How to Price a Job as a Contractor

How to choose a contractor pricing model

Before you plug numbers into a formula, you need to pick the right pricing model for the job. Here are the three most common approaches.

1. Time and materials (T&M) means you bill clients for actual hours worked plus the cost of materials. It works well for jobs where the scope is hard to predict upfront, like repairs or troubleshooting.
2. Fixed price (flat rate) means you quote one total price before work begins. Clients like the predictability, and it rewards you for working efficiently. It’s a strong fit for routine jobs where you know exactly what’s involved, like a standard furnace tune-up or lawn treatment.
3. Cost-plus means you calculate your total costs (labor, materials, overhead), then add a markup percentage on top. It protects your margins even when material prices fluctuate, and it’s the most transparent way to make sure every job stays profitable.

Most contractors don’t stick to just one model. You might use a flat rate for recurring maintenance and T&M for emergency calls. The formula in the next section uses a cost-plus approach, which gives you a reliable starting point for pricing any job.

Job pricing formula

To accurately price a job, you can use a formula that incorporates all the components we just covered above:

Total job cost = Labor costs + material costs + overhead + profit margin + contingency

The following sections will break down the steps with examples for each.

1. Understand the full scope of work

You need to understand the full scope of work ahead to know how to price a job as a general contractor accurately. Consider:

• The job location. Is it in a remote location, or is it close to home?
• The job site size. Remember to measure everything that is relevant to the job.
• Check for any existing damage, safety hazards, or accessibility issues. Do a thorough walkaround, take photos, and attach them to your client’s profile in your contracting CRM.
• Consider time constraints. A tight timeframe means you can charge more for the service.
• Factor in the services you’re providing. Consider whether the services you’re providing are standard or specialized.
• Take special requests into consideration. You need to know ahead of time if your client wants something specialized that might require a subcontractor’s expertise.
• Take account of materials. Make a list of the materials you need to complete the job in the quote. Don’t forget to include markup and overhead.
• Estimate how long it will take you to complete the job. Time equals labor, and labor equals cost. Try to be as precise as possible with this estimation.

2. Estimate your labor cost

To work out your labor cost, multiply the number of hours needed to complete the job by your hourly rate.

First, multiply the time spent on a job by the number of people needed on the job. That will give you your labor hours.

Next, calculate your hourly labor cost. That includes your employee’s wages, extra for taxes, worker’s compensation, and any other employee-related expenses. Add a percentage for this amount and keep in mind it varies from business to business.

Pro Tip: A common starting point is 15%–25% on top of base wages to cover payroll taxes, workers’ comp, and benefits—but your actual number depends on the benefits you offer and your state’s tax rates.

Labor cost = (Hourly wage + taxes and benefits) x total labor hours

If your hourly wage is $35, taxes and benefits are $10, and the job requires 40 hours of labor, then:

Labor cost = ($35 + $10) x 40 = $1,800

3. Factor in total material costs and overhead

List all the materials you need for the job (remember, you did this in step one), attach a cost to each, add on the markup, and calculate the grand total. That will give you your material costs.

Next, calculate your overhead costs for a specific time frame (this can be weekly, monthly, or quarterly).

This includes office rent, office supplies, advertising, legal fees, phone and internet bills, utilities, insurance, accountant, and any field service business management platforms like Jobber.

Here’s how you can calculate your overhead fees:

• Add up your overhead fees during a specific period of time.
• Determine the number of labor hours worked for that period of time.
• Divide overhead costs into hours worked to get your hourly overhead cost.
• Multiply your hourly overhead cost by the number of hours you or your employees worked on the job.

This is the sum of all material costs, including markup and waste allowance.

If materials cost $300, and you add a 15% markup and 5% waste allowance, then:

Material cost = $300 x (1 + 0.15 + 0.05) = $360

And if your monthly overhead costs are $2,000, you work 300 hours in a month, and the job requires 40 hours, then:

Overhead cost = ($2,000 / 300) x 40 = $266

4. Estimate profit margin

Your margin is your net sales revenue minus labor, material, and overhead costs. The higher your margin, the more money your business retains. This is usually expressed as a percentage.

If you’re not happy with the profit outcome of the job you’re pricing out, consider changing some numbers in your quote, your markup percentage, or your profit margin percentage, and do the math again.

If your combined labor, material, and overhead costs are $2,426 and you want a 15% profit margin, then:

Profit margin = $2,426 x 0.15 = $363

5. Include a contingency

Unforeseen expenses can pop up when you have unexpected delays, need additional materials, or the weather isn’t cooperating.

A contingency helps you manage the risk of unexpected costs so you don’t lose your profit margin. It also demonstrates to customers that you’ve planned for potential issues, which can build trust.

If your combined costs and profit margin are $2,789 and you add a 10% contingency:

Contingency = $2,789 x 0.10 = $278

6. Put it all together

Add all these components together to get the total job cost:

Total job cost = Labor costs + material costs + overhead + profit margin + contingency

Plug in the numbers, and this is what you get:

Total job cost = $1,800 + $360 + $266 + $363 + $278 = $3,067

Job pricing best practices for contractors

A one size fits all solution sounds ideal, but it isn’t an option if you want to price your jobs accurately. That’s why setting pricing guidelines can help you achieve your profit margin dreams.

As you build your job pricing strategy, use these best practices to help guide your process.

1. Focus on labor

Labor is often the largest operating expense for contractors, typically accounting for 25% to 40% of revenue, depending on the trade and business model. In construction, labor generally represents 20% to 40% of total project costs, with labor-intensive trades and field service businesses often falling at the higher end of that range.

• Record the time it takes to complete a job and document it. You can do this manually, or by using a time tracking software like Jobber.
• Take note of the number of employees involved, the time it takes you to get to the job site, and the time it takes you to travel between jobs.

This all should be factored in when you’re pricing out a job.

READ MORE: Top 7 construction employee scheduling software

2. Double-check your math

Avoid making decisions based on assumptions when you could do the math instead.

When calculating your labor cost, overhead, and materials, always double-check your numbers.

Mistakes happen, and this is a good place to catch them before they negatively impact your pricing.

3. Research your competition

Understanding your market is key to understanding why you might be missing out on jobs.

While it’s useful to know what your competition is charging, avoid getting too wrapped up in their activities.

David Kenney of BroLaws Construction says, “To me, it doesn’t matter what others are charging. We know our bottom line and our goals, and our prices reflect that. Stop paying attention to what others are doing and focus on your own goals.”

Competitors can give you a benchmark for your pricing. But remember that your business is unique. Just because a competitor is charging a certain price, it doesn’t mean you have to match that price or undercut your services.

4. Consider your margins

Increasing profit margins is crucial for your small business’ success.

It’s even more important that you know what those numbers are. Based on your cost and price, you can figure out how profitable you are by calculating your profit margins.

One best practice is to keep overhead low and consistently check cash flow. This will help you ensure healthy margins and that you’re working towards your goals.

You can easily do this with our profit margin calculator tool for simple pricing, cost budgeting, and markup calculations.

5. Reassess your pricing strategy

Establishing a pricing strategy helps you become more efficient. It also helps your profit margins.

Remember to reassess and optimize your pricing strategy often by taking notes and wrapping up fiscal quarters with reports.

Factors like competition, changing wage expectations, and the economy can have a huge impact on your bottom line. You’ll have to make necessary adjustments to your strategy.

FREE TOOL: Try our free contractor receipt template

How to send a professional job quote to clients

Now that you have a price, it’s time to write your professional quote and send it to your clients and prospects.

READ MORE: Learn how quotes can help you impress prospective clients and win more jobs

1. Write the quote using a service quote template

The most efficient way to write a professional-looking quote is to use our free contractor estimate template.