The #1 reason contractors go out of business isn't lack of work — it's underbidding. You quote a job at $12k, it takes you 60 hours instead of 40, you forgot tax, you forgot dump fees, and you net $400 on a project that should have netted $3,000. Here's how to price properly.
The fundamental formula
TOTAL PRICE = MATERIAL COST + LABOR COST + OVERHEAD + PROFIT1. Material cost
Get real quotes from your supplier — not memory. Add 10% buffer for waste, breakage, and changes.
2. Labor cost
Hours × loaded rate. Loaded rate = (hourly wage × 1.4 for taxes/insurance) for an employee, or your subcontractor's invoice.
Estimating hours is where most people fail. Track hours on every job for 6 months, then average. Until then, double your gut estimate.
3. Overhead
Your monthly costs that exist whether you work or not: truck, insurance, phone, software, accountant. Divide by expected billable hours per month — that's your overhead per hour. Typically $15-25/hr for solo, $30-50/hr for small crew.
4. Profit margin
This is what's left after everything. Industry standard for residential remodeling is 15-25% net profit. Anything less and you're paying yourself to take risk.
Example: kitchen remodel
- Materials (cabinets, counter, tile, paint, etc.) — $8,500
- Labor (120 hours @ $40 loaded) — $4,800
- Overhead (120 hours × $20) — $2,400
- Subtotal — $15,700
- Profit (20%) — $3,140
- Quoted price — $18,840
The "scenario band" approach
Show clients three numbers, not one. Investor / Standard / Premium pricing. The middle is what most pick. This anchors expectations and protects you.
ConstruMate has built-in pricing bands that auto-calculate from your inputs — try it: free calculator →
The "10/30/10" rule for profit
If you're not hitting 10% net minimum on every job, 30% net on premium jobs, and 10%+ growth year-over-year — your pricing is too low. Raise rates by 10% on the next 3 quotes. If you win 2/3, you were underpricing. If you win 1/3, you're at market. If you win 0/3, drop back 5%.