How to price a job when you're new to contracting

The only formula you have to remember

Every honest bid is built from four numbers stacked in this order:

1. Labor — hours × your fully burdened hourly cost.
2. Materials — takeoff quantities × supplier price, plus waste and delivery.
3. Overhead — the share of running your business that this job has to carry.
4. Profit — what is left for you, the owner, after all of the above is paid.

Add the first three together and you have your job cost. That number is not a price. It is the point where you break even. The price comes from dividing cost by what is left after your target margin: Bid = Job Cost ÷ (1 − Margin).

Step 1: work out what an hour of your time actually costs

The number you charge per hour and the number an hour costs you are two different things. If you pay yourself $30 an hour, that hour still carries payroll taxes, workers' comp, liability insurance, and unbillable time — the driving, the supply runs, the estimates you wrote and lost. A useful rule of thumb for a one-person operation:

• Start with the take-home wage you want per hour.
• Add 15–25% for taxes and insurance if you are paying yourself as a business.
• Divide by your billable ratio. Most solo contractors bill 25–30 hours in a 45-hour week, so multiply by roughly 1.5.

A $30 target wage lands near $52–$56 an hour of true labor cost before you have made a cent of profit. That is not greed; that is what the hour costs.

Production rates beat guessing

Once you know your hourly cost, the estimate becomes a question of hours, and hours come from production rates you track yourself. Write down the finish time on every job for a month: square feet of wall painted per hour, sheets of drywall hung per hour, linear feet of trim installed per hour. Three or four data points per task beats any published table, because it is your speed with your tools.

Step 2: price materials from a real takeoff

Measure, list, and price line by line. Round up to purchase units — you buy whole sheets, whole boxes, whole gallons — and add a waste factor of about 10% for most trades and 15% for tile and diagonal flooring. Include delivery, dump fees, blades, fasteners, and the small consumables that quietly eat a hundred dollars a week. If you want the formulas, the materials estimating guide has the conversions for the common trades.

Step 3: add overhead as a rate, not a guess

Overhead is everything you pay for whether or not you work today: truck payment and fuel, insurance, phone, software, licensing, accounting, advertising, storage. Add twelve months of those costs and divide by the billable hours you expect in a year. A contractor with $18,000 of annual overhead and 1,300 billable hours carries about $14 of overhead per hour worked.

On a 40-hour job that is $560 you must recover before you have earned anything. Contractors who skip this step are personally financing their own business. The overhead guide walks through building the number from your own bank statements.

Step 4: choose a margin and hold it

Margin is profit as a percentage of the price the customer pays. Typical targets:

Apply the margin with division, not multiplication. Multiplying cost by 1.30 gives you a 30% markup, which is only a 23% margin. That gap is the single most common pricing error in the trades, and it is explained in full in markup vs. margin.

A worked example

Interior repaint, three bedrooms and a hallway:

• Labor: 26 hours × $54 = $1,404
• Materials: 11 gallons, sundries, drop cloths = $430
• Overhead: 26 hours × $14 = $364
• Job cost = $2,198

At a 28% target margin: $2,198 ÷ (1 − 0.28) = $3,053. Round to $3,050. Profit is $852, and the margin really is 28%. Had you marked the cost up 28% instead, you would have quoted $2,813 and kept $615 — nearly $240 of profit gone on one small job.

Step 5: sanity-check before you send it

• Does the bid cover a bad day? Add a contingency line of 5–10% on unknown-condition work.
• Have you written down what is not included? Exclusions prevent most disputes.
• Would you be happy to get this job at this number? If not, the number is wrong, not the job.

When you should walk away

A price that only works if nothing goes wrong is not a price, it is a wager. If a customer needs you 20% cheaper, the honest answer is a smaller scope, not a thinner margin. Losing a bid costs you an afternoon of estimating. Winning the wrong bid costs you weeks.

Do it faster next time

Once you have your hourly cost, overhead rate, and target margin written down, pricing a job is mechanical. Put those three numbers into the Bid Buddy calculator once and every future estimate is a matter of entering hours and materials. It uses the true-margin formula, so the percentage you type is the percentage you keep.