Build a complete job estimate with labor, materials, overhead, and profit
Industry standard is 15–25%
Covers truck, insurance, admin time
Job pricing mistakes are the number one reason contractor businesses fail. The most common error is pricing based on labor and materials alone, forgetting overhead and the profit margin needed to grow the business. Every job must cover its direct costs plus a share of your fixed overhead — the truck, insurance, tools, phone, and admin hours that run whether or not you are billing.
A 15–25% markup on materials is standard across most trades. This covers your time ordering and picking up materials, the carrying cost if you front the money, and the small percentage of materials that get wasted, damaged, or over-ordered. Never pass materials through at cost — you are providing a service by sourcing and managing them.
Overhead is the silent killer of underbid jobs. Your truck payment, business insurance, accountant, phone bill, and the hours you spend writing estimates don't disappear just because you're on-site working. Adding an overhead rate of 15–20% to your labor cost ensures every job contributes to covering those fixed costs, rather than eating into your take-home pay.
Structure your payment terms upfront. A common approach: 30–50% deposit before work begins, milestone payments on larger jobs, and the balance due at completion. Net-30 is for large commercial clients — residential jobs should be paid at or before completion. Sending professional, itemized invoices immediately after job completion dramatically reduces payment delays.
What profit margin should a contractor target?
Most successful contractors target 15–25% net profit margin. Below 10% and you have no cushion for unexpected costs. Above 30% is possible for specialized trades or in high-demand markets. Remember: profit margin is calculated as a percentage of your selling price, not your cost.
Should I mark up subcontractor labor?
Yes. When you hire subcontractors, you are managing their work, coordinating access, and taking responsibility for quality. A 10–15% markup is standard. You also take on the risk of their work not meeting your client's expectations, which justifies the margin.
How do I handle change orders?
Always put change orders in writing before doing additional work. Specify the added scope, the additional cost, and get client sign-off. Change orders without written approval are very difficult to collect on. Many contractors use a simple email thread as documentation at minimum.
What is a reasonable overhead rate for a solo contractor?
For a solo contractor, overhead typically runs 10–20% of direct labor. For a company with employees, vehicles, and a shop, overhead can reach 30–50% of labor. The key is to track your actual overhead costs monthly and calibrate your rate to reality, not an industry average.
How do I estimate a job I haven't done before?
Break it into phases and estimate each separately. Talk to suppliers about material costs. Add a 15–20% contingency buffer for unknowns. Review similar past jobs. It is better to quote slightly high and negotiate down than to underbid and lose money. As you gain experience with a type of job, your estimates become more accurate.
VerticalRent connects contractors with local landlords who need reliable service professionals for ongoing maintenance and repairs.
Join as a Vendor