Setting the right gross margin keeps your business safe through quiet months and funds growth when demand spikes. In UK, healthy gross margin targets vary by service type and by how much of the job is labour versus materials. This guide explains what to include in your cost of goods, the ranges to aim for in landscaping, plumbing and electrical, and simple pricing habits that protect margin without scaring off good clients.
What gross margin actually is
Gross margin is the percentage of sales left after direct job costs.
Formula: Gross margin = (Selling price − Direct costs) ÷ Selling price.
Direct costs are everything that sits on a specific job: paid hours on site, labour burden for those hours, materials, plant and skips, subcontractors, delivery, parking and merchant fees tied to that job. Work out margin excluding VAT because VAT is a pass-through if you are registered.
What to include in direct labour cost
Many owners underprice because they count only the hourly wage. True labour cost per productive hour should include wage, holiday pay, employers’ NI, pension contributions, van, fuel, consumables, small tools, training time and a realistic allowance for unproductive hours. If a plumber is paid £18 per hour but is productive on billable work for 32 hours in a 40 hour week, the effective cost per billable hour is far higher than £18. A simple way to sanity check is to calculate a fully loaded labour rate and use that in job costing.
Healthy gross margin
The ranges below assume domestic work in and around cities like Edinburgh, competent project management and clear scope. Commercial new build tends to sit lower. Emergency callouts often sit higher.
1. Landscaping install
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Hard landscaping with meaningful materials content such as porcelain, sandstone, concrete products and timber: 45 – 55% gross margin on the total job value is healthy.
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Garden maintenance and soft landscaping which are labour heavy with low material spend: 55 – 65% is achievable when routes and schedules are tight.
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Design and build packages where your design fee is integrated can sit at the top of the above ranges.
2. Plumbing
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Reactive service and small works such as leaks, traps, valves and minor bathroom repairs: 60 – 70% is typical because labour dominates and parts are modest.
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Boiler swaps, cylinders and bathroom refits with higher materials content: 45- 55% is a safer target. Lead times, deliveries and waste removal must be costed to stay inside the band.
3. Electrical
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Callouts, small additions and consumer unit upgrades: 55 – 65%.
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Full rewires and first fix or second fix on larger projects: 45 – 55% depending on access, chasing, patching and certification time. Materials buying discipline makes the difference here.
These bands assume you still have to pay overheads such as office staff, rent, software, insurance and marketing from the remaining margin. If your overheads run at 20 to 30 percent of sales and you want a net profit of 10 to 15 percent, you can see why a gross margin under 45 percent leaves little room for error on domestic work.
Margin is not the same as markup
Confusion here wrecks pricing.
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Markup is added on cost. If your job costs £1,000 and you add a 50 percent markup, you sell at £1,500.
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Margin is the percentage of the selling price that is profit after costs. A 50 percent markup on cost is only a 33.3 percent margin on price.
Conversions:
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Margin to markup: markup = margin ÷ (1 − margin).
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Markup to margin: margin = markup ÷ (1 + markup).
If you want a 50 percent margin, the required markup on cost is 100%. Knowing this stops you accidentally selling at 33 percent margin when you meant 50.
A quick worked example
You quote a porcelain patio for £9,600 including materials. Direct costs are: labour £3,200 fully loaded, materials and waste £1,900, mini digger and plates £500, sundries and deliveries £200. Direct costs total £5,800.
Gross margin = (£9,600 − £5,800) ÷ £9,600 = 39.6%.
That is light for a landscaping install. You can either lift the price, trim cost through better buying and sequencing, or adjust scope. If you lift the price to £11,200 and hold costs steady, the margin becomes 48.2%, which sits in the healthy band.
Why service mix changes your target
An all callout plumbing firm can carry higher margins because response time and convenience are valuable to clients. A landscaping contractor doing large material heavy projects has tighter bands because the material portion carries smaller absolute profit unless you buy very well. Most firms should build a mix: small high margin works for cash flow, plus scheduled projects for revenue stability.
4 pricing habits that protect margin
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Quote labour by realistic hours, not wishful thinking. If a two person crew needs three visits for a bathroom refit, count travel, set up, waste and testing time.
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Apply different markups to labour and materials. Many successful firms target a high labour margin and a smaller, transparent materials handling fee or markup, then check the blended margin lands in the band.
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Lock deposits and staged payments to milestones. Strong cash flow protects margin by avoiding emergency borrowing and by letting you buy materials at better rates.
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Build a change control habit. Variations approved in writing stop margin slippage when hidden problems or customer add ons appear.
Margins grow in the merchant aisle. Use price files, agree weekly rates on core items and avoid multiple small deliveries with separate fees. Group waste to fewer collections and include skip licences when kerbside is likely. Return unopened boxes and uncut lengths promptly. These small processes often add two to three points of margin over a quarter.
Seasonality and utilisation
Landscaping is seasonal and weather sensitive. Budget margins must cover idle days in winter. Track productive hours each week. If your team bills only 28 of 40 hours, your labour cost per billable hour has just risen sharply, which eats margin unless your prices already account for that utilisation.
Overheads and Breakeven
Work out overheads as a percentage of sales. If overheads are 22 percent and you target a 12 percent net profit, you must average 34% contribution after direct costs just to stand still at the end of the year. That is why a target gross margin of 50 to 60 percent on domestic service and 45 – 55% on installs gives breathing space when a job runs long.
When to accept a lower margin
There are valid reasons to take a project at the lower end of the band. You may want the case study, the street presence, or continuity for your crew between larger jobs. If you do, be deliberate. Keep scope tight, build in learning value, and avoid open ended risks. Do not quietly hope to make the margin back through extras that may never come.
Simple weekly dashboard
Review these five numbers every Friday:
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Quoted margin for jobs won this week.
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Actual margin on jobs completed this week.
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Labour utilisation as billable hours over total hours.
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Average material markup achieved against your target.
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WIP at risk where scope has changed but paperwork has not.
Bottom line
For most small to mid sized UK firms, healthy gross margins look like this: landscaping install 45 – 55%, landscaping maintenance 55 to 65 percent, plumbing small works 60 to 70 percent and larger installs 45 to 55 percent, electrical small works 55 – 65% and rewires or projects 45 – 55%. Price to those bands, buy well, protect labour productivity and confirm variations fast. Your net profit will follow.
