Guide on How to Price a Job as a Contractor

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📝Key Takeaways:

  • Pricing is the process of fixing what you are planning to charge for your company’s products or services.
  • You will find a practical guide on how to quote a job as a contractor and also learn the importance of quoting a job properly.

“How much should I charge?” is among the most asked questions among peers starting as contractors. We understand how important this question is. 

Currently, there are over 36,310 general contractors employed in the United States. If you are starting as a self-employed person, first remember there is competition out there. So, you must plan out everything correctly to stand out, especially since the pricing strategy must be on point. Because most amateurs often miss out on this part. 

Since the contracting job can differ, setting consistent pricing consumes time. Also, following a pricing strategy is important as it can save time and help you build trust with your clients. 

So, this article has a simple guide on how to price a job as a contractor. Also, you will learn the benefits of pricing a job correctly. Without any ado, let’s get started. 

Importance of Having a Pricing Strategy as a Contractor

As a contractor, following a practical pricing strategy is crucial as it offers several benefits that include

  • Profit: Every business is run to reap a profit. Only when you have an effective pricing strategy can you get a reasonable profit for the job you do and also help build and grow your business. So, to set reliable profit margins, you can
  • Trust: When customers notice you are charging based on the same scale for all your clients, they trust your pricing. 
  • Saves time: When you use the same pricing strategy for every job, you can save time when pricing out new jobs and also provides estimates and totals to customers. 
  • Transparency: Quoting the same pricing structure for all clients ensures transparency and fairness with all customers. 

How to Price a Job as a Contractor for Profit?

Pricing a job can be overwhelming initially, but with practice and effort, you will get it fluent. When starting out, ensure to keep a list of all the things you need to consider for pricing, and forget to skip or miss out on any factor. You must ensure you are paid fairly or charge your customer a fair price. 

1. Understand the scope of work to quote correctly

It is essential to understand the scope of work before you come up with your pricing. 

So, before you quote, consider the following:

  • Job Location: Is the job location close to your office or remote? You need to consider the traveling costs here.
  • Job site size: You must measure everything relevant to the job. For instance, if it’s a construction business, measure every inch of the area where you have planned to build. 
  • Check for existing damage, accessibility issues, or safety hazards: A quick walk around the place can give you a clear picture of everything you want to check. Take pictures and attach them to your customer’s profile for reference. 
  • Consider time constraints: If it’s an urgent project, then difficulties accompany it. So ensure to charge more for the tight timeframe. 
  • Considering special requests: Consider the time and expertise required if your clients have special requests and quote additional costs. Whether you are providing standard or specialized services?
  • Materials needed: Consider the materials you need to complete your quoted job. Remember to add a markup and overhead for the materials. 
  • Time required: How much time do you need to complete the job? This equals labor, and labor equals cost.

2. Estimate the labor cost

One of the crucial parts of job costs is the labor cost. 

To estimate the labor cost for a job, 

Step 1: Add your base salary and overhead costs together 

Step 2: Multiply this total by your profit margin

Step3: Now divide the total by your annual billable hours to get your hourly rate

Step4: Finally, multiply your hourly rate by 8 to reach your day rate. 

Don’t forget to include the employee’s wages, taxes, worker’s compensation, and other employee-related expenses. Overall, we recommend a 20% reliable markup for hourly labor rates. 

3. Count in the total material costs and overhead

To calculate this, first list all the materials you need for the job and add the cost for each, then add the markup and calculate the total. You will get your material costs. 

Now you must calculate the overhead costs for a specific time frame, i.e., for a week, month, or quarterly. 

These overhead expenses include the following:

  • Office rent
  • Office supplies
  • Marketing
  • Legal fees
  • Utilities
  • Accounts and Insurance bills
  • Other office expenses 

So, with all this in mind, you can now calculate your overhead costs using these pointers: 

  • To calculate the overhead cost, add up your overhead fees during a specific time.
  • Find the number of labor hours worked for a particular period of time.
  • Divide overhead costs into hours worked to get your hourly overhead cost.
  • Now multiply your hourly overhead cost by the hours you or your employees worked on the job. 

4. Consider taxes

As a business contractor, you need to pay taxes. So, don’t forget to include the tax estimations for each job. You can also add annual business taxes such as income tax estimations into your overhead costs or even apply them with materials and resources taxes on a job-to-job basis. Make sure to include them, as they can impact your overall revenue. 

5. Compare your competitor’s price.

When you have curated a base rate for your job, it’s time to check how much your competitors offer for the same services. It is a healthy thing to compare because you will get the idea that if you are doing it right. Charging too high or too low can affect your business. So, by comparing, you can adjust your pricing as needed and even deliver your services at a competitive price. 

How do gather this information?

  • Ping a professional organization or a trade association in your field. You will get good information on what other independent contractors charge in your area. 
  • You can directly pitch any independent contractor and ask about their charges.
  • Talk to potential clients and existing networks to gather more information about your business. 

6. Estimate profit

Estimating profit is the next essential step in job costing. You must keep the margin in your net sales revenue minus the labor, material, and overhead costs to get the most accurate estimate. This is expressed as a percentage. 

The outcome is the profit. If you are unsatisfied with the profit number, consider adjusting the numbers in your quote, your markup percentage, or your profit margin and calculate again. 

However, manual calculations can go wrong, or it consumes effort and time. This is why it is necessary to get your hands on the best estimating software, such as InvoiceOwl. This invoice and estimate software like InvoiceOwl makes your estimating job easy. It is ideal for all kinds of contractors and allows you to create professional-looking estimates and invoices within minutes.

Imagine Creating an Estimate in Just a Minute? Impossible?

InvoiceOwl is here to make it possible for you. Create professional looking estimates and invoices in a tap!

Pricing Strategy Best Practices

 To stand out from other contractors, following some best pricing strategy best practices is essential. They are

  • Know your ideal customers and price accordingly. So, research who is your ideal audience and determine how much is too little or too much.
  • Be as flexible as possible.
  • Always sell value because customers pay for the benefits.
  • Technology is no longer just an option, but it’s mandatory.
Frequently Asked Questions
  1. What percentage do most contractors charge?

    In general, contractors don’t charge on an hourly basis. Rather, they set charge 10% to 20% of the overall cost of the project in a practice which is known as cost-plus. If it is a bigger project, the contractor may charge a fee of up to 25%.


  2. What is a typical markup for contractors?

    Generally, contractors calculate markups based on the work and its cost to complete the job.

    Formula:

    Markup = Gross Profit [Job cost + Overhead (%) + Profit(%)] x 100 [Job Cost]

    For example, the typical markup will be between 7.5 and 10% in terms of materials. Meanwhile, some contractors will mark up materials as much as 20%.


  3. How to estimate the cost of a job?

    To estimate the cost of a job,

    Identify how much it costs you per hour in labor and multiply the cost by how many hours were worked.


  4. Does labor cost more than materials?

    Labor costs are more flexible than material costs, often considered when budget cuts are needed. However, material costs can be influenced by the type and grade of materials used in the project.

Conclusion

Being a self-employed contractor, you are responsible for handling your job well. There are multiple factors you must create and control. One such thing is pricing the job. 

Pricing an entire job as a contractor isn’t an easy process. But once you have figured it out, there is no stopping by. However, ensure to regularly review your pricing. To be precise, adjust your pricing strategy every year. 

Because some overhead expenses, such as vehicle or rent costs, tend to change yearly with inflation. So, don’t forget to review your pricing from time to time to ensure you are making a profit and scaling it up.

Author Bio
Jeel Patel
Jeel Patel
Founder

Jeel Patel is the Founder of InvoiceOwl and is the main curator & writer of the content found on this site. With ideals of quality, commitment, and perseverance, he believes in creating lasting business relationships with the clients.

United States

Ashburn

US