Costs. This is calculated by Revenue – Direct Cost – Indirect Costs – Overhead Costs = Net Margin. 

Net Margin%

This is a measure that reflects a company’s overall profitability by calculating the percentage of net profit it generates from its total revenue. It’s calculated as (Net Margin / Revenue) x 100%. This will be your lowest margin percentage because it accounts for all costs. A healthy service-based company should have a Net Margin in excess of 10-15%.


Understanding your costs and margins is a critical piece to accurately estimate projects to ensure you are not only covering your direct costs, but also cover all the additional costs that can come later like maintenance and taxes. These costs, if not accounted for, will eat into what seemed like a very profitable product or service when they come due. 

Luckily asphalt estimating software Bitumio, allows you to account for these costs and outputs on every proposal all the margins outlined above so you can see at various Profit Markup Percentages how your Margins are affected.