How Much Should a Contractor Owner Pay Themselves? The Data by Revenue

What is the standard rule for contractor owner compensation?

There are three rules floating around the industry, and they give you different answers depending on your revenue stage.

Rule 1: 5% of total revenue. Service Nation Alliance teaches this to its members, as documented by Contracting Business. Want to earn $120,000? You need a $2.4 million company.

Want $1 million in annual owner pay? You need $20 million in revenue. Simple math, but it assumes you're running a mature, efficiently staffed operation with overhead well under control.

Rule 2: 8% - 10% of revenue based on years in business. Michael Stone, author of Markup & Profit Revisited and 60+ years in construction, breaks it down this way: under five years in business, take 8% of total sales. Five or more years, raise it to 10%.

A $350,000 operation in year two should be paying you $28,000. That same $350,000 shop in year seven should pay you $35,000 plus wages if you're still swinging tools.

Rule 3: Up to 50% of net profit after taxes. Contracting Business documents this as a parallel rule of thumb. If your company nets 10% after tax on $2.4M in revenue, that's $240,000 net - and 50% of that is your $120,000. Same destination, different road.

How does owner pay scale with revenue?

The raw survey data is nearly useless on its own. ServiceTitan's blog cites a ZipRecruiter average of $242,000 for HVAC business owners, while the stated range runs from $47,006 to $432,065.

That range blends a solo operator running one truck with someone managing a $15M enterprise. Completely different businesses.

Here's a more useful table built from Profitability Partners' P&L reviews, Michael Stone's Markup & Profit framework, Service Nation Alliance benchmarks, and Contracting Business data:

As revenue grows, your comp as a percentage of revenue shrinks - but the absolute dollars go up sharply if you're running the business correctly.

What do real contractor owners actually pay themselves?

One painting contractor on ContractorTalk.com laid out his numbers publicly. Year one: $40K base salary plus sales commission and field work, total of $86K, with the company netting $30K on top of that. Year two: raised his base to $46K, added a $6K bonus from company profits, landed at $98K total.

His advice was simple: know your numbers, raise your salary incrementally as the company earns more.

A plumbing contractor on PlumbingZone.com described his S-Corp structure this way: he wanted to net $93,600 per year ($45/hr equivalent), so he set his W-2 salary at $25/hr and took the rest as distributions. That's not just a compensation strategy - it's a tax strategy. S-Corp distributions avoid the 15.3% self-employment tax that hits W-2 income.

If you're not structuring your pay this way and your accountant hasn't brought it up, that's a conversation worth having this week.

Another ContractorTalk contributor ran a multi-crew operation and kept it simple: $6,000 per month minimum personal draw, structured as a fixed overhead expense, with quarterly reviews to pay bonuses or reinvest. That floor approach forces the business to be profitable enough to cover the owner before profits get counted.

The owners who treat their own salary as a discretionary line item - something they adjust when cash is tight - are the ones who never actually scale past survival mode. Your salary is overhead. Price it into your jobs accordingly.

If you're still figuring out how to price your jobs to support a real owner salary, how to price home service work covers the mechanics of building overhead into your numbers from the estimate stage.

What is the Profit First target for contractor owner pay?

The Profit First framework, applied to home service contractors by Grow With Clover based on Mike Michalowicz's system, sets a target allocation of 25% of revenue as owner pay. Most contractors running at $800K per year are somewhere around 8% owner pay, 5% taxes, and essentially zero profit. The target breakdown is: 12% profit, 25% owner pay, 20% tax, 43% operating expenses.

Getting from 8% to 25% doesn't happen overnight. The method is quarterly increments - small shifts that force the business to become more efficient to survive the tighter operating budget.

Tightening your operating expenses usually means looking hard at contractor accounting software to stop flying blind, and at how to automate your contractor business to cut labor overhead without cutting output.

Does underpaying yourself hurt you when you sell?

Yes, and this is the one that catches owners completely off guard. Matthew Mooney of Profitability Partners, who reviewed 200+ trade company acquisitions at Apex Service Partners, puts it directly: if you've been paying yourself $80,000 to run a $7M HVAC company and a PE buyer comes in, they know a professional general manager costs $150,000 to $200,000.

That means your EBITDA is overstated by $70,000 to $120,000 of below-market compensation. The buyer adjusts for it in their valuation, and your multiple shrinks.

Most trade companies sell at 2 - 4x EBITDA. An $80K understatement at a 3x multiple costs you $240,000 off your exit check. If you're thinking about a sale in the next few years, the contractor exit strategy guide is required reading, and so is how to sell an HVAC company if you're in that trade.

What margins do you need to actually afford a real salary?

You can't pay yourself 10% of revenue if the business is barely netting 4%. Breakthrough Academy, which works with over 1,500 contractors, reports that the average contractor runs a net profit margin between -2% and 4%. Target net margins of 8% - 15% are recommended for most trades, with specialty and emergency services reaching 15% - 25%.

Gross margins tell a different story. ServiceTitan data shows general contractors averaging 15% - 20% gross margin and residential contractors running 18% - 25%. A healthy gross margin for trade contractors falls between 25% - 45% depending on your trade.

HVAC and GC work tends to run 20% - 30% due to material and sub costs. Painting and cleaning can hit 35% - 55% because material intensity is low.

If your gross margins are too thin to support owner pay, the fix usually starts with how you're estimating and collecting. Best invoicing software for contractors and contractor payment processing are two places to stop leaving money on the table after the job is done.

Once the cash is flowing better, tracking your KPIs monthly is what keeps you honest. Home service KPIs to track gives you the specific numbers to watch so you're not finding out in December that January's owner draw is in jeopardy.

What is a reasonable W-2 salary vs. distributions for an S-Corp contractor?

The IRS requires S-Corp owners to pay themselves a reasonable salary - meaning what you'd pay someone else to do your job. For a $5M trade company, that's typically $100,000 to $150,000 W-2, according to Profitability Partners. Paying yourself $40,000 in salary and $250,000 in distributions on a $5M company is a red flag to the IRS and an audit waiting to happen.

A common structure for a profitable HVAC or plumbing company: 40% - 50% of total comp as salary, 30% - 40% as distributions, 10% - 20% retained in the business. The distributions avoid self-employment tax. The retained earnings fund growth - equipment, vehicles, hiring.

If you're scaling and hiring, how to hire technicians for home services walks through what that investment actually costs. For a growing shop, keeping overhead tight means your dispatching and scheduling aren't bleeding hours - best dispatching software for contractors is worth a look if your ops team is still doing it manually.

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