The conversation we have constantly
An owner messages us: "my gross margin is 14%. The industry says 24%. What am I doing wrong?" The conversation follows a pattern. We ask how they are calculating gross margin. They say they subtract "labor and materials" from revenue. We ask whether labor includes payroll taxes and workers' comp. Silence. We ask whether materials include shop supplies and disposables. Silence. We ask whether the truck is in gross margin or below the line. Silence.
The margin is almost never 14%. It is usually 22–26%, distributed weirdly across line items that were never properly categorized.
The five common miscategorizations
- Payroll burden not in labor. If your labor line is just W-2 wages, you are missing 18–22% in employer-side payroll tax, workers' comp, and benefits. That is real cost of goods.
- Truck expenses classified as "overhead." Trucks are 100% cost-of-service in a mobile business. Fuel, maintenance, truck insurance, depreciation — all COGS. Move them above the line.
- Small tools and disposables in "supplies." Blades, trimmer line, spark plugs, safety glasses, garbage bags — consumed in the act of service delivery. They belong in cost-of-service, not in generic office supplies.
- Equipment depreciation hidden. Your mowers depreciate whether you book it or not. If you do not put a depreciation charge into monthly COGS, you will think margin is fine right up until the replacement year hits your cash flow like a truck.
- Subcontractor labor below the line. If you use a seasonal sub on commercial jobs, that is COGS. It is labor for a specific revenue-producing engagement.
What actually happens when shops recategorize
We have walked dozens of Servicio shops through a proper gross-margin rebuild. The pattern is consistent:
- Original reported gross margin: 14–19%
- Original reported overhead: 32–38%
- Rebuilt gross margin after proper categorization: 22–28%
- Rebuilt overhead: 18–22%
The total bottom-line does not change. The shape of the P&L does. And the shape matters because every operational decision is made off the shape. A shop that thinks its margin is 16% will chase volume to fix margin (wrong answer — volume amplifies the error). A shop that knows its margin is 25% and its overhead is too high will cut overhead or restructure fixed costs (right answer).
The Servicio reports
The gross-margin-per-visit report shipped in Session 9 does this calculation correctly: labor at fully-burdened hourly rate × visit minutes, minus materials logged per visit, subtracted from visit revenue. It categorizes truck cost as per-visit drive-time share, not as overhead. The number that comes out is a real gross margin, not a rough estimate.
Your margin is not wrong. Your categorization is wrong. Fix the categorization and you fix the strategy.
The one move for this week
Tomorrow, pull your 2025 P&L. Move trucks, burden, disposables, and subcontractor labor above the line into COGS. Rerun the margin calc. Tell us what came out. In most cases the number is 8–12 points higher than you were reporting, and the rest of your strategy needs to recalibrate accordingly.