To price a job as a contractor, add up your direct costs (loaded labor plus materials), add a fair share of overhead, then divide by one minus your target profit margin. In short, the formula is Price = (Labor + Materials + Overhead) ÷ (1 − Target Margin). The rest of this guide explains how to get each number right. Most underpriced jobs come from a wrong input, not a wrong formula.
What is the formula for pricing a contracting job?
The most reliable contractor pricing formula is Price = Total Job Cost ÷ (1 − Target Profit Margin). Total job cost includes labor, materials, and the job's share of overhead.
Direct costs are what this specific job consumes: crew hours, materials, dump fees, equipment rental, permits.
Overhead is what it costs to keep the business open whether or not you work today: insurance, truck payments, fuel, phones, software, marketing, office help, and your own admin time.
Profit is what's left after everything is paid. It is not your wage. Your wage belongs in labor or overhead.
Dividing by (1 − margin) instead of multiplying by (1 + margin) is the key step. The next sections explain why.
How do you calculate your true hourly labor cost?
Your true labor cost is the hourly wage plus everything you pay on top of it ("labor burden"). Burden includes payroll taxes, workers' comp, benefits, and paid time off.
Start with the base hourly wage for each person on the crew, including yourself if you work the job.
Add burden. Get the real numbers from your payroll provider, insurance agent, or accountant. Burden varies by state, trade, and policy, so don't use someone else's percentage.
Multiply the loaded rate by the hours you expect the job to take. Include drive time, setup, and cleanup.
Check your estimate of the hours against past jobs. If you track time by job, use your actual history instead of guessing.
The most common mistake here is pricing "wrench time" only. Loading the truck, driving, setting up, and cleaning up are real labor hours. Your customer is paying for them whether you list them or not.
How do you figure out overhead per job?
The simplest method is overhead per billable hour: divide your annual overhead by the number of hours you actually bill in a year. Then add that rate to every job hour.
Total last year's overhead expenses (or a realistic budget for this year).
Estimate your billable hours. Count only hours that end up on an invoice, not every hour on the clock. Rain days, estimates, and admin time don't count.
Divide. For example, $60,000 in overhead ÷ 1,500 billable hours = $40 of overhead per billable hour. These are example numbers, so use your own.
If your billable hours drop, your overhead per hour goes up. That's why slow seasons make the same price less profitable.
What is the difference between markup and margin?
Markup is profit as a percentage of cost. Margin is profit as a percentage of the selling price. That means a 25% markup is not a 25% margin.
Markup: a $400 cost marked up 25% gives a $500 price.
Margin: a $500 price minus a $400 cost leaves $100 of profit. $100 ÷ $500 = 20% margin.
If you set a goal of "25% profit" and then add 25% to your costs, you end up with 20%. Dividing by (1 − margin) prevents that. To get a true 25% margin on $400 of cost, price at $400 ÷ 0.75 = $533.33.
Worked example: pricing a job step by step
Here is the full formula on one illustrative job. All the numbers are made up, so swap in your own.
Labor: 2 crew members × 3 hours each (including drive and setup) = 6 crew hours. At a loaded rate of $27/hour, that's $162.
Materials and job costs: chemicals, supplies, and disposal come to $75.
Overhead: 6 billable hours × $40/hour = $240.
Total job cost: $162 + $75 + $240 = $477.
Target margin: the owner wants a 20% net margin, so $477 ÷ (1 − 0.20) = $596.25.
Round and sanity-check: the quote goes out at $600. That works out to about a 26% markup on cost and roughly a 20.5% margin.
Set a minimum charge so tiny jobs still cover the trip.
Overhead in this example is bigger than labor. That's normal for small operators, and it's exactly the cost that "materials times two" pricing leaves out.
Should you charge hourly, flat rate, or by the unit?
Most home service contractors do best with flat-rate or unit pricing, backed by the cost math above. Hourly billing makes sense mainly for work you can't scope ahead of time.
Flat rate: The customer knows the price up front. You keep the upside when you get faster. It works for repeatable work like a house wash, a tune-up, or a standard install.
Unit pricing (per square foot, linear foot, window, or visit): This scales cleanly with job size. It's common for exterior cleaning, lawn care, painting, fencing, and roofing.
Hourly / time-and-materials: This fits troubleshooting, remodel surprises, and open-ended repairs. Say clearly what's included, and give an estimated range.
Whichever model you use, rebuild your unit or flat rates from the formula once a season. Do it again whenever wages, insurance, or fuel change.
How do you know if a job actually made money?
Compare the price you charged with what the job actually cost once it's done. This is job costing: revenue minus actual labor, materials, and expenses.
Log actual crew hours against each job, not just against the day.
Attach receipts and material costs to the job.
Compare actual margin to target margin.
If one type of job keeps missing its target, adjust its price, its scope, or how you staff it.
Your estimate is a forecast and your job cost is the scorecard. Pricing gets easier fast once you see both side by side.
How QuoteIQ helps you price jobs consistently
QuoteIQ was built by contractors, starting with co-founder Mike Vidan's pressure washing business. It is designed to keep this math tied to the actual estimate:
Price book, estimate templates, markups, and materials on every plan. Your rates live in one place, and line items calculate totals automatically.
Built-in business calculators. These include profit margin and hourly rate tools. Check /pricing/ for which plan includes each.
Job Costing (Pro and up) uses the formula Total Price − Labor − Expenses = Profit, with labor pulled from time tracking.
Free public cost calculators at myquoteiq.com/free-tools for a quick range check. No sign-up needed.
Plans start at $29.99/month, and every plan has a 14-day free trial (a card is required to start). Build your price book in QuoteIQ →
Frequently asked questions
How much profit should a contractor make on a job?
There's no single right number. Your target margin should cover the risk you carry, your reinvestment needs, and the market you're in. Set it on purpose, apply it with Price = Cost ÷ (1 − Margin), and check it against your actual job costs.
Is markup the same as profit margin?
No. Markup is profit divided by cost, and margin is profit divided by price. A 25% markup produces a 20% margin.
How do I calculate overhead per hour?
Divide your annual overhead expenses by your annual billable hours. For example, $60,000 ÷ 1,500 hours = $40 per billable hour. Add that amount to every hour you quote.
Should I include drive time in my price?
Yes. Drive time, setup, and cleanup are paid labor hours, and they use fuel and vehicle wear. Include them in your labor hours or build them into a minimum charge or trip fee.
Should I charge by the hour or a flat rate?
Use flat or unit pricing for work you can scope ahead of time, and hourly for open-ended repairs and troubleshooting. Either way, build the rate from the same cost-plus-margin formula.
How often should I update my prices?
Review your rates at least once a season, and any time your wages, insurance, fuel, or material costs change. Comparing your job costing results against your targets shows you which services need an adjustment.