Pricing guide
How to price a small contractor job
A useful quote begins with the full cost of the job, then adds the margin the business needs. Starting from a competitor's price or a round number hides the assumptions that decide whether the job makes money.
True job cost = labor + materials + outside costs + contingency + overhead
Selling price = true job cost ÷ (1 - target margin)
1. Calculate labor cost, not just wages
Begin with the hours the job should take and the business's cost per labor hour. If the worker earns $25 per hour, the job does not necessarily cost $25 per labor hour. Payroll taxes, workers' compensation, paid time off and other employer costs may increase the real cost. Use a labor burden percentage that reflects your records.
For example, 16 hours at a $28 hourly cost with a 15% burden produces $515.20 of labor cost. If you use only $448, the quote starts with a hidden $67.20 shortfall.
2. Price materials with ordinary waste and movement
Use the expected purchase cost of materials, then add a reasonable buffer for waste, damage or near-term price movement. Keep that buffer visible. A separate percentage is easier to review than quietly inflating each material line.
3. Include outside cost and job overhead
Add equipment rental, permits and subcontractors that belong to the job. Then allocate an appropriate share of operating overhead such as vehicles, office expense, estimating software and insurance. Overhead is not profit. It is a cost the business must recover before profit exists.
4. Add contingency before profit
Contingency covers ordinary estimating uncertainty. It should not replace careful estimating or become an invisible slush amount. Applying it to direct cost keeps the assumption reviewable.
5. Convert cost to a price using margin
If true job cost is $1,580.72 and the target profit margin is 30%, divide cost by 0.70. The target price is $2,258.17. Multiplying cost by 1.30 would produce only a 23.1% margin because markup and margin use different denominators.
6. Stress-test the result
Review at least three downside cases: labor hours 10% over, materials 15% over and both together. If the combined case falls below the minimum margin, raise the quote, reduce scope or improve the estimate before making the commitment.
This article is general information. Confirm taxes, permits, insurance, contract terms and local requirements for your business.