How to calculate profit on a building job
By Smart Way Builds · Updated
Job profit is not the contract value minus the invoices paid so far. You need a consistent definition of revenue and cost, and a separate view of the work still to come.
How do you know if a construction job is profitable before it finishes?
Compare the expected revenue with approved costs plus a reviewed estimate of the remaining work. Include accepted unpaid invoices, unbilled work and known changes without counting costs twice. The result is a forecast, not guaranteed profit. Update it as scope and supplier information change; a low paid balance alone does not show that the job is profitable.
The basic job-profit calculation
Job profit = job revenue − job costs. Define which costs you include: materials, subcontractors, direct labour, plant, preliminaries and any allocated overhead. A job contribution before office overhead and tax is not company net profit.
For a finished job, check that outstanding invoices, credit notes and approved variations have been accounted for before calling the result final. For an unfinished job, label the calculation as recorded-to-date or forecast, rather than presenting it as the final outcome.
Margin versus markup
Margin = profit ÷ revenue × 100. Markup = profit ÷ cost × 100. The different denominator matters when pricing work.
In a fictional completed job with $100,000 revenue and $80,000 costs, profit is $20,000. Margin is 20%; markup is 25%. Adding a 25% markup does not produce a 25% margin.
To price for a target margin, use price = cost ÷ (1 − target margin), with the margin expressed as a decimal. $80,000 ÷ 0.8 = $100,000 for a 20% margin. This only works if your cost base includes everything the intended margin must cover.
Approved costs are not cash paid
An approved supplier invoice is an accepted job cost even when it is unpaid. A payment tells you cash has left the business. Do not remove unpaid approved invoices from a cost review, or assume that a low paid total means a profitable job.
Smart Way Builds uses approved invoice allocations for budget actuals and paid records for payment reporting. Neither measure alone includes all future work, unreceived invoices or unrecorded labour.
Worked example: a job in progress
All amounts below are fictional AUD amounts on a GST-exclusive basis. The remaining-cost forecast is the builder's estimate, not an automatic product prediction.
| Measure | Amount |
|---|---|
| Agreed job revenue for this example | $100,000 |
| Approved costs recorded to date | $55,000 |
| Cash paid to date | $42,000 |
| Estimated remaining costs, not already in approved costs | $25,000 |
| Forecast final cost: $55,000 + $25,000 | $80,000 |
| Forecast final profit: $100,000 − $80,000 | $20,000 |
| Forecast final margin: $20,000 ÷ $100,000 | 20% |
Revenue less approved costs currently equals $45,000, but that is not the expected final profit: $25,000 of work remains in this example. The $13,000 difference between approved costs and payments is also not extra profit; it represents accepted costs not yet paid here.
Keep GST and revenue definitions consistent
Do not subtract GST-inclusive costs from GST-exclusive revenue. The appropriate treatment depends on your registration and credit eligibility; some GST may be a real cost. Use your accountant's reporting basis. This guide is general information, not tax advice. See the ATO guidance on GST credits.
Also distinguish agreed contract value, revenue recognised and cash received. This example uses agreed revenue for a simple completion forecast, not an accounting revenue-recognition policy.
Review by category, not just total
- Reconcile accepted costs and outstanding invoices.
- Review the remaining scope with the site team, including variations.
- Keep remaining costs separate to avoid double counting.
- Investigate overspends in each trade, even if the overall budget has room.
- Record assumptions and update the forecast when scope or quotes change.
Our cost-code guide explains how to organise that review. Explore job budgets and invoice tools or plans with no per user fees. The assistant can answer from recorded company data; your judgement is still needed for future costs.