How much profit should a small business make?

First, do not confuse owner pay with profit

If an owner works in the business every day, the money needed to compensate that work is different from profit left in the business after the business has paid its operating costs and owner-compensation goal. Treating every dollar the owner takes home as “profit” can make pricing look healthier than it really is.

Profit is also different from markup

A markup is an amount added to a cost. Margin describes how much of the selling price remains after a cost. They are not interchangeable. A 25% markup on a $100 cost produces a $125 selling price, which means the $25 difference is 20% of the selling price—not 25%.

Use a profit cushion that reflects your business

A planning cushion can help absorb estimating errors, callbacks, equipment replacement, slow periods, growth investments, and unexpected costs. The right percentage is a management decision, not a universal rule. The important part is to include it deliberately rather than hoping something is left over.

Why a busy business can still have weak profit

Revenue alone does not show whether the work is healthy. A company can stay fully booked while underestimating labor, forgetting overhead, absorbing change orders, discounting too quickly, or choosing jobs that produce too little contribution for the time they consume.

Measure profit at the job level and the business level

At the job level, compare the selling price with actual direct costs and productive hours. At the business level, compare total revenue with all operating expenses and owner-compensation treatment appropriate to your business. Both views matter: profitable-looking jobs can still sit inside an unhealthy cost structure, and a profitable year can hide certain job types that consistently underperform.

What should you do if the target feels impossible?

Do not automatically raise every price by the same percentage. Test the drivers. You may need a different minimum job size, better change-order discipline, more accurate labor assumptions, a leaner overhead structure, a different service mix, or improved scheduling so more paid time becomes productive time.