How to Price Construction Jobs (Without Leaving Money on the Table)

Price construction jobs using this formula: Materials (with 10-15% markup) + Labor (hourly rate × hours × 1.3-1.5 for burden) + Overhead allocation (10-20% of direct costs) + Profit margin (10-20%). Most contractors undercharge by 15-25% because they forget burden costs, underestimate hours, or skip overhead entirely.

The Complete Pricing Formula

Job Price = Materials + Labor + Overhead + Profit

Materials = Cost × 1.10-1.15 (markup for handling)
Labor = Hours × Rate × 1.3-1.5 (burdened rate)
Overhead = (Materials + Labor) × 0.10-0.20
Profit = (Materials + Labor + Overhead) × 0.10-0.20

Step 1: Calculate True Material Costs

Don't Forget to Include:

• Purchase price
• Delivery fees
• Tax (if applicable)
• Waste factor (5-15% depending on material)
• Returns/restocking potential
• Markup for handling (10-15%)

Material Markup

Example Material Calculation

Deck project materials:

• Lumber: $2,500
• Hardware: $400
• Finish: $200
• Tax (8%): $248
• Waste (8%): $268
• Subtotal: $3,616
• Markup (12%): $434
• Total Materials: $4,050

Step 2: Calculate True Labor Costs

This is where most contractors lose money.

The Burdened Rate Formula

Your crew costs more than their hourly wage:

Burdened rate = Base rate × 1.30-1.50

Example Labor Calculation

Deck project labor:

• Estimated hours: 40
• 2 workers × 20 hours = 40 man-hours
• Base rate: $35/hour
• Burden multiplier: 1.35
• Burdened rate: $47.25/hour
• Total Labor: $1,890

Common Labor Mistakes

• Using unburdened rates
• Underestimating hours by 20-30%
• Not accounting for non-productive time
• Ignoring supervision costs

Rule of thumb: Add 15-20% to your hour estimates for setup, cleanup, breaks, and problem-solving.

Step 3: Calculate Overhead

Overhead = costs of running your business that aren't direct project costs.

Overhead Components

How to Allocate Overhead

Method 1: Percentage of Direct Costs

• Calculate total annual overhead
• Calculate total annual direct costs (materials + labor)
• Overhead % = Annual overhead ÷ Annual direct costs
• Typical range: 10-25%

Method 2: Per Job Hour

• Annual overhead ÷ Annual billable hours = overhead per hour
• Add to labor calculation

Example Overhead Calculation

Using Method 1:

• Direct costs (materials + labor): $5,940
• Overhead rate: 15%
• Overhead allocation: $891

Step 4: Add Profit Margin

Profit is not your salary—that's part of labor/overhead. Profit is:

• Business growth reserve
• Emergency fund
• Risk compensation
• Return on investment

Recommended Profit Margins

Example Profit Calculation

Deck project:

• Subtotal (materials + labor + overhead): $6,831
• Profit margin: 15%
• Profit: $1,025
• Final Price: $7,856

Complete Pricing Example

Why Contractors Undercharge

Common Mistakes

The Cumulative Effect

If you make all these mistakes, you might charge $5,000 for a job that should be $7,856—leaving 36% on the table.

Pricing Strategies

Cost-Plus Pricing

• Calculate actual costs
• Add fixed markup percentage
• Transparent with clients
• Works well for T&M

Market-Based Pricing

• Research competitor pricing
• Price within market range
• Risk: market may be underpriced

Value-Based Pricing

• Price based on value to customer
• Higher margins possible
• Requires strong positioning

Best approach: Calculate your cost-plus number, compare to market, adjust only if necessary.

FAQ

How do I know if my prices are too high?

If you're winning every bid, you're probably too cheap. Aim for 30-40% win rate on competitive bids. Too high isn't as common as too low.

Should I price hourly or fixed?

Fixed price for defined scope. T&M for unknowns. Never do T&M without a not-to-exceed cap unless the client is very trustworthy.

How do I calculate my labor burden rate?

Add up all costs beyond base wages (payroll taxes, insurance, benefits) and divide by total wages. This gives your burden percentage. Typically 30-50%.

What profit margin should I target?

15-20% for typical work. 10-12% for competitive bids. 20-25% for specialty or difficult work. Never below 10% unless you're desperate.

How do I know if I'm covering overhead?

Track total overhead costs annually. Divide by total revenue. If your overhead allocation % is less than this, you're not covering costs.

Should I discount for bigger jobs?

Only if volume genuinely reduces your costs. Don't discount for "good customers" who don't actually provide any benefit beyond the job itself.

The Bottom Line

To price construction jobs correctly:

1. Materials: Cost + waste + markup
2. Labor: Burdened rate × realistic hours
3. Overhead: Allocate to every job
4. Profit: Don't skip it—10-20% minimum

Most underpricing comes from forgotten burden costs and underestimated hours. Build a spreadsheet that forces you to include everything.

Related: Why You're Losing Money on Every Job | How to Bill for Change Orders