How to Price a Job as a Contractor So You Actually Make Money

Most contractors price a job the same way: add up the materials, guess at the labor, put a number on top that feels fair, and send the quote. If you want to learn how to price a job as a contractor and have the profit be real, start by accepting that the dollars left over at the end of a job are not profit. That number still has bills to pay: the shop, the trucks, the insurance, your own paycheck, and the tax on whatever survives. Below is the pricing formula from our Behind the Books episode: margin vs markup, real overhead, and the markup that hits your target.

The $1,600 "profit" that was really $11 an hour

Here is the story that opens the episode. A contractor priced a bathroom renovation at $18,500. Materials, labor, a little cushion; it felt right. The job wrapped after 3 weeks, costs came in at $16,900, and he said, "We made $1,600."

Run that out: $1,600 for 3 weeks of an owner's time is about $11 an hour, less than the kid running the register at the gas station.

And that $1,600 had not paid a single overhead bill yet. It still owed shop rent, insurance, vehicle payment, fuel, phones, software, the bookkeeper, and the owner's own pay. It owed depreciation: the $60,000 truck is wearing out 1 job at a time, about $12,000 a year over 5 years. And the IRS takes a slice of whatever survives.

$1,600 on $18,500 is roughly an 8% margin, and as you will see below, this business needed 30%. The job was priced at a loss before the first tile came off the wall. Jobs like this are why the bank balance swings between deposits; our Cash Flow 101 guide covers that side.

Markup vs margin: they are not the same number

Margin is the percent of revenue you keep after paying for the work. If you invoice $20,000 on a job that cost $14,000 to do, you kept $6,000, and $6,000 divided by $20,000 is 30%: a 30% gross margin.

Markup is the percent you add on top of cost to set the price. It is a different calculation, and mixing the 2 up is an expensive mistake.

Now the trap. Take a $10,000 job cost and mark it up 30%. You charge $13,000 and your gross profit is $3,000. But $3,000 divided by $13,000 is about 23%, so a 30% markup only produces a 23% margin. To get a 30% margin, you have to mark cost up about 43%. The conversion: markup % = margin % divided by (100 minus margin %), times 100. For 30%, that is 30 divided by 70, about 43%.

The order matters: figure out the margin your business needs first, then convert it to the markup you apply on the quote sheet. Margin is the goal; markup is the tool. For a book-length version of this lesson, the episode recommends A Simple Guide to Turning a Profit as a Contractor by Leslie Shiner and Melanie Hodgdon.

How to calculate overhead and profit before you bid

Your margin target comes from 2 numbers, both of them real.

The first is your overhead, the actual monthly total, not what feels right: rent, insurance, vehicle costs, fuel, phones, software, the bookkeeper, the accountant. If you are a sole proprietor, add the owner's draw, the money you need to take home each month. If you do not pay yourself, the business is not earning what you think it is.

Then add depreciation, the bill nobody mails you. A $60,000 truck does not cost $60,000 in year 1 and nothing after; for pricing decisions, it costs about $12,000 a year for 5 years, and every job should pay back its share. Your tax CPA will rightly use Section 179 or bonus depreciation to write the truck off in year 1 (IRS Publication 946 covers those rules). That is right for the tax return and wrong for pricing; your tax books and your management books answer 2 different questions.

The second number is your target net profit: what the business earns on top of paying you. This funds new equipment, builds savings, and eventually pays someone to run the company without you. Pick a number you can defend: 8%, 10%, 15%.

Add the 2 together for your margin target. Say the business expects $1,500,000 in revenue this year and carries $25,000 a month in overhead: that is $300,000 a year, 20% of revenue. Add a 10% income target and the margin target is 30%, which converts to a markup of about 43%.

A caution: 30% is a floor, not a goal. A bid planned at exactly 30% is fragile; 1 overrun pushes it into a loss after overhead. Most trades should plan 35% to 45%.

How to price a job as a contractor, step by step

1. Write down your real monthly overhead, including the owner's draw and real equipment depreciation, not the tax write-off.
2. Set your income target as a percent of revenue.
3. Add the 2 percentages: that is your margin target. Convert it to markup: margin divided by (100 minus margin), times 100. A 30% margin is about a 43% markup.
4. Apply that markup to the cost on every line item, every quote. Not sure what the job will really cost? Run it through our free Job Cost Calculator first.
5. Check the margin before the quote goes out. If you think a customer will balk at 1 line, lower that line and raise another. Do not cut the total below your target; the difference comes out of your pocket.

If you want the math done for you: Best Decision Project Tools

The hard part is not the formula. It is that most pricing happens at a kitchen table 3 days after the walk-through, from memory, with the markup math redone on every quote. That is the problem Best Decision Project Tools is built around. Enter 3 numbers on the CFO Dashboard (expected annual revenue, monthly overhead, income target %) and it computes your overhead %, margin target, and required markup. Your catalog carries a unit cost and unit price on every row with that markup baked in, and Field Estimating turns a voice memo recorded on the jobsite into matched line items. The estimate shows your margin % live: bump a labor cost up $1,500, watch the margin drop from 30 to 26, and raise the price until it is back on target. After the job, the Variance tab compares what happened against what you bid, so the next price is a calculation instead of a guess. BD Project Tools lives at BestDecisionBusiness.com.

If you use QuickBooks Online

Use Projects. Create a project for each job, build the estimate against it, and tag every bill, time entry, and receipt to the project as the work runs. QuickBooks will give you an estimate-vs-actual report by project, and that part works fine. The gap is the Profit and Loss: the $18,500 job shows up there as $1,600 of green net income, looking healthy. The P&L does not know your margin target or overhead rate, so it cannot tell you that $1,600 on $18,500 is roughly 8% when you needed 30%. Set the target outside QuickBooks and compare every job against it; our free Job Cost Tracking Toolkit helps with the tagging discipline.

The spreadsheet version

No software at all? 1 row for your overhead %, 1 row for your income target %. Add them for your margin target, convert to markup, and apply that markup to the cost on every line. The same math works; it just takes longer, every quote, every time.

Worked example: repricing the $18,500 bathroom

Price the cold-open job with the formula. The cost is $16,900; the business carries 20% overhead and wants 10% net, so the margin target is 30% and the markup is about 43%.

$16,900 marked up 43% prices the job at about $24,150. The gross profit is $7,250, which is 30% of revenue: about $4,830 covers the job's share of overhead and about $2,415 is true net profit. Compare that to the original $18,500 quote, where $1,600 had to stretch across every overhead bill and never could.

That gap, $24,150 versus $18,500, is the difference between a price that pays the whole business and a price where the owner quietly works for $11 an hour. Knowing the number also changes the customer conversation: you can explain why the job costs what it costs, and you can hold the price when they push. Confidence in pricing is not a personality trait. It is a result of math.

FAQ: contractor job pricing questions

What is the difference between markup and margin?

Markup is the percent you add on top of job cost to set the price. Margin is the percent of the final price you keep after paying for the work. They are calculated differently: a 30% markup on a $10,000 cost gives a $13,000 price and $3,000 of gross profit, which is only a 23% margin.

How much should a contractor mark up a job?

Enough to hit your margin target, which is your overhead % plus your income target %. Convert margin to markup with this formula: markup % = margin % divided by (100 minus margin %), times 100. A business that needs a 30% margin has to mark up costs about 43%; a flat 30% markup would leave it short on every job.

What is a good profit margin for a contractor?

Set a net income target of 8% to 15% for the business, on top of your overhead and your own pay, and add it to your overhead % to get your gross margin target per job. Never plan a job under a 30% gross margin; below that it cannot cover its overhead share and still leave profit. Most trades should plan margins of 35% to 45%.

How do you calculate overhead and profit in a construction bid?

Add up your real annual overhead, including equipment depreciation and the owner's draw, and divide by expected annual revenue to get your overhead %. Add your net income target % and that sum is the margin target every bid has to hit. For example, $300,000 of overhead on $1,500,000 of revenue is 20%; with a 10% income target the margin target is 30%.

Why do contractors lose money on jobs that looked profitable?

Because the dollars left over on a job get called profit before they have paid the overhead: rent, insurance, vehicles, equipment depreciation, the owner's pay, and tax. A job that returns $1,600 on $18,500 of revenue is roughly an 8% margin; if the business needs 30% to cover overhead and profit, that job lost money even though the bank balance went up.

Run your own numbers in 2 minutes

The fastest way to apply this is the free Job Pricing Simulator. Plug in your real overhead, income target, materials, labor hours and rates, and sub costs, and it shows the calculated price next to your gut price. Sliders stress-test the bid: what if materials go up 15%, or the job takes 2 extra days? 2 minutes, real numbers, real answer.

Want the full lesson with the live demo? Watch the Week 6 episode on YouTube.

Rather have someone set up your margin targets and job costing with you? Talk to us. Find everything we do at BestDecisionBookkeeping.com and BestDecisionBusiness.com.

About Best Decision Bookkeeping

Best Decision Bookkeeping provides bookkeeping and fractional CFO services for contractors and small business owners who came up through the trade. We also build Best Decision Project Tools, job pricing and costing software for owner-operators, and publish the Behind the Books series on YouTube. Visit BestDecisionBookkeeping.com and BestDecisionBusiness.com.