Pricing a contracting job is two separate problems: knowing what the job will cost you, and choosing a price that leaves the profit you planned. Most underpricing happens when those two get mixed up, usually by adding a "20% markup" and expecting a 20% profit.
Try the numbers in the free Job Price & Margin Calculator.
Step 1: build the direct cost line by line
List every item the client is paying for: materials with a waste allowance, labour hours, subcontractors, equipment rental, permits and disposal. Price materials from current supplier quotes rather than memory; prices move. For labour, use your charge-out rate, not the wage you pay. The charge-out rate has to cover payroll taxes, insurance, and the hours nobody pays for (driving, estimating, cleanup). Our Labour Charge-Out Rate Calculator works it out from your own numbers.
Step 2: add overhead and contingency
Overhead is what it costs to stay in business whether or not this job happens: insurance, vehicles, tools, phone, software, office. Divide last year's overhead by last year's direct costs to get a percentage you can apply to each job. Contingency is a separate allowance for the unknowns on this job, such as rot behind tile or an out-of-level floor. Older homes usually deserve more contingency than new builds. Keep the two separate so you can explain each one if a client asks.
Step 3: price with margin, not markup
Margin is profit as a share of the price. Markup is profit as a share of the cost. They are not the same number:
| Target margin | Markup needed on cost |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 30% | 42.9% |
The formula is simple: price = total cost ÷ (1 − target margin). On a job that costs $5,000 including overhead and contingency, a 20% margin means a price of $6,250, not $6,000. That $250 gap is the difference between the profit you planned and the profit you get.
Step 4: write the quote and protect it
A good quote states the scope, what is excluded, how long the price is valid, the deposit and payment schedule, and how changes will be handled. When the client asks for extra work, write a change order with its own price before you start. Change orders are priced the same way as the original job: cost, plus overhead, at your target margin. The Contractor Estimate & Quote Workbook does all four steps in one file, including a change-order log that updates the revised contract total.
A worked example
A small bathroom refresh: materials $1,690, labour 28 hours at $65 = $1,820, so direct cost is $3,510. Add 12% overhead ($421) and 5% contingency ($197) for a total cost of $4,128. At a 20% margin the price is $5,160 before any tax, and the planned profit is $1,032. With a 30% deposit, the client pays $1,548 on signing.
This guide is general information for planning, not legal, tax or financial advice. Deposit limits, licensing and sales-tax rules for construction work vary by state and country, so check the rules where you work.