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How To Price A Construction Job

Most contractors price jobs one of two ways: they guess based on experience, or they price based on what they think the customer will accept. Both approaches lead to the same problem — you're busy all year and wondering why you're not making more money. Here's how to price jobs properly.

Start With Your Real Costs

Before you can set a price, you need to know your costs. For any job, your true cost includes:

• Direct labor — your time and any crew time, at your actual loaded rate (including taxes and insurance)
• Direct materials — everything that goes into the job, including waste and delivery
• Subcontractors — any work you hire out for this job
• Job-specific overhead — permits, equipment rental, travel, disposal

Add these up and you have your direct job cost. This is the floor — you cannot price below this and stay in business.

Calculate Your Overhead Rate

Overhead is the cost of running your business that can't be tied to a specific job: truck payments, insurance, tools and equipment, phone and software, fuel for non-job driving, advertising, accounting, and your own time on administrative tasks.

To find your overhead rate, add up all your annual overhead costs and divide by your annual billable hours (or revenue, depending on your method). If your overhead is $40,000/year and you bill 1,600 hours/year, your overhead rate is $25/hour — which needs to be added to every hour you charge.

Most contractors significantly underestimate their overhead. They account for their truck payment but forget insurance, tool replacement, phone bills, and their own admin time.

Set Your Profit Margin

After covering all costs and overhead, what's left is profit. Profit is not what you pay yourself — that's labor. Profit is what the business earns above all costs. It funds growth, covers slow periods, and builds the business long-term.

For small contractors, a 15–25% net profit margin on revenue is a healthy target. Below 10% and you have very little room for error. Above 30% is excellent and achievable in specialized trades or high-demand markets.

Pricing too low doesn't help you win more work long-term — it just makes you busier and poorer. The right price is one that covers your costs, overhead, and a real profit.

The Markup vs. Margin Confusion

These are not the same thing, and confusing them costs contractors money.

• Markup is applied to your cost: a 25% markup on a $100 job = $125 selling price
• Margin is the profit as a percentage of selling price: $25 profit on $125 = 20% margin

If you want a 25% profit margin, you need to mark up your costs by 33%, not 25%. Many contractors use markup when they mean margin and systematically underprice every job as a result.

Pricing by Job Type

Different types of jobs warrant different pricing approaches:

• Service calls — typically priced as a flat service fee plus time and materials. Minimum charges apply.
• Small residential projects — usually priced as a fixed total after detailed estimate. Customers expect a firm price.
• Large projects — can be time and materials (T&M) or fixed price. T&M protects you on complex unknowns but requires careful documentation.
• Repeat customers — consistent pricing builds trust and reduces the time spent estimating.

When to Raise Your Prices

If you're winning more than 70–75% of your estimates, you're probably priced too low. The right pricing wins 50–60% of jobs and leaves you earning more per hour on the jobs you do win. Raise your prices incrementally — 5–10% at a time — and watch what happens to your close rate and your bank account.