Quick definition: Revenue minus the direct cost of doing the job (labor + materials), expressed as a percentage. Does NOT subtract overhead.
Gross margin tells you how much money is left after you have paid for the labor and materials of a specific job — before any overhead or taxes.
The formula: (Revenue − labor − materials) ÷ revenue × 100.
Example: A $5,000 paint job with $1,500 labor + $1,000 materials has a $2,500 gross profit and 50% gross margin. From that $2,500, you still need to cover overhead, then anything left is true profit.
Healthy gross margins by trade: painting 35-50%, electrical 30-45%, plumbing 30-45%, landscaping 40-55%, roofing 25-35% (the spread is wide because of material cost differences).