Where the margin actually lives: labor vs materials
Across 2.2M+ contractor quote line items, labor carries a 47.7% gross margin, nearly double the 23.6% on subcontracted work. Most contractors price every line the same way and never see that their revenue mix is quietly setting their blended margin.
Gross margin by cost type
| Cost type | Gross margin | Note |
|---|---|---|
| Labor | 47.7% | The profit driver, service and maintenance labor |
| Materials / Parts | 29-34% | Standard markup on supplier cost |
| Equipment | 25.5% | Lower margin, higher ticket |
| Subcontractor | 23.6% | Thin, mostly pass-through |
Source: The Level Index, 2.2M+ quote line items. Aggregated and anonymized. Also in the machine-readable JSON.
The mix is the lever
The single most useful thing this data tells you: two contractors with identical revenue can run very different gross margins purely on cost mix. A shop that is 60% labor blends far higher than one that is 40% equipment and 30% subcontractor, before either changes a single price. When you quote, you are not just setting a number, you are choosing a margin profile.
The practical move is to price labor for its real value (it earns it), stop treating subcontractor pass-through as if it were profit, and grow the service and maintenance lines that are labor-weighted. That is also why the service-agreement book matters so much: it is labor-weighted, recurring, and pulls through the high-margin repair work, which is where the real margin sits.
Frequently asked questions
Where am I actually making money, labor or materials?
Labor, and it is not close. Across 2.2M+ contractor quote line items, labor lines carry the highest gross margin at about 47.7%, materials run around 30%, equipment 25.5%, and subcontracted work 23.6%. If your revenue is heavy on equipment sales or subcontractor pass-through, your blended margin is being dragged down by design, not by bad luck. The fix is shifting mix toward service and maintenance labor.
Why is labor higher margin than materials for contractors?
Materials and equipment carry a supplier cost you mark up, and subcontracted work is mostly pass-through, so competitive pressure holds those margins near 25-34%. Labor margin reflects the spread between your billed rate and your fully burdened labor cost, which you control through pricing, utilization, and productivity. That is why the same job priced with more in-house labor and less pass-through earns more.
How does revenue mix change my blended margin?
Take two contractors at the same revenue. One is 60% labor, 30% materials, 10% subcontractor; the other is 30% labor, 40% equipment, 30% subcontractor. Applying the benchmark margins (labor 47.7%, materials 30%, equipment 25.5%, subcontractor 23.6%), the labor-heavy shop blends to a materially higher gross margin on identical top-line revenue. Managing mix is a pricing lever most contractors never pull.
How is quote-line margin measured?
Level analyzed 2.2M+ line items across contractor quotes, grouping each line by cost type (labor, materials, equipment, subcontractor) and computing gross margin per group. These are aggregate, anonymized figures from Level's contractor benchmark research; no individual company is identified.
From clients
What contractors say after working with us.
“Our field software swore every job was running around 30% margin and I never really believed it. Once someone actually loaded in the gas, the parts, the overhead that never made it onto the job, the real number was more like 18. I'd been making pricing calls off a report that was just wrong.”
“We were bidding a ton of subcontractor-heavy work and wondering why revenue was up but the bank account wasn't. Turned out sub pass-through was basically break-even and it was dragging our whole blended margin down. Started pricing our own labor into more of the scope instead of subbing it out. Same top line, way more profit.”
“Every line on our quotes got the same markup. Nobody had ever told me labor and materials aren't the same margin animal, labor was carrying way more, not even close. We repriced labor closer to what it's actually worth and stopped treating materials like the profit center. Best change we made all year.”
Analysis by Sam Yang, Founder, Level. Compiled from Level's proprietary contractor benchmark research.
Source: The Level Index, Contractor Quote-Line Margin Benchmarks, 2.2M+ quote line items. US contractors. Data vintage 2022 to 2026, last updated Q3 2026. Aggregated and anonymized.
Suggested citation: "The Level Index, Contractor Quote-Line Margin Benchmarks, Level (levelcfo.com), 2026." Method: see the benchmark methodology.
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