What is COGS for a home-service or contracting business?

COGS (cost of goods sold) in a home-service company is the sum of all direct costs to complete a job: field labor and burden (wages plus payroll taxes, workers comp, and benefits allocated to field staff), materials and parts used on the job, subcontractor costs, and any equipment cost allocated to that work. Overhead items such as management salaries, rent, software, insurance, and marketing are not included in COGS; they sit below gross profit on the income statement.

How do I calculate gross margin for a contracting business?

Gross margin = (revenue minus COGS) divided by revenue, expressed as a percentage. For example, if a plumbing company generates $120,000 in revenue in a month and incurs $72,000 in direct costs (field labor, parts, subcontractors), gross profit is $48,000 and gross margin is 40 percent. Gross margin targets vary by trade, job type, and market. Calculate it by department (service versus install) rather than only at the company level to see where margin is actually being made or lost.

What is a good labor percentage for a home-service company?

Labor percentage targets vary by trade, season, geographic market, and whether the business is service-heavy or install-heavy. There is no universal benchmark that applies to every contractor. A service-focused HVAC company in a high-demand season will have a different target than a plumbing company doing mostly install work. Work with your controller to establish a target based on your own historical data and desired gross margin, then track the trend week over week rather than comparing to an industry average that may not fit your cost structure.

What is the difference between COGS and labor percentage?

COGS is the total of all direct job costs in a period: labor, materials, subcontractors, and equipment. Labor percentage is one specific line inside COGS, calculated as total labor cost divided by revenue. They are related but not the same. COGS tells you the full direct cost story; labor percentage isolates the largest and most controllable variable within COGS. A company can have a stable COGS-to-revenue ratio while labor percentage is moving, if materials costs move in the opposite direction.

Why does my labor percentage look high even in a good revenue month?

High labor percentage during a strong revenue month usually points to one of four things: overtime hours that outpaced the job volume, callbacks or rework that added labor without adding revenue, a crew mix that used two technicians where one would have been enough, or a timing mismatch where labor costs posted in the period but some revenue from those jobs closed in the next period. Review overtime hours, callback counts, and dispatch patterns before adjusting pricing.

How do I track COGS in QuickBooks for a contracting business?

Set up a chart of accounts that separates field labor (direct labor cost account) from management and administrative payroll. Create sub-accounts for materials and parts, subcontractors, and any equipment allocations. When payroll is processed, code field technician wages to the direct labor account, not to a general salaries expense. Run a QuickBooks Profit and Loss report filtered to the COGS section to see gross profit and gross margin by month. For job-level or technician-level COGS, you typically need to cross-reference the QuickBooks cost data with job records from your CRM.

Can I see COGS and labor percentage by technician or department?

QuickBooks alone typically does not break COGS down by technician or department without a class or job-costing setup. Your CRM (ServiceTitan, Housecall Pro, or Workiz) holds job-level data including which technician did the work, the job type, and in some setups the parts used. A dashboard that consolidates both systems can calculate gross profit per technician and labor percentage by department by joining CRM job data with QuickBooks cost data. That combination is more useful for coaching than the QuickBooks P&L alone.

How often should I review COGS and labor percentage?

Labor percentage should be reviewed at least weekly, and daily for operations managers during busy periods when overtime is most likely to compound. Gross margin and the full COGS breakdown belong on the monthly financial review, but a mid-month spot check of labor hours and overtime against the revenue pipeline is valuable for catching drift before the period closes. Waiting until the books close means you are reviewing what happened, not catching what is still happening.

Financials & cash flow

COGS and labor percentage for contractors: the two numbers that explain your margin

Revenue tells you what came in. COGS and labor percentage tell you what you actually kept. This guide covers how to calculate both, what the numbers reveal, and how to use them to catch margin drift before the month closes.

By Datacube content engineAutogenerated

Formula

COGS = direct labor + materials and parts + subcontractor costs + equipment costs per job

Cost of goods sold (COGS) captures everything spent to complete a job before overhead enters the picture. For a plumbing or HVAC company, that means technician wages and burden (payroll taxes, benefits), the parts and materials on the truck, any subcontractors used on that call, and equipment wear allocated to the work. Overhead items such as management salaries, rent, insurance, and software are excluded from COGS. Gross profit = revenue minus COGS. Gross margin = gross profit divided by revenue, expressed as a percentage.

Definitions vary by accounting method. Always reconcile your COGS categories with your controller before building a reporting view.

Formula

Labor percentage = total labor cost / total revenue x 100

Labor percentage isolates the share of revenue consumed by field and install labor including burden. In most skilled-trades companies it is the single largest variable in COGS and the first number to move when something is off: overtime runs high, a job takes longer than the estimate, or crew mix is wrong for the work type. If labor percentage is running above your company target mid-month, gross margin is almost certainly compressing. Labor percentage and COGS are two views of the same cost story told at different levels of detail.

What this article covers

How to calculate COGS and gross margin in a home-service context, with the exact formula.
How labor percentage connects to COGS and why it is the fastest leading signal of a margin problem.
Which role in a contracting business owns each number and what decision it should trigger.
The data hygiene prerequisites before you can trust either metric in a reporting tool.
How to see COGS and labor percentage in real time, not just at month-end.

Why COGS and labor percentage belong on every contractor's dashboard

Most home-service companies track revenue because it is easy: jobs are billed, payments are collected, the number is obvious. COGS and labor percentage are harder to see in real time because the data lives in two places: the CRM holds the job and the revenue, and the accounting system holds the cost. When those two systems do not talk, margin is invisible until the bookkeeper closes the month.

The practical cost of that delay is real. If labor percentage climbs three points above target in week two, an owner who knows about it in week two can adjust scheduling, pull back on overtime, or review job types. An owner who finds out on the 8th of the following month is reviewing history. COGS and labor percentage are leading indicators of a margin problem, but only if you can see them before the period closes.

These two metrics also point at different parts of the cost structure. COGS is the full direct-cost picture per job or per period: labor, parts, subcontractors, equipment. Labor percentage isolates the biggest variable inside COGS, the one that moves the fastest and is most directly controllable by the operator through scheduling, dispatching, and coaching. Use both together: COGS to audit the overall margin, labor percentage to find the immediate lever.

Breaking down COGS in a field service business

COGS in a home-service company is not identical to COGS in a product-based business. You are selling labor and expertise, not manufacturing inventory. The line items that belong in COGS vary by trade and accounting approach, but the categories below cover most field service setups.

Field labor and burden

Technician and installer wages plus burden: payroll taxes (FICA, FUTA, SUTA), workers compensation, health insurance attributable to field staff, and any paid time off that is job-allocated. Burden typically adds 20 to 30 percent on top of the base wage. An HVAC technician earning $28 per hour may cost $34 to $38 per hour all-in. A company that prices labor at straight hourly rates without burden is underestimating its real labor cost per job.

Materials, parts, and inventory

Parts purchased for a specific job, materials pulled from truck inventory, and supply-house runs. For electrical, plumbing, and HVAC companies, materials cost per job can vary widely: a simple drain clear uses minimal parts; a full system install may have equipment costs that represent 30 to 50 percent of the job revenue. Accurate materials tracking requires that technicians log parts used in the CRM, not just the invoice total.

Subcontractor costs

Any outside labor used to complete a job billed under your company. Common in roofing, restoration, and general contracting, but also in electrical and plumbing for specialty work. Subcontractor cost belongs in COGS because it is a direct cost of delivering that specific job.

Equipment and vehicle allocation

Some companies allocate a portion of fleet costs and specialized equipment depreciation to COGS, treating it as a cost of doing the work rather than overhead. Others keep fleet entirely in overhead. Either approach is consistent as long as it is applied the same way every period. Shifting the treatment mid-year makes comparisons meaningless.

Who owns each margin metric in a home-service company

Metric	Who tracks it	Decision it drives	Frequency to review
COGS as % of revenue (gross margin)	Controller or owner	Is the business profitable enough to cover overhead and grow?	Weekly mid-month, monthly to close
Labor percentage	Operations manager or GM	Is scheduling and crew mix right for the job volume?	Daily or weekly; adjust before overtime compounds
Materials cost per job	Department manager or service manager	Are technicians logging parts and pricing jobs at cost-plus correctly?	Per job and per week
Gross profit per tech per day	Sales manager or service manager	Which technicians are generating profitable production?	Weekly for coaching, monthly for comp review
COGS by department (service vs. install)	Owner or GM	Which revenue lines are actually profitable, and which are subsidized?	Monthly at minimum; mid-month if one department is busy

Warning

Data visibility gap: QuickBooks alone is not enough

Most home-service companies run QuickBooks for accounting and a CRM (ServiceTitan, Housecall Pro, or Workiz) for jobs and scheduling. COGS in QuickBooks reflects what was coded to expense accounts. Labor percentage in QuickBooks depends on how payroll is categorized. Neither system, on its own, shows COGS and labor percentage per job or per technician in real time. The CRM holds the job-level data. QuickBooks holds the cost coding. Only when both are consolidated into one view can you see gross margin by job type, by department, or by tech without building a manual spreadsheet every week.

How to read labor percentage as an early warning signal

Labor percentage moves before most other margin signals. Here is why: labor costs are incurred daily, but the revenue from those hours may be spread across jobs that close over several days or weeks. When overtime runs in week one and the jobs are still open, labor cost is already in the books but the revenue has not yet posted. That timing gap makes labor percentage one of the best weekly indicators of whether the current month is on track.

The most common drivers of high labor percentage in field service

Overtime accumulation: scheduled hours exceed what the job volume supports, so technicians run overtime to close work rather than being dispatched efficiently. Callback and rework: a job that requires a second truck roll costs labor without generating additional revenue. Poor crew mix: sending two technicians when one would complete the job adds labor hours to the same revenue. Slow season with fixed labor: a company keeping its full field team through a demand trough will see labor percentage climb because revenue is down while payroll is fixed.

What to do when labor percentage is running high

First, confirm whether the overtime is job-driven or administrative: if techs are running overtime completing booked calls, the schedule may be undersupported. If overtime is in the shop or on callbacks, it points to rework or inefficiency. Second, check if a particular technician or job type is driving the number: a single high-overtime week on a large install does not mean the whole service business has a labor problem. Third, adjust dispatching before the week closes rather than after payroll posts.

COGS and labor percentage signals: good, watch, and poor

These are directional signals only. Targets vary significantly by trade, market, season, job mix, and business model. Use these as a starting point for setting your own thresholds with your controller.

Gross margin (revenue minus COGS / revenue)Compression during a growth push is worth investigating immediately
Good
Current
Stable or improving vs. prior period
Target
Consistent with your target, not just positive
Labor percentage trend week-over-weekRising labor % during a busy period is a scheduling or efficiency signal
Good
Current
Within 2 percentage points of your target
Target
Flat or declining as revenue grows
Materials cost as % of revenueParts logging gaps in the CRM often show up as unexplained materials cost increases
Watch
Current
Creeping above prior period average
Target
Consistent with job type and pricing model
COGS by department: service vs. installInstall jobs typically carry different cost structures; blending hides the department picture
Watch
Current
Install COGS significantly higher than service as % of revenue
Target
Each department tracked to its own margin target
Gross profit per tech per dayMulti-week decline usually points to overtime, callback volume, or a job-mix shift
Poor
Current
Declining over two or more consecutive weeks
Target
At or above department average

Metric	Current	Target	Status
Gross margin (revenue minus COGS / revenue)Compression during a growth push is worth investigating immediately	Stable or improving vs. prior period	Consistent with your target, not just positive	Good
Labor percentage trend week-over-weekRising labor % during a busy period is a scheduling or efficiency signal	Within 2 percentage points of your target	Flat or declining as revenue grows	Good
Materials cost as % of revenueParts logging gaps in the CRM often show up as unexplained materials cost increases	Creeping above prior period average	Consistent with job type and pricing model	Watch
COGS by department: service vs. installInstall jobs typically carry different cost structures; blending hides the department picture	Install COGS significantly higher than service as % of revenue	Each department tracked to its own margin target	Watch
Gross profit per tech per dayMulti-week decline usually points to overtime, callback volume, or a job-mix shift	Declining over two or more consecutive weeks	At or above department average	Poor

Info

Before you build this: four data hygiene checks

Before wiring COGS or labor percentage into any reporting view, confirm four things: (1) Your QuickBooks chart of accounts separates field labor from management and overhead labor, otherwise labor percentage will include non-field costs and be misleadingly high. (2) Your technicians are logging parts used per job in the CRM, not just at invoice time. Incomplete parts logging makes materials cost invisible at the job level. (3) Your payroll export is coded consistently: if some payroll runs sit in COGS and some in overhead depending on who processed it, the numbers will not tie out. (4) Your CRM and QuickBooks are measuring the same period: a mismatch in cut-off dates between systems creates phantom margin swings that are data problems, not business problems.

Tracking COGS and labor percentage in a dashboard

The challenge is not calculating these metrics: the formulas are straightforward. The challenge is getting the data into one place, current enough to act on, without rebuilding a spreadsheet every Monday morning.

For teams using QuickBooks alongside a CRM such as ServiceTitan, Housecall Pro, or Workiz, a dashboard that consolidates both sources can surface gross margin, labor percentage, and COGS as a percentage of revenue in a single Financial board, updated far more frequently than the monthly close. Datacube's Financial board is configured to pull revenue and cost data from QuickBooks, then layer on job-level CRM data for department and technician breakdowns. That means an owner can see labor percentage by department mid-week, not just as a month-end line on the income statement.

The goal is not to replace the income statement. It is to surface the signals that predict what the income statement will say, early enough to change the outcome. A labor percentage dashboard is most useful as a weekly coaching tool for operations managers and dispatchers, not as a month-end accounting report. See the financial dashboard page for a closer look at what those boards include.

COGS and labor percentage for contractors: common questions

See your margin picture before the month closes

If your COGS and labor percentage live in QuickBooks and your job data lives in your CRM, a datacube financial dashboard can bring both together in one view your controller and your operations manager can both use. Book a live demo to see what that looks like for a company at your scale.

Schedule a live demo See financial dashboard examples