Profit & Pay

Gross profit, net profit, and owner’s pay.

Three numbers contractors confuse. Mixing them up is how an owner thinks they had a great year and still ends up broke.

The four lines

Revenue is not profit. Profit is not pay.

01
Revenue
What you charged. Top of the page. Ego number. Tells you nothing about whether the business works.
02
Gross profit
Revenue minus direct cost of jobs: crew, materials, equipment time, sub fees. Healthy trades land between 35% and 50%.
03
Operating profit
Gross profit minus overhead: office, software, vehicles, marketing, and your salary if you pay yourself one.
04
Net profit
Operating profit minus taxes and interest. The number that actually belongs to the business.

Sample P&L

A $1M tree service, line by line.

Revenue $1,000,000. Cost of crew, materials, and equipment: $550,000. Gross profit lands at $450,000, or 45%. Overhead of $300,000 (which includes an $80,000 owner salary) leaves operating profit of $150,000, or 15%. Taxes of $35,000 leave net profit of $115,000, or 11.5%.

Owner takeout that year: $80,000 W2 salary plus $50,000 in distributions equals $130,000 in cash. Another $65,000 stayed in the business as retained earnings. Real compensation: $195,000.

The confusion

“I made $200k last year.” Pointing at what, exactly?

Most owners answer with their distributions. That is not what they made. The W2 salary, the distribution, and the retained earnings are all yours. Add them together, then say the number.

The bigger problem: owners who skip paying themselves a salary entirely. The P&L looks great, the business looks healthy, and they wonder why they cannot fund a quarterly tax payment without dipping into operating cash.

Pay yourself a salary first. The business should be profitable WITH you on payroll, not just because you forgot to pay yourself.

The bottom line

You can’t fix what you can’t name correctly.

Learn the four lines. Run them every month. Then the conversation about whether the business actually works gets honest.