The trades business glossary
Plain-English answers to the money, sales and operations questions trades business owners ask. Each entry defines the term in the first few sentences, then shows how it works with real numbers from HVAC, plumbing, roofing, electrical and other trades.
Taxes
- Home office deductionHow a contractor who works at job sites can still claim a home office: the admin-work test, the $5 per sq ft method, garages and shops, and tools.
- Contractor tax deductions listEvery common tax deduction for self-employed contractors: vehicles, tools, subs, insurance, home office, meals and more, with 2026 limits and IRS rules.
- Sales tax on labor vs. materialsDo contractors charge sales tax on labor, materials or both? The main state models, with California, Texas, New York, Washington and Florida rules.
- 1099 for subcontractorsWhen a contractor must send a subcontractor a 1099-NEC: the new $2,000 threshold for 2026 payments, who's exempt, due dates, and what to collect first.
- Per diem for construction workersHow per diem works for traveling construction crews: tax home, the one-year rule, accountable plans, FY 2027 GSA rates and what owners can claim.
- How much to set aside for taxesHow much of each payment a self-employed contractor should save for taxes, with 2026 federal examples at $50k, $90k and $150k of profit.
- Mileage deduction2026 IRS mileage rates for contractors (72.5¢, then 76¢ from July 1), standard vs. actual expenses, which trips count and what your mileage log needs.
- Quarterly estimated taxes2026 estimated tax due dates, who has to pay, the 90%/100%/110% safe harbors and how to size each payment, with a worked contractor example.
- S corp vs. LLCS corp vs. LLC for a trades business: what each one is, how the self-employment tax math works in 2026, the extra costs, and when switching starts to pay.
- W-2 vs. 1099W-2 employee or 1099 subcontractor? The IRS control test explained with real construction examples, the 2026 tax cost of each, and misclassification risks.
- Payroll taxesWhat payroll taxes a trades employer owes in 2026: Social Security, Medicare, FUTA and withholding rates, deposit schedules, Form 941 and W-2 deadlines.
- Reasonable salary (S corp)How S corp contractors set a reasonable salary: the IRS factors, how to document it, what happens if it's too low, and a worked HVAC owner example.
- W-9 for subcontractorsWhat a W-9 is, why you collect one from every subcontractor before the first check, how to read the tax box, and what happens if a sub refuses.
- What Is Bonus Depreciation?100% bonus depreciation is permanent for property acquired after Jan. 19, 2025. How it works for trucks and equipment, and how it differs from Section 179.
- What Is Depreciation?How depreciation works for contractor trucks, tools and equipment: MACRS classes, the half-year rule, a year-by-year example and when to expense instead.
- What Is Self-Employment Tax?Self-employment tax is 15.3% on 92.35% of net earnings. See the 2026 wage base, how to calculate it, the half-SE deduction and contractor examples.
- QBI deductionThe Section 199A QBI deduction explained for trades owners: the 20% rule, 2026 income thresholds, the new $400 minimum, S corp wages, and Form 8995.
- Section 179 deduction2026 Section 179 limits ($2,560,000), the 6,000-lb truck and SUV rules, business-use test and income limit, with contractor truck and equipment examples.
- Use tax for contractorsUse tax explained for trades businesses: out-of-state material orders, resale certificate misuse, tools and equipment, and how to track and report it.
Money and accounting
- Accrual vs. cash accountingCash vs. accrual accounting for contractors: how each records a job, IRS rules, the 2026 gross receipts test, long-term contracts and which to use.
- AIA billingAIA billing explained: every line of the G702 and column of the G703, a full worked pay application with retainage and stored materials, and common errors.
- Bookkeeping checklistA weekly, monthly, quarterly and year-end bookkeeping checklist for contractors: reconciliations, job costing, A/R review, WIP, estimated taxes and 1099s.
- Cash flow for contractorsWhy profitable contractors run out of cash, how to forecast 13 weeks ahead, runway math with worked examples, seasonal patterns by trade, and fixes.
- Collect unpaid invoicesA day-by-day plan for collecting unpaid invoices: reminder scripts, the 30/60/90-day escalation, late fees, lien rights, small claims and write-offs.
- Job costing in QuickBooksJob costing in QuickBooks Online: turn on Projects, set hourly cost rates, code bills and time to jobs, read project profit and avoid mistakes.
- Get paid faster12 ways contractors get paid faster: deposits, same-day invoicing, card and ACH on site, progress billing, reminder schedules, and what each is worth.
- Profit and loss statementHow to read a profit and loss statement as a contractor: each line explained, a worked P&L for a plumbing shop, ratios to check monthly, and red flags.
- Classes vs. projectsQuickBooks classes vs. projects explained for contractors: what each tracks, plan limits, how to turn them on, setups by trade and using both together.
- Chart of accountsHow a chart of accounts works for contractors: the five account types, a sample numbered list, job cost accounts, QuickBooks setup and mistakes to avoid.
- WIP reportWhat a construction WIP report is, every column explained, a four-job worked example with over and under billings, how to read it, and mistakes to avoid.
- Accounts payableAccounts payable for contractors: how A/P works with supply houses and subs, DPO formula, early-pay discount math, by-trade examples and common mistakes.
- Accounts receivableAccounts receivable explained for contractors: how A/R works, the aging report, turnover formula, worked examples by trade, and how to collect faster.
- Cost of goods soldWhat counts as cost of goods sold for a contractor, the COGS formula, a worked P&L example, COGS vs. overhead by trade, and IRS inventory rules.
- Days sales outstandingWhat days sales outstanding means for contractors, the DSO formula with worked examples, how retainage skews it, by-trade patterns and how to lower it.
- Progress billingProgress billing explained: milestone, percent-complete and schedule-of-values methods, worked examples, QuickBooks progress invoicing steps and pitfalls.
- RetainageRetainage explained for contractors and subs: how it's calculated, worked billing examples, retainage receivable and payable accounting, rules and release.
- Percentage of completionHow the percentage of completion method works for contractors: cost-to-cost formula, a two-year worked example, IRC §460 tax rules and common mistakes.
Operations and dispatch
- Estimate vs. quote vs. bidEstimate, quote, bid and proposal explained for contractors: how binding each is, when to use which, a side-by-side table, and how to word yours.
- Reduce no-showsCut wasted trips when customers aren't home: confirmation and reminder texts, shorter arrival windows, access questions and a fair no-show policy.
- How to scale a trades businessA stage-by-stage playbook for scaling a trades business: when to add a truck, the math behind each hire, lead flow, pricing, cash and the weekly scorecard.
- How to systemize a contracting businessA 90-day playbook to systemize a contracting business: the 8 core systems, an owner time audit, a sample SOP, a weekly rhythm and what to automate first.
- Change orderWhat a change order is, what it must include, how to price one with overhead and profit, and how to track change orders so extra work gets paid.
- Customer service representativeWhat a customer service representative does in a home service business, what one costs, the booking metrics that matter, and when to hire or automate.
- Punch listWhat a punch list is, when it happens, what goes on one, how retainage and final payment depend on it, and how to close punch items in days, not weeks.
- Scope of workWhat a scope of work is, the sections every contractor SOW needs, a filled-in example, and the exclusions that prevent disputes and unpaid extra work.
- Work orderWhat a work order is in the trades, what it must include, how it differs from a service ticket, invoice and purchase order, and a field checklist.
- After-hours call handlingHow to handle after-hours calls in a trades business: coverage options compared, emergency triage rules by trade, after-hours pricing, and a sample call.
- On-call rotationHow to set up an on-call rotation for HVAC, plumbing and electrical techs: schedules, on-call pay models, federal rules on paid time, and burnout fixes.
- Callback rateWhat callback rate means for contractors, how to calculate it, what each callback really costs, and how HVAC, plumbing and electrical shops bring it down.
- DispatchingWhat dispatching is in field service, how to assign the right tech to the right job, the board rules that cut drive time, and mistakes that cost you calls.
- Field service managementField service management explained for trades owners: the job lifecycle it covers, FSM vs. CRM, what software does, and how to tell when you need it.
- First-time fix rateWhat first-time fix rate means, how to calculate it, what a second trip costs, and how trades shops raise it with better intake, truck stock and dispatch.
- Inventory turnoverHow to calculate inventory turnover and days on hand for a trades business, with worked examples, how to read the result, and how to free up cash.
- Route optimizationWhat route optimization is, how to plan routes for service crews, what wasted miles really cost per truck, and when route software pays for itself.
- Truck stockWhat truck stock is, how to build a stock list from real usage, min/max restocking, what a supply-house run really costs, and truck stock tips by trade.
Pricing and profit
- Markup vs. marginMarkup divides profit by cost; margin divides it by price. Conversion formulas, a markup-to-margin table and the pricing mistake that costs contractors.
- Billable hoursA full-time tech is paid about 2,080 hours a year but bills far fewer. See where the hours go and how to set an hourly rate that covers cost and profit.
- Break-even pointBreak-even point is where revenue covers every cost. See how many jobs and how much revenue your trades business needs each month to stop losing money.
- Average ticketAverage ticket is revenue divided by jobs invoiced. Learn how to calculate it by job type, why a blended number misleads, and how trades shops raise it.
- Contribution marginContribution margin is price minus every variable cost of a job. See the formula, how it differs from gross margin, and how to use it before you discount.
- Cost plus pricingCost plus pricing bills actual job costs plus a fee. Compare percentage and fixed fees, see what counts as cost, and when cost plus beats a fixed bid.
- Flat rate pricingFlat rate pricing quotes a fixed price per task before work starts. Learn how to build flat-rate prices and a pricebook, and when it beats hourly billing.
- Good-better-best pricingGood-better-best pricing gives customers three options on one estimate. How to build tiers that differ in value, price each to a margin, and present them.
- Gross marginGross margin is the share of revenue left after direct job costs. The formula, what counts as COGS for trades, and why service and install margins differ.
- Gross profit per hourGross profit per hour shows what each labor hour earns after direct costs. See the formula, compare it to overhead per hour, and spot jobs that lose money.
- Job costingJob costing tracks what each job really cost vs. the estimate. What to track, a sample job cost report with variances, and a simple system for small crews.
- Labor burdenLabor burden is what an employee costs beyond wages: payroll taxes, workers' comp, benefits. See the formula, 2026 tax rates and a tech's true hourly cost.
- MarkupMarkup is what you add to cost to set a price. Learn the markup formula, how contractors mark up materials, equipment, subs and labor, with examples.
- Net profit marginNet profit margin is what's left of each revenue dollar after job costs and overhead. See the formula, a contractor example and how to set your target.
- OverheadWhat counts as overhead in a trades business and how to calculate your overhead rate per revenue dollar, billable hour, job and day, with a worked example.
- Technician utilizationTechnician utilization is the share of paid hours spent on customer jobs. Learn the formula, how it differs from billable efficiency, and how to raise it.
- Time and materialsTime and materials pricing bills hours at a set rate plus materials. See the T&M formula, how not-to-exceed caps work, and when T&M beats a fixed price.
Sales, leads and follow-up
- Follow up on an estimateA step-by-step estimate follow-up schedule for contractors: when to call, text and email, what to say, how long to keep going, and how to close the loop.
- Qualify leads over the phoneThe questions to ask when a new customer calls, in what order, and how to book good-fit jobs fast and turn away bad fits politely. With trade examples.
- Sell maintenance agreementsHow to sell maintenance agreements on the phone, at the door and after the job: when to offer, what techs should say, word-for-word scripts and the math.
- Maintenance agreementWhat a maintenance agreement is, what to include, how to price one so every visit makes money, and how HVAC, plumbing and electrical shops structure them.
- Membership programHow a home service membership program works, what perks to include, how to price tiers and measure churn, with examples for HVAC, plumbing and electrical.
- Booking rateBooking rate is the share of customer calls that turn into a scheduled job. See the formula, a worked HVAC example, trade differences and how to raise it.
- Call trackingCall tracking uses separate phone numbers to show which ad, listing or mailer made your phone ring. How it works, number types, recording rules, pitfalls.
- Close rateClose rate is the share of estimates you sell. Learn the count and dollar formulas, see contractor examples by trade, and what a too-high close rate means.
- Cost per leadCost per lead is marketing spend divided by leads. See the formula, why cost per booked job matters more, and how CPL behaves across trades and channels.
- Customer acquisition costCustomer acquisition cost is everything you spend to win one new customer. See the CAC formula, a roofing example, payback math and LTV to CAC by trade.
- Customer lifetime valueCustomer lifetime value is the profit a customer brings over every job they ever buy. See the CLV formula, an HVAC example, retention math and trades.
- Lead source trackingLead source tracking records where every call and form came from so you can see which marketing pays. How to set it up, what to measure and what to avoid.
- Speed to leadWhat speed to lead means, what the HBR and Lead Response Management studies actually found, and how fast a contractor should answer a new lead.
- UpsellingUpselling means offering a better option or add-on the customer actually needs. See trade examples, take-rate math, the FTC cooling-off rule, pitfalls.
AI and software
- AI estimates from photosCan AI estimate a job from photos? What photo and aerial measurement tools really do, where they fail, what they cost, and how to use them safely.
- AI for home service businessesWhich AI tools actually help home service businesses in 2026: calls, follow-up, estimates, office work. Real costs, limits and where to start.
- ChatGPT prompts for contractorsCopy-paste ChatGPT prompts for contractors: estimate emails, follow-ups, job ads, review replies, scopes of work, and a template that makes prompts work.
- AI agents for small businessWhat AI agents are, how they differ from chatbots and automations, what they can do for a small trades business, real costs, risks, and how to start.
- CRMWhat a CRM is, what it tracks for a trades business, how it differs from field service software and QuickBooks, what it costs, and how to pick one.
- AI follow-upAI follow-up explained: how automated texts and emails chase leads and estimates, sample sequences, consent rules for texting, and mistakes to avoid.
- Conversational AIConversational AI explained for small business owners: how it understands and replies, chat vs. voice, real uses in the trades, and its limits and risks.
- Two-way syncTwo-way vs. one-way sync explained for contractors: what moves between job software and QuickBooks, why duplicates happen, and what to ask vendors.
- Workflow automationWorkflow automation explained with real contractor examples: triggers, actions, what to automate first, tools and costs, and where AI fits in.
- Will AI replace receptionists?Will AI replace receptionists? BLS projections, which front-desk tasks AI already handles, which it can't, and what it means for trades office staff.
Licensing, liens and insurance
- Contractor deposit lawsHow much deposit a contractor can legally collect: California's $1,000 or 10% cap, one-third limits in Maryland and Massachusetts, New York trust rules.
- Bonding and insurance costWhat contractors pay for bonds, general liability, workers' comp and auto, with sourced benchmarks, the cost drivers and how to price it into your rates.
- Certificate of insuranceWhat a certificate of insurance is, what it does and doesn't prove, how to read one from a sub, and what licensing boards and GCs require on it.
- Contractor licenseWhat a contractor license is, when you need one, and how six states set dollar thresholds, bonds and insurance, with links to each licensing board.
- Lien waiverWhat a lien waiver is, conditional vs. unconditional and progress vs. final waivers, and which states require statutory forms, with sources.
- Mechanic's lienHow a mechanic's lien works for contractors, with notice, filing and enforcement deadlines from six state statutes and a worked example.
- Surety bondHow contractor surety bonds work: license, bid, performance and payment bonds, state bond amounts, the federal Miller Act, and what a bond costs.
- General liability insuranceWhat general liability insurance covers for contractors, what it excludes, which states require it to hold a license, and what drives the premium.
- Workers' compensationWhen contractors must carry workers' compensation, how employee thresholds differ by state, and how premiums are calculated from payroll and class rates.
Calls, AI receptionists and answering
- AI receptionist vs. answering serviceAI receptionist vs. live answering service for contractors: real 2026 prices, what each handles well, where each fails, and a simple way to choose.
- AI vs. virtual receptionistA virtual receptionist is a remote human; an AI receptionist is software. Compare 2026 prices, call quality, booking and when each fits a trades business.
- Is an AI receptionist worth it?Is an AI receptionist worth it for your trades business? A break-even formula, real 2026 prices, when it pays off, and when a human is the smarter buy.
- AI voice agentAI voice agents explained for contractors: how they hear, think and talk, what they cost per minute, where they fail, and how to test one before you buy.
- Answering serviceWhat an answering service is, how live and AI services work, what they cost per minute or per call in 2026, and how contractors should set one up.
- Call transcriptionCall transcription explained for service businesses: how speech-to-text works, accuracy limits, what it costs per minute, uses, and recording consent laws.
- IVRWhat IVR (interactive voice response) is, how a phone menu routes calls, when a small trades shop should use one, and how it compares to an AI voice agent.
Marketing and reviews
- Ask for Google reviewsHow contractors can ask every customer for a Google review: when to ask, word-for-word text and in-person scripts, and what Google and the FTC don't allow.
- Google Local Services AdsHow Google Local Services Ads work for contractors: pay-per-lead pricing, what counts as a charged lead, the Google Verified badge, ranking and setup.
- Google Business ProfileWhat a Google Business Profile is, how service-area contractors set one up and verify it, Google's rules on names and reviews, and what helps you rank.
- Local packWhat the Google local pack (map pack) is, how Google picks the businesses in it, and what trades businesses can do to show up for "near me" searches.
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