Most contractors price their services one of two ways: they guess based on what they think the client will pay, or they look at what competitors charge and price similarly. Both approaches are financially dangerous. The right way to price your services as a contractor is based on your actual costs — not market rates alone — with a built-in overhead recovery and profit margin that makes your business financially sustainable. This guide gives you a bookkeeper’s perspective on contractor pricing: how to calculate your real costs, determine your necessary markup, and use job cost data to refine your pricing over time.
Why Most Contractors Under-Price Their Work
The most common pricing mistake is failing to account for all costs. Contractors typically account for direct labor and materials — the visible costs — but miss indirect costs that are just as real: the cost of driving to job sites, the time spent estimating jobs that don’t close, workers’ comp on job labor, general liability insurance allocated per job, equipment depreciation, and the cost of their own time managing projects. When you add up all the true costs of completing a job, many contractors discover they’ve been pricing work at near-breakeven or worse. The jobs felt profitable because cash was coming in — but the business wasn’t generating real net profit.
Step 1: Calculate Your True Hourly Labor Cost
Your billable labor rate must cover more than the employee’s wage. The full cost of an hour of field labor includes the base wage, plus payroll taxes (FICA employer share 7.65%, FUTA ~0.6%, California SUI typically 1.5–5%), plus workers’ comp (varies by trade — roofing is $25–$35/$100 of wages, painting is $6–$12/$100), plus any benefits (health insurance, paid time off), plus a share of direct supervision time. This “fully loaded” or “burdened” labor rate is what each labor hour actually costs your business. For a painter earning $25/hour, the fully loaded cost might be $35–$40/hour once all costs are added. This is the number that goes into your job cost estimates — not $25/hour.
Step 2: Know Your Overhead Rate
Your overhead rate is the percentage of revenue required to cover all overhead expenses — the costs of running your business that aren’t tied to a specific job. Calculate it from your Profit & Loss in QuickBooks: divide total annual overhead expenses by total annual revenue. If your overhead is $150,000 and revenue is $500,000, your overhead rate is 30%. Every dollar of revenue you generate carries 30 cents of overhead cost before you see any profit. Your bids must include overhead recovery on top of direct job costs.
Step 3: Add Your Target Profit Margin
After covering direct costs and overhead, you need a profit margin. For most contractors in the LA market, a net profit margin of 10–15% is a realistic target for a well-run business. This is your reward for the risk you take as a business owner, your capital for reinvestment, and your cushion for unexpected costs. Build your target profit margin explicitly into every bid — don’t hope it shows up after the fact. A typical contractor markup calculation looks like this: direct job costs are $10,000. Overhead at 30% adds $3,000. Subtotal is $13,000. Profit at 15% adds $1,950. Bid price is $14,950.
Using Job Cost Data to Refine Your Pricing
The most powerful pricing tool is your own job cost data from QuickBooks. After running Projects (job costing) for 6–12 months, you have real data showing actual costs versus estimated costs for each job type. Run the Project Profitability report and analyze: which types of jobs consistently hit or beat your target margin, which types consistently fall short, where the overruns are coming from (labor, materials, or both), and what your actual average cost per unit is for your most common work types. This data transforms your bidding from estimation to precision. You’ll know exactly where you can be competitive and where you need to charge more — and you’ll have data to support your pricing to clients who push back on your rates.
Value-Based Pricing vs. Cost-Plus Pricing
Cost-plus pricing (direct costs + overhead + profit = bid price) ensures you never lose money on a job. Value-based pricing means charging based on the value you deliver to the client, which may allow higher margins on certain work types. For commodity services (basic residential maintenance, simple repairs), competitive market pricing dominates — you can’t charge dramatically above market rates. For specialized work (complex commercial projects, specialty systems, high-end residential), where your expertise and quality create real value for the client, value-based pricing can support premium rates well above your cost-plus floor. Understand where you are on this spectrum for each service line you offer.
Frequently Asked Questions
How do I know if my prices are competitive?
Get competitive intelligence by requesting quotes from competitors on work where you’ve lost bids, networking with other contractors in non-competing markets, and reviewing industry cost surveys. But remember: if you’re winning every bid, you’re probably priced too low. A healthy close rate for most contractors is 30–50% of bids submitted — if it’s higher, raise your prices.
What should I do when a client says my price is too high?
Don’t immediately discount. First, understand the objection — is it genuinely price, or is it uncertainty about your value? Explain what’s included in your price, your qualifications and warranty, and how you’re different from lower-priced competitors. If the client is comparing you to someone with no insurance or license, that’s a legitimate differentiation. If you genuinely need to compete on price, reduce scope rather than margin — cut something out of the bid rather than working for less.
For more information, see our guide on job costing to set accurate prices.
For more information, see our guide on building a business budget to support your pricing.
For more information, see our guide on how better bookkeeping helps you win more bids.
For more information, see our guide on maintaining cash flow at your target margins.
Bookkeeping Champs Gives You the Data to Price Right
Bookkeeping Champs helps contractors throughout Los Angeles and Ventura County set up job costing in QuickBooks and interpret the data to make smarter pricing decisions. Call (818) 679-4451 for a free consultation.
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