Pricing review
Five reasons reasonable contractor quotes lose money
A quote can look profitable and still produce a weak result. The problem is usually a missing cost, an unpriced change or a decision that was never compared with the finished job.
1. Labor uses wages instead of full cost
Hourly pay does not include every employer cost, and estimated job hours may omit setup, travel, purchasing or cleanup. Use burdened labor cost and review actual hours after close.
2. Overhead is treated as profit
The amount above direct labor and materials must also cover vehicles, office expense, software, insurance and other operating costs. Allocate overhead consistently before calculating profit.
3. The discount has no floor
A five or ten percent discount comes directly from the selling price, but most job cost remains unchanged. Because profit is the smaller residual, a modest discount can remove a large share of expected profit. Calculate the minimum quote at your floor margin before negotiating.
4. Extra work starts before price and approval
Small additions are easy to remember as work and easy to forget as invoices. Give each change a row, estimate its cost, set the added price, record approval and track whether it has been billed.
5. Quoted results are never compared with actual results
Without a quote-to-actual log, the same estimating error can repeat. Record actual revenue, actual cost, profit, margin and the variance from the quote. Review similar jobs together and change the assumptions that repeatedly miss.
A quick pre-quote check
- Labor hours include ordinary non-production time for the job.
- Labor cost includes the chosen burden.
- Materials include normal waste or a visible buffer.
- Outside cost, overhead and contingency are included.
- The discounted quote remains above the minimum margin.
- The combined labor and material overrun remains acceptable.