How to Price a Job as a Contractor
As a home service business owner, there’s only so much you can control. Whether it’s high season or low season, things happen. Staying in control 100% of the time isn’t always possible. But when it comes to pricing out jobs, you’re in the driver’s seat.
A pricing strategy helps you control your profit margins so you can profit. Experts cited in our 2020 Home Services Trends Report told us that home service contractors should consider sophisticated pricing strategies.
So what does that mean for you? 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. Let’s dive in.
What is a job quote?
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.
The quote shows a breakdown of 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.
What’s the difference between an estimate and a cost budget estimate?
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.
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.
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.
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.
- 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.
READ MORE: Create an accurate contractor work order with our free template
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.
Do enough research on 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.
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.
A best practice is to keep overhead low and consistently check cashflow. 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.
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 price a job, step by step
Once you’ve got your process down, you can put your new pricing strategy to work in the field.
1. Understand the full scope of work
You need to understand the full scope of work ahead in order to accurately price a job. 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 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, you have to 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.
Finally, multiply the labor hours by the hourly labor cost to give you your labor cost.
3. Factor in total material costs and overhead
List all of 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.
4. Add in taxes
We can’t forget taxes when pricing jobs. Remember to include taxes in your material costs and your labor costs.
5. Estimate profit
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.
Job pricing guides for your industry
Looking for job pricing guides for your industry? Read on:
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.
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.
FREE TOOL: Try our free drywall estimate template
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. Your client can also view your quote in their Client hub portal.
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.