Many contractors and business owners have misguided ideas about profit, Michael Stone writes for Markup and Profit. Too many confuse profit with salary or hourly wages and believe profit is optional and contractors should be satisfied making a "good living." Stone defines profit and distinguishes it from salary and hourly wages, explicitly stating it should never be thought of as an owner's compensation for owning and running the company. Net profit, put simply, is used for company growth and survival. You must protect your business.
A net profit of at least 8% is necessary if a company is to survive long-term. An 8% profit assures the company that it can meet payroll every time. It provides a cushion, assuring the company that overhead expenses will be paid even if a job goes south on you, as they will from time to time.
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