Confusing markup with margin
Adding 20% to a $10,000 cost gives you $12,000 — and a 16.7% margin, not 20%. Over a year of jobs that gap is the difference between a new truck and a maxed-out card. Bid to margin, then read the markup off the result.
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№ 01 / The Professional StandardContractor
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Your bid is calculated as total cost ÷ (1 − margin) for a true margin.
Total job cost
$23,000.00
Recommended bid
$28,750.00
Profit
$5,750.00
Margin
20%
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How a contractor bid
is actually built
Every honest bid is four numbers stacked in order. Skip one and the price you hand the customer is a guess wearing a suit.
1 · Direct materials
Everything that ends up on the job site: lumber, shingles, paint, fixtures, fasteners, rental equipment, disposal. Price from a current supplier quote, not last year's memory, and add a waste factor — 10% on flooring and drywall, 15% on tile with a diagonal layout, 5–7% on shingles.
2 · Burdened labor
Hours times your burdened rate, not the wage. Burden adds payroll taxes (roughly 8–10%), workers' compensation (wildly trade-dependent — 3% for a painter, 15%+ for a roofer), liability insurance, and the non-billable time every crew has. A $25/hour helper realistically costs $33–38 an hour on the job.
3 · Overhead
The cost of being in business at all: truck, fuel, tools, phone, software, advertising, bookkeeping, and the hours you spend estimating jobs you never win. Total last year's overhead, divide by last year's direct job costs, and you have your overhead percentage. Most one-to-three person outfits land between 12% and 25%.
4 · Profit margin
What is left after everything above is paid — the money that buys the next truck, covers the slow month, and pays you for carrying the risk. It is applied by division, not addition, which is the single most expensive misunderstanding in the trades.
Worked Example
- Materials
- $4,200
- Burdened labor (60 hrs @ $36)
- $2,160
- Direct cost
- $6,360
- Overhead @ 18%
- $1,145
- True job cost
- $7,505
- Target margin
- 30%
- Bid price
- $10,721
- Profit in pocket
- $3,216
- Effective markup
- 42.9%
“Bid the same job with a 30% markup instead of a 30% margin and you write $9,757 — you just handed the customer $964 and called it a win.”
Typical markup & margin
by trade
Starting ranges for residential work by an independent contractor or small crew. Your own overhead percentage, local labor market, and risk profile move these — treat them as a sanity check on your number, not a substitute for it.
| Trade | Typical markup | Resulting margin |
|---|---|---|
| Handyman / small repairs | 50–70% | 33–41% |
| Painting (residential) | 40–60% | 29–38% |
| Roofing (shingle re-roof) | 35–50% | 26–33% |
| Flooring install | 35–50% | 26–33% |
| Kitchen / bath remodel | 40–60% | 29–38% |
| Concrete flatwork | 30–45% | 23–31% |
| Electrical service work | 45–65% | 31–39% |
| Plumbing service work | 45–65% | 31–39% |
| HVAC changeout | 35–55% | 26–35% |
| Landscaping / hardscape | 35–55% | 26–35% |
Working one trade? Open the trade guides for cost drivers, line-item checklists, and margin guidance specific to your work.
Six ways contractors
underbid a job
Leaving overhead out of the job cost
Truck payment, fuel, insurance, phone, software, the hours you spend quoting jobs you don't win — none of that is on the material receipt, and all of it has to be paid by the jobs you do win. Fold overhead in as a percentage of direct cost before you apply margin.
Pricing labor at your pay rate
If you pay a helper $25/hour, that hour costs you closer to $33–38 once payroll taxes, workers' comp, and non-billable time are counted. Burdened labor rate goes in the bid, not the hourly wage.
No contingency on unknowns
Demo reveals things. Old wiring, rotted sheathing, a slab that isn't level. On any job where you can't see behind the surface, carry 5–10% contingency and say so in the proposal — clients respect it more than a change order.
Forgetting disposal, permits, and travel
Dump fees, permit runs, and a 45-minute drive each way are real hours and real dollars. They are also the easiest line items to invisibly absorb. Name them.
Rounding down to win the job
Shaving the number to beat a competitor buys you the job and sells your profit. If the bid is right, defend it. A contractor who is busy at a loss goes out of business faster than one who is quiet at a profit.
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