As a home service business owner, there’s only so much you can control. The number of jobs you get in a week, last-minute cancellations, and fluctuating demand are often out of your hands.
However, you can control how much profit you earn from every job. When it comes to pricing jobs as a contractor, you’re in the driver’s seat.
A pricing strategy helps you control your profit margins so you can profit. It’s time to say goodbye to lowballing your services. You could be leaving money on the table if you’re pricing inaccurately. But, figuring out how to price a job accurately is a learning curve.
Here’s how you can start pricing jobs accurately and for profit.
Here’s how to price jobs as a general contractor:
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: 20% is a reliable markup for an hourly labor cost. Don’t forget that this number can fluctuate if you offer sick leave, 401k, or benefits.
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 guides for your industry
Looking for job pricing guides for your industry? Read on:
Job pricing best practices
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
Get smart with your labor costs––they can cost you around 30% of your revenue.
- 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 how many employees are involved, the time it takes you to get to the job site, and the time it takes you to travel in between jobs.
This all should be factored in when you’re pricing out a job.
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.
It’s useful to know what your competition is charging, be cautious of getting too wrapped up in what they’re doing.
David Kenney of BroLaws Construction says: “to me, it doesn’t matter what others are charging. We know our bottom line and what goals we have, 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 your margins are healthy 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 professionally send a 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.
Or make quoting even easier by trying quoting software for home service professionals.
2. List pricing information for the service
Along with your company name and contact information, every quote should include pricing information for the service you’re providing.
List out each product and service in your quote, along with the prices. Those line items should let customers understand what you are providing and what they are paying for.
3. Email or text the quote to your client
Contactless transactions make customer service a breeze. Email or text the quote to your client or prospect so they can easily view, review, and approve your quote so you can win jobs faster.
We suggest emailing or texting quotes — it’s the most professional-looking option and it allows you to easily send a PDF.
Your prospect might be more likely to check and respond faster via text. It also helps you prevent quotes from getting lost in the mail or forgotten in a mailbox.
If you go that route, keep the email copy simple and friendly. Make the subject line clear and ensure your message is concise.
Pro Tip: Jobber’s quoting software automates this part of the process. Create your quote in the app, and Jobber will automatically send your client a branded link to view the quote and either approve it or request changes online.
4. Follow-up with clients who don’t respond within a set period of time
Your quote follow-up is what closes the deal with a client or prospect, so it’s important that you remember to do it properly.
Like you, your prospects are busy folks. Sometimes they forget to approve the quote you sent them last week and they might need a reminder, even if the quote has expired.
If you’re using Jobber, quote follow-ups are 100% automated. If a client or prospect hasn’t responded to a quote, Jobber will automatically email or text them a friendly reminder after a set amount of time.
If you don’t have a service business software to automate your follow-ups, you can set reminders in your calendar. Since this approach isn’t automated, be sure to add this to your quote checklist so you never forget it.
Originally published in April 2020. Last updated on July 23, 2024.
Frequently Asked Questions
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A quote is an agreement between you as the service provider (or your employees or subcontractors), and your customer. It outlines a service you will provide, at an agreed-upon price, within a specific timeframe.
Quoting jobs as a contractor allows you to break down the individual charges that are added together to create the total cost of a job. A good quote also factors in your cost estimate and cost budget as well as your markup.
This agreement can’t change once it’s been set unless both parties agree on a change in writing through a change order or contract amendment.
Having a quote is the first step to pricing out a job successfully. You can do all the technical steps for pricing right, but if you can communicate that clearly to your client, you’ll miss out on putting your pricing into action.
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Creating a comprehensive, accurate job quote involves understanding several key components. Here are the essentials that should be factored into every job quote:
– Labor costs, including hourly wages, taxes, and workers compensation.
– Material costs, including the cost of each item, markup, and an additional amount to account for potential waste or overages.
– Overhead costs, which can include office expenses, administrative costs, marketing and advertising, and insurance and licenses.
– Profit margin, which is the amount you add to the cost of the job to ensure your business makes a profit.
– Contingency, which is the additional amount you set aside to cover unexpected costs that may come up during the project. -
A cost estimate is an approximate total cost for what it will take to complete a project.
A cost budget is a budget for a job. It’s the limit you project and set to spend on a job after you have estimated costs.