You are busy. The phone is ringing, the diary is full, and the van is out six days a week. So why does it feel like there is never enough money at the end of the month?
This is the question I hear from plumbing and heating engineers more than almost any other. And the answer, nine times out of ten, is the same: you are confusing being busy with being profitable. They are not the same thing. Not even close.
If you do not understand your profit margins, you are flying blind. You might be turning over £100,000 a year and still taking home less than someone working part-time in a call centre. That is not a failure of effort. It is a failure of numbers.
Let’s fix that.
Turnover, Profit, and Margin: What is the Difference?
Before we go any further, let’s get three terms straight. These words get thrown around constantly, and most people use them interchangeably. They are not the same.
Turnover is the total amount of money your business brings in. Every invoice, every card payment, every bank transfer from a customer. If you fitted ten boilers this month and invoiced £2,500 for each one, your turnover is £25,000. That number tells you almost nothing about how well your business is actually doing.
Profit is what is left after you take away your costs. It is the money that actually stays in the business (or your pocket). There are two types of profit, and we will come to those in a moment.
Margin is your profit expressed as a percentage of your turnover. It tells you how many pence out of every pound you actually keep. A 20% net margin means for every £100 you invoice, you keep £20 after everything is paid.
There is an old saying that sums it up well: turnover is vanity, profit is sanity, cash flow is reality. If you want to understand the cash flow side of things, have a look at our guide on managing cash flow in a heating business.
Gross Profit Margin vs Net Profit Margin: The Two Numbers That Matter
This is where most trades business owners switch off. Do not. These two numbers are the difference between running a business and guessing.
Gross Profit Margin
Your gross profit margin is your revenue minus the direct costs of doing the job. That means materials, parts, and any subcontractor labour you pay for on that specific job. It does not include your van, your insurance, your phone bill, or anything else that you pay whether you do the job or not.
The calculation:
Gross Profit = Revenue − Direct Job Costs
Gross Profit Margin = (Gross Profit ÷ Revenue) × 100
Example: You charge £300 for a repair. The parts cost you £45. Your gross profit is £255. Your gross profit margin is 85%.
That looks fantastic. But it is not the whole picture.
Net Profit Margin
Your net profit margin is what is left after all your expenses. Every overhead, every cost, every penny that leaves your business for any reason. This is the number that tells you whether your business is actually working.
Net Profit = Revenue − ALL Costs (direct + overheads + admin + tax provisions)
Net Profit Margin = (Net Profit ÷ Revenue) × 100
That 85% gross margin on the repair job looks very different once you factor in the van cost to get there, the insurance that covers you while you are working, the time you spent quoting and invoicing, the Gas Safe registration that lets you do the job legally, and the accountant who keeps HMRC off your back.
Consider this: your gross margin tells you how profitable a job is. Your net margin tells you how profitable your business is. You need both.
What Do Healthy Margins Look Like for a Plumbing or Heating Business?
There is no single number that works for every business, but there are ranges you should be aiming for. If your margins are significantly below these, something needs to change.
Gross profit margin: You should be targeting 40–60% overall, depending on your mix of work. Service and repair work will sit at the top end. Installation work, where materials are a bigger proportion of the cost, will sit at the lower end.
Net profit margin: A well-run plumbing or heating business should be achieving 15–25% net. If you are below 10%, you are working too hard for too little. If you are above 25%, you are doing something right and you should understand exactly what it is so you can do more of it.
Why Different Jobs Have Different Margins
Not all work is created equal. A busy plumber doing the wrong mix of jobs can earn less than a quieter one doing the right mix. In my eyes, understanding this is one of the most important things you can do for your business.
Here is how the margins typically break down across common job types:
| Job Type | Typical Gross Margin | Typical Net Margin | Why |
|---|---|---|---|
| Service & repair work | 60–80% | 20–30% | Mostly labour, minimal materials. High margin but lower total revenue per job. |
| Boiler installations | 30–45% | 12–20% | Expensive equipment reduces margin percentage, but higher total profit per job in pounds. |
| Bathroom installations | 35–55% | 15–22% | Highly variable. Depends on materials spec, customer choices, and scope creep. |
| Service plans (recurring) | 70–85% | 40–60% | Predictable, recurring income. Low cost per visit once the relationship is established. |
| Landlord gas safety checks | 65–80% | 25–35% | Quick jobs, minimal materials, often clustered in the same area to reduce travel time. |
Look at that table carefully. Service plans deliver the highest net margin of any work type. That is not a coincidence. If you are not offering them yet, our guide on building recurring revenue with service plans explains how to set them up properly.
The key takeaway is this: a £2,500 boiler install at 15% net margin earns you £375. A £300 repair at 25% net margin earns you £75. You would need five repairs to match one install in total profit. But the repair takes an hour. The install takes a day. Both have a place in a healthy business, and the ideal is a balanced mix.
How to Calculate Your Margin Per Job Type
If you are not tracking your margins by job type, you are missing the single most useful piece of information your business can give you. Here is how to do it.
Step 1: Pick a job type. Let’s say boiler installations.
Step 2: Add up all revenue from that job type over the last quarter. Say you did 12 installs and invoiced £30,000 total.
Step 3: Add up all direct costs for those jobs. Boilers, flues, fittings, filters, sundries. Say that comes to £17,500.
Step 4: Subtract to get gross profit: £30,000 − £17,500 = £12,500. That is a 41.7% gross margin.
Step 5: Now allocate a fair share of your overheads to those 12 installs. If installations represent roughly 60% of your workload, then 60% of your quarterly overheads belong to this job type.
Do this for every type of work you do. The results will surprise you. Almost every plumber I have worked with discovers at least one job type that is barely breaking even, and at least one that is far more profitable than they realised.
Once you know which jobs make you money, you can do more of them. Simple as that. If you need help with the pricing side, our article on how to price plumbing and heating jobs for profit walks through the whole process.
The Overhead Trap: Hidden Costs Eating Your Margins
Most plumbers can tell you what they paid for the last boiler they fitted. Very few can tell you what it costs them to run their business for a month. That gap is where margin disappears.
Here is a reality check. These are the overheads that chip away at your profit every single month, whether you are busy or not:
- Van costs — lease or finance, insurance, tax, MOT, servicing, tyres, fuel
- Public liability and professional indemnity insurance
- Gas Safe registration — £450+ per year
- Tools and equipment — replacement, repair, calibration
- Marketing — website hosting, Google Ads, Checkatrade, leaflets
- Accountancy fees
- Phone, broadband, and software — invoicing, scheduling, cloud accounting
- Training and CPD courses
- Workwear and PPE
- Merchant account and card payment fees
- Waste disposal costs
Add all of those up and you are looking at anywhere from £15,000 to £25,000 a year in overheads for a sole trader. For a business with employees, it is significantly more. Every one of those costs comes directly out of your margin. If you are not tracking them, you are guessing how profitable you are. And most people guess too high.
Many of these costs qualify as allowable tax deductions, so at least make sure you are claiming everything you are entitled to.
The Common Margin Killers
Even if your pricing is right and your overheads are under control, there are habits and patterns that quietly destroy margins. Let’s explore the worst offenders.
Underpricing
The biggest margin killer of all. If you are pricing based on what the competition charges rather than what your work actually costs plus a proper profit, you are almost certainly too cheap. Your costs are not the same as theirs. Your overheads are not the same. Your quality of work is not the same.
Low Quote Conversion Rates
Every quote you write takes time. If you are quoting ten jobs and winning three, 70% of your quoting time is unpaid. That is a hidden overhead most people never account for. If your conversion rate is low, either your pricing is wrong, your quotes are not selling the value, or you are quoting for the wrong customers.
Not Charging for Extras and Variations
The customer asks you to move a radiator while you are there. Or to fit an extra isolation valve. Or to bleed the upstairs rads “while you have got your tools out.” If you do not charge for these, you are giving away your margin one favour at a time.
Slow Invoicing
If you are invoicing a week after the job is done, or worse, batching your invoices at the end of the month, you are extending the time between doing the work and getting paid. That hurts your cash flow and often leads to disputes because the customer has forgotten the detail of what was agreed.
Bad Debt
A customer who does not pay is not just a lost invoice. It is lost materials, lost time, and lost profit. Taking deposits, getting stage payments on bigger jobs, and using card payment facilities on site all reduce this risk.
How to Improve Your Margins Without Raising Prices
Raising your prices is one way to improve margins, and sometimes it is the right move. But it is not the only way. Here are six things you can do that do not involve changing a single price on your quote template.
1. Reduce material waste. Order accurately. Return unused stock. Keep track of what you are buying for each job versus what you actually use. Even 5% less waste across a year adds up to real money.
2. Negotiate better with your merchants. If you are spending £30,000+ a year with a single merchant, you have leverage. Ask for a better discount tier. Ask for free delivery. Ask for extended payment terms. The worst they can say is no.
3. Improve your quote conversion rate. A better-presented quote, with tiered pricing options, clear scope, and a professional layout, will win more work at the same price point. Going from a 30% conversion rate to 45% means 50% more jobs from the same number of enquiries.
4. Upsell service plans on every installation. A £12/month service plan across 80 customers is £11,520 a year in recurring, high-margin income. It costs you very little to deliver and it keeps customers loyal.
5. Reduce non-billable time. Time spent driving between jobs, waiting for parts, writing quotes at the kitchen table, and chasing invoices is time you are not earning. Better scheduling, stocking the van properly, using software for quoting and invoicing, and taking card payments on site all shrink that gap.
6. Review your subcontractor costs. If you are outsourcing any element of your work, make sure the cost is justified and that you are still making a margin on the labour you are paying for.
Using Xero to Track Profitability by Job Type
If you are using Xero (and if you are not, you probably should be), you already have a powerful tool for tracking your margins. Most plumbers use it to send invoices and hope the numbers add up at year end. That is using a power tool as a paperweight.
Here is what you should be doing:
Tracking categories or projects. Xero lets you tag income and expenses by category. Set up categories for each job type — boiler installs, repairs, service plans, bathrooms — and assign every transaction to the right one. Within a few months, you will have a clear picture of which work makes you money and which does not.
Running profit and loss reports by category. Once your transactions are tagged, you can pull a profit and loss report filtered by job type. That gives you your gross margin per category without any guesswork.
Comparing periods. Are your margins improving or declining? Is a particular job type becoming less profitable because material costs have gone up? You will not know unless you are comparing month to month and quarter to quarter.
The Role of Management Accounts: See Your Margins Monthly, Not Just at Year End
Here is where most trades businesses fall down. They wait until their accountant prepares the annual accounts to find out how the year went. By then, it is too late to fix anything. You are looking at history, not making decisions.
Management accounts are a monthly snapshot of how your business is performing. They show your revenue, your costs, your gross margin, your net margin, and your cash position. Every month. In time for you to actually do something about it.
Think of it like a boiler pressure gauge. You would not wait until the boiler breaks down to check the pressure. You glance at it regularly and make adjustments before there is a problem. Management accounts do the same thing for your business.
With monthly management accounts, you can spot margin problems early. If your gross margin on installations dropped from 42% to 35% last month, you want to know that now — not in nine months when your accountant does the annual figures. Maybe a supplier put their prices up and you did not adjust your quotes. Maybe you underpriced a couple of jobs. Whatever the reason, you catch it, fix it, and move on.
At Together We Count, this is exactly what we provide for our plumbing and heating clients. Not just a tax return at the end of the year, but the monthly numbers that actually help you run a more profitable business. It is the difference between driving with your eyes open and hoping you do not hit anything.
The Bottom Line
Being busy is not the same as being profitable. Turning over good money is not the same as keeping it. And hoping your margins are healthy is not the same as knowing they are.
The plumbing and heating engineers who build genuinely successful businesses are the ones who understand their numbers. They know their gross margin by job type. They track their overheads. They review their figures every month, not every year. And they make decisions based on facts, not feelings.
Start with one step. Pick your most common job type and work out the real margin. You might be pleasantly surprised. You might get a nasty shock. Either way, you will know. And knowing is where every improvement starts.
Want to understand where your profit is really going? Book a free financial review and let’s find out.