How contractors price a job, and protect their margin
Most contractors do not lose money on the build, they lose it on the pricing: confusing markup with margin, missing labor burden, forgetting overhead, underbidding, and not billing change orders. This guide covers how to price a construction job and protect your profit margin.
Build an estimate, free →How to price a construction job: cost + overhead + profit
Every job price is your direct costs (labor, materials, subcontractors, equipment, permits) plus overhead plus profit. You recover overhead and profit as a markup on costs, or built into a loaded hourly rate. The contractor pricing formula is simple; the trap is treating your markup as if it were your margin.
Markup is not margin
Markup is added on top of your cost. Margin is the profit left as a share of the price the client pays. Here is the same standard job priced with the TradesMetrics default markups.
| Cost element | Your cost | Markup | Client price |
|---|---|---|---|
| Labor (own crew) | $6,500 | 40% | $9,100 |
| Materials | $9,000 | 10% | $9,900 |
| Equipment | $1,500 | 10% | $1,650 |
| Subcontractors | $22,000 | 10% | $24,200 |
| Permits & fees | $5,000 | 0% | $5,000 |
| Contingency (10% reserve) | $4,400 | 0% | $4,400 |
| Total | $48,400 | +$5,850 | $54,250 |
- Total cost: $48,400
- Price to client: $54,250
- Profit: $54,250 − $48,400 = $5,850
- Markup = profit ÷ cost = $5,850 ÷ $48,400 = 12%
- Margin = profit ÷ price = $5,850 ÷ $54,250 = 11%
Same $5,850, two different numbers. You put 40% on your own labor, but it is a small slice; subs and materials carry only 10% and dominate the job, so the blend lands at 12% markup and 11% margin. That gap is where bids lose money.
Markup vs Margin Calculator
Enter your cost and markup for each category. Watch markup and margin diverge.
Same profit, two numbers: markup is measured over your cost, margin over the price. Set your own markups inside TradesMetrics and watch margin update live as the job changes.
Where the margin leaks: labor burden, overhead, missed costs
Labor burden. Base wage is not the real cost. Add payroll taxes, workers comp, benefits and paid time off and a worker costs 35 to 50 percent more than their wage, the fully burdened labor rate. A $25/hr carpenter really costs $35 to $40/hr. Overhead. Your office, insurance, vehicles and admin have to be covered by every job, not just profit. Missed line items. Permits, disposal and cleanup get left off and eat the margin. No contingency. Older homes hide surprises. Get these wrong in the estimate and you can stay busy all year and still go out of business.
Bid vs estimate vs quote
An estimate is a planning range. A quote or bid is a firm price you commit to after seeing the site and final scope. A proposal is the document that presents it. Use an estimate to set the budget, then give a firm quote once the scope is defined, so you are not locked to a number you guessed.
Structure the deal: deposits, draws, change orders, T&M vs fixed price
Take a 10 to 30 percent deposit (check local caps), then collect the balance as progress draws on a schedule of values tied to milestones, so your cash flow stays positive. Plan for retainage held to the end. Bill change orders in writing, with price and approval, before the work is done. And pick the right contract type:
| Contract type | Use when | Who bears the risk |
|---|---|---|
| Fixed price (lump sum) | Scope is well defined | You (price in a contingency) |
| Time & materials / cost-plus | Scope is uncertain (older homes, open-ended) | The client (variable total) |
Price your next job in 2 minutes, free
Set your own markups by cost type, add a contingency, and watch your margin move as the job changes. The free estimating tool prices it line by line, with no signup.
Start your free estimate →Common questions
- What is the difference between markup and margin?
- Markup is added on top of your cost; margin is profit as a share of the price the client pays. They are never the same number. On a $48,400 job priced with default markups the client pays $54,250, so the $5,850 difference is a 12 percent markup over cost but only an 11 percent margin of the price. Confusing markup with margin is the most common reason a job finishes thinner than the bid.
- Is a 30 percent contractor markup normal?
- Yes, 20 to 30 percent is standard on residential remodels, with 30 percent common. But a 30 percent markup is only about a 23 percent gross margin, so do not mistake the markup for what you keep.
- What markup should a general contractor charge?
- Markup is not one flat number. Your own labor carries the highest markup (often 40 percent) because that is where supervision, risk and overhead recovery sit. Materials and subcontractors are commonly marked up 10 to 20 percent. Because those pass-through costs usually dominate a job, your blended markup lands well below your labor markup.
- How much should a contractor mark up materials and subcontractors?
- Most residential contractors mark up materials and subcontracted work 10 to 20 percent to cover sourcing, carrying and managing them. Some apply one blanket markup across all costs instead.
- What is a good profit margin for a contractor?
- Gross margin on a residential remodel is typically 18 to 25 percent, but net profit after overhead usually lands around 5 to 10 percent. A healthy small contractor targets 8 to 10 percent net.
- How do you price a construction job?
- Price = direct costs (labor, materials, subcontractors, equipment, permits) + overhead + profit. You recover overhead and profit as a markup on costs or built into a loaded hourly rate. Most residential GCs mark up total costs 20 to 30 percent, but the right number depends on your overhead, not a rule of thumb.
- How do you bid a construction job?
- Estimate it line by line from real cost data, add overhead, profit and a contingency, then present it as a clear proposal. You win more bids on accuracy and trust, not by being the lowest, because the lowest bid is usually the one that underpriced and will lose money.
- What is the difference between a bid, an estimate, and a quote?
- An estimate is a planning range. A quote or bid is a firm price you commit to after seeing the site and final scope. A proposal is the document that presents it. Use an estimate to set a budget, then give a firm quote once the scope is defined.
- What is labor burden, or the fully burdened labor rate?
- Base wage is not the real cost. Add payroll taxes, workers comp, benefits and paid time off and a worker costs 35 to 50 percent more than their wage, the fully burdened labor rate. A $25 per hour carpenter really costs you $35 to $40 per hour. Estimating off base wage is a common way to lose money.
- How do you calculate overhead and profit in construction?
- Add your annual fixed costs (office, insurance, admin, vehicles, software, your salary), divide by revenue or billable hours to get an overhead rate, then add profit on top. The old 10 and 10 rule (10 percent overhead, 10 percent profit) is a starting point, but run the numbers from your own books.
- What is job costing in construction?
- Job costing is tracking the actual costs of each job against the estimate as the work happens. It is how you see which jobs and which line items make or lose money, so you can price the next one better.
- What is a construction takeoff?
- A takeoff is measuring the quantities of materials and labor from the plans (square footage, linear feet, counts) so you can price each line. Accurate takeoffs are the foundation of an accurate estimate.
- Why do contractors lose money on jobs they win?
- Usually the profit was lost in the estimate, not the field: underbidding to win, missing line items like permits, disposal and cleanup, underestimating labor burden, no contingency, and guessing instead of pricing from real job-cost data. It is also why contractors go out of business while staying busy.
- How much deposit can a contractor ask for?
- Most residential contractors take 10 to 30 percent down, with the balance collected as progress draws tied to milestones. Check your state or province first, some cap how much you can collect up front.
- What is a draw schedule or schedule of values?
- A draw schedule (or schedule of values) breaks the contract into milestone payments, so you bill as work completes instead of waiting until the end. It is how you keep cash flow positive through the job.
- What is retainage in construction?
- Retainage is a portion of each payment (often 5 to 10 percent) the client holds back until the job is complete. Plan for it in your cash flow, since it delays part of your money to the end.
- How do you write and price a change order?
- Document the scope change, the price, and the schedule impact, and get written client approval BEFORE doing the work. Price it the same way as the base job (cost plus your markup). Change orders that live as a text or a memory are where margin quietly leaks.
- Time and materials vs fixed price: which should you use?
- Use a fixed price (lump sum) when scope is well defined and you can price the risk with a contingency, because you bear any overrun. Use time and materials, or cost-plus, when scope is uncertain so you are not absorbing the unknowns. Many contractors use fixed price for defined work and T&M for what they cannot see yet.
- How do you estimate a remodel accurately?
- Estimate line by line from real regional cost data, include every trade plus permits, disposal and cleanup, add a 10 to 20 percent contingency, and calibrate against actuals from past jobs. Round-number guessing is what turns a profitable-looking bid into a loss.
- How long is a contractor estimate valid?
- Most contractors hold an estimate for 30 days, because material prices and your schedule change. State the validity window on the estimate so the client knows.
- What should be in a construction estimate and contract?
- Scope of work, line-item costs, a payment schedule, the change-order process, timeline, exclusions, a contingency, and signatures. The estimate should become the contract so the baseline is locked and everyone works from the same numbers.
Explore
Cost guides: Kitchen remodel cost · Bathroom remodel cost · Basement finishing cost · Deck cost · Home addition cost · Whole-home reno cost (by state & province).
Contractor guides: How to price a job: markup vs margin · Earned value for contractors.