What is a good profit margin for an electrical contractor?

Healthy electrical contracting businesses target a gross profit margin of 50% to 67% and a net profit margin of 8% to 15%. Shops that consistently fall below 8% net are vulnerable to one bad project wiping out a quarter's earnings.

The blended average for most electrical contractors falls between 30% and 50% markup on materials. Small parts and connectors can carry 100% to 500% markups due to high handling costs relative to item value. Large commodity items like wire carry thinner margins of 15% to 25%.

Most electrical contractors need to charge $85 to $150 per hour depending on the type of work, market and overhead structure. Service and emergency work commands the top of that range. High-volume new construction work can operate at the lower end with tighter margins spread across more billable hours.

Add workers' compensation, payroll taxes, health insurance, paid time off, retirement contributions and allocated liability insurance. The total adds 38% to 55% on top of base wages for most electrical contractors. A $45/hr electrician has a true labor cost of $62 to $70/hr.

Both methods work when they are built from the same cost foundation. Hourly billing (time and materials) is standard for service, troubleshooting and change orders. Fixed-price (lump sum) billing is standard for new construction and larger projects. The key is to calculate the expected hours, multiply by your fully loaded billing rate and add material costs with markup regardless of which format the customer sees.