What Is a Good Margin in Residential Construction? (And How to Actually Protect It)

Margins in construction are notoriously thin… and notoriously misunderstood. Ask five builders what a “good” margin looks like, and you’ll get five different answers. But in a world of rising costs, labor shortages, and project delays, knowing your margins (and how to defend them) is one of the most powerful levers in your business.

So, what is a good margin in residential construction? And how do you actually keep it?

Let’s Define Our Terms

First, some quick clarity:

• Markup is how much you increase your costs to determine price.
• Margin is what you keep as a percentage of total revenue.

A common mistake? Confusing the two. A 20% markup is not a 20% margin. For example:

• If your costs are $800, and you mark up 20%, your price is $960.
• Your margin is $160 ÷ $960 = 16.7%, not 20%.

What’s Considered a “Good” Margin?

Here’s what we typically see in residential construction:

• Gross Margin (after direct job costs): 20-30%
• Net Margin (after overhead): 8–15%
• Target Margin on Fixed Price Jobs: 25%+
• Target on Cost Plus: Varies, depends on fee structure, but still should net 15%+

“We bid at 20% and finish the project at 12%.” - Common refrain from builders we talk to every day.

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The problem isn’t the margin you bid, it’s what gets eroded during the job.

Where Margins Go to Die

According to Adaptive’s customer data, most builders lose 3–10% of margin per job due to:

• Missed change orders
• Lost or uncategorized receipts
• Sub overpayments or duplicate bills
• Rework from unclear cost tracking
• Budget slippage that no one catches mid-job

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That means a builder bidding 25% might only net 15% (or worse) because they don’t have visibility into what’s happening in real time.

How to Actually Protect Your Margins

Margins aren’t protected on bid day. They’re protected during the build. Here’s how top builders do it:

1. Job Costing in Real Time
   • If you’re waiting until month-end, you’re already behind.
2. Change Order Tracking with Alerts
   • Most missed revenue comes from scope creep that never gets billed.
3. Bill & Receipt Categorization at the Source
   • Every untracked dollar is a dollar you don’t keep.
4. Live Budget vs. Actual Visibility
   • Spot slippage during the job, not after it’s closed out.
5. Cost Code Discipline
   • The more accurate your structure, the more actionable your data.

Bottom Line

Margins in construction are earned after the job is won, not before. If you don’t have a system to track them tightly, you’re probably giving a chunk of them away.

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And in this market, the builders who win are the ones who know where every dollar is going and make sure it gets to stay.

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