Most contractors do not lose money because they are bad at the work. They lose it because the price was wrong before the job started: a labor hour that was never counted, overhead nobody allocated, a markup that looked fine until the material price moved. This guide collects every QuoTrak article on pricing jobs, and the formula below is the place to start.
The pricing formula
Price = direct costs + overhead + profit. Direct costs are the materials, labor and subcontractors for this job. Overhead is everything the business spends whether or not this job happens: vehicle, insurance, phone, software, your own unbillable time, usually recovered as a percentage of direct costs or an hourly amount added to labor. Profit is what is left after both, and it is not optional; it pays for the slow month, the warranty call and the growth. Work out each part separately, because a single "markup" number hides which one is wrong.
Markup is not margin
A 25% markup on costs gives a 20% margin on price. Contractors who quote a 25% markup and expect 25% in the bank are short every time. Decide the margin you need on price, then convert it to the markup you apply to costs: markup = margin ÷ (1 − margin). The free markup calculator does the conversion for you. The markup articles below walk through materials and labor separately, since they usually carry different rates.
Labor is where pricing goes wrong
Material costs are visible on the invoice from the supplier; labor is estimated, and estimates drift. Price labor from your fully loaded hourly cost (wages plus payroll taxes, insurance, benefits and paid downtime), multiply by realistic hours including setup, travel and cleanup, then add overhead and margin. Track actual hours against the estimate on each job and your next estimate gets better.
Service calls and change orders
Small jobs need a minimum charge that covers the trip and the first hour, or they are done at a loss. Change orders need a price before the extra work starts, in writing, at the same margin as the rest of the job. Both are covered in detail below.
What margin to aim for
For most small trade businesses, a net margin of 10 to 20% is healthy and under 5% leaves no room for error. Once a job is priced, the job costing guide covers how to track whether it actually earned that margin.