Pricing jobs: overhead and profit, done right

Step 1: true job cost (most people stop here)

Materials with waste, labor hours at what labor actually costs you (wages plus payroll tax, comp, and idle time — a $25/hr helper costs you $32+), equipment rental, disposal, permits, and subs. That total is cost. It is not a price. Selling at cost plus a little is how busy contractors go broke.

Step 2: overhead — the invisible payroll

The truck, fuel, insurance, phone, software, advertising, the hours you spend quoting jobs you don’t win — that all gets paid by the jobs you dowin. Add up a year of those expenses, divide by the revenue you realistically expect, and you’ve got your overhead percentage. For small outfits it commonly lands between 10% and 25%. If you’ve never measured yours, that’s the assignment this week — your business bank statement is the source document.

Step 3: markup vs. margin — the mistake with a name

Markup multiplies cost: cost × 1.5. Marginis the share of the final price that isn’t cost. They are not the same number, and confusing them is expensive: a 50% markup is only a 33% margin. If you want a 25% margin, the formula is:

Price = Cost ÷ (1 − 0.25)— divide by one-minus-margin, don’t multiply by one-plus-anything.

A $10,000-cost job at a “25% markup” sells for $12,500 and keeps a 20% margin. The same job priced for a true 25% margin sells for $13,333. That $833 difference, across twenty jobs a year, is a truck payment.

Step 4: contingency is not profit

Hidden rot, rain days, the second dumpster — a 5–10% contingency belongs in the price as a cost, scaled to how much of the job you can’t see until demo. When it goes unused it becomes bonus margin; when it’s needed it prevents the change-order fight. Never label it “contingency” on the customer’s copy — it reads as padding. It’s part of the price of the risk they’re handing you.

The full formula

Price = (Job cost × (1 + overhead%) × (1 + contingency%)) ÷ (1 − target margin%)

That’s the entire trade secret. The discipline is in using your real numbers, and re-checking them every season — material prices move, and a quantity calculator only helps if the unit costs behind it are current.

Do it on AllContraX

The guided quote builder (free tier) runs exactly this math: measured quantities, your own price book for materials and labor, overhead, contingency, and margin — computed deterministically, with the internal numbers visible only to you and a clean quote for the customer.