The Subcontractor Model: How Paying 47% Still Leaves a Better Margin

Someone sees 47% and mentally compares it to a services business where labour is 30% of revenue. That looks like a 17-point disadvantage.

It is not a like-for-like comparison, because the two numbers contain different things.

Once you add the second column of the employee model, the gap narrows considerably. And the last line changes the risk profile of the business entirely.

Look again at the bottom row.

In an employee model, a slow month is expensive. You are paying people to be available. Your costs are fixed and your revenue is not, which is exactly the shape of business that fails in a downturn.

In a contractor model, your largest cost moves with your revenue. A slow month is a slow month. That is not a small operational difference — it is the difference between a business that can absorb a bad quarter and one that cannot. Why that matters for recession resilience.

The 47% that goes to the franchise owner is not profit. It is what everything else comes out of:

• Royalty, marketing fund and technology fees
• Local marketing, which is the larger share of total marketing spend
• Customer service and dispatch staff
• A modest office
• The owner’s vehicle
• Insurance
• Software and administration beyond the technology fee

What is left is the owner’s return. Published net margins in this category typically run 10% to 35%, and the spread is driven mainly by how well the office is run. The full breakdown from revenue to take-home.

A reasonable question: why would a skilled tradesperson take 47% rather than 100% working independently?

Because 100% of a job they have to find themselves is worth less than 47% of a job that arrives.

Think about what an independent contractor’s week actually contains. Marketing. A website. Reviews. Answering enquiries. Writing estimates. Following up on estimates. Scheduling. Invoicing. Chasing payment. Insurance administration. Bookkeeping. Then, somewhere in there, the work they are actually good at and actually enjoy.

Our model removes the first list entirely. As one of our owners puts it, these are people who love getting out there, using their tools and building things — and who do not like doing paperwork, emailing estimates, following up with customers or collecting payments.

Add a steady pipeline, and 47% of a full calendar comfortably beats a larger share of a half-empty one. Where that workforce actually comes from is a separate and more interesting story.

This needs saying plainly, because getting it wrong is expensive.

Canada Revenue Agency applies a substantive test to whether someone is genuinely an independent contractor or an employee in all but name. The factors generally considered include:

Control. Does the worker decide how the work gets done, and can they refuse work?

Tools and equipment. Who provides them?

Subcontracting. Can the worker hire a helper or delegate?

Financial risk. Does the worker bear costs and risk a loss?

Opportunity for profit. Can they increase their return through their own efficiency?

Integration. Is the worker operating their own business, or functioning as part of yours?

A genuine contractor relationship satisfies these. One constructed to avoid payroll obligations does not, and the consequences fall on the business.

This is not an area to improvise in. Any franchisor you are considering should be able to explain exactly how their model is structured and why. Ask the question, and take the answer to your own accountant.

Honesty requires noting what the model costs you.

You cannot direct an independent contractor the way you direct an employee. You cannot simply schedule them. Retention is not a matter of employment terms — it is a matter of whether the work is steady and the treatment is fair.

That makes recruitment and relationship management a permanent part of the job rather than a startup task. Owners who thrive here are the ones who understand they are running a network, not a crew.

It also means quality control works differently. You are managing through selection, standards and consequences rather than direct supervision — which is why background checks on every craftsman and a real warranty matter as much as they do.

Forty-seven percent buys skilled labour with no payroll, no benefits, no idle time, no vehicles, no tools and no fixed obligation when work is slow.

The right way to compare it to a payroll model is not percentage against percentage. It is total cost of getting the work done, plus what happens to that cost when revenue falls 30%.

On both measures, the contractor model does well. The full cost structure of the business shows where it sits alongside everything else.