How to Price Your Services as a Contractor (Without Guessing)

Most contractors set their prices one of two ways: they guess based on what feels right, or they look at what competitors charge and go a little lower to win the job. Both approaches lead to the same place — working hard and not making enough money.

Profitable pricing isn't complicated. But it requires understanding a few numbers most contractors have never calculated.

The Problem With 'What the Market Charges'

When you price based on competitors, you're assuming those competitors priced correctly. Most of them didn't. Trades are full of contractors who've been in business for years, work constantly, and still struggle to pay themselves properly. If you price to match them, you inherit their margin problem.

Pricing should start with your costs — not your competition.

Step 1: Know Your True Hourly Cost

Before you can set a price, you need to know what it actually costs you to put a technician on a job site for one hour. This is called your Fully Loaded Labor Rate, and most contractors dramatically underestimate it.

Here's what goes into it. Direct labor cost: a tech's hourly wage of $28/hr. Burden (payroll overhead): payroll taxes (FICA, FUTA, SUTA) at roughly 18% of wages = $5.04; workers' comp insurance at roughly 8% of wages = $2.24; health insurance (if offered) at roughly $3.00/hr equivalent; paid time off (two weeks/year = roughly 4% of wages) = $1.12. That puts the loaded labor rate around $39.40/hr.

But a tech doesn't produce eight billable hours every day. There's drive time, shop time, callbacks, and training. A realistic billable efficiency for a field tech is about 75–80% of their hours. So if you're paying for eight hours but only billing six: $39.40 ÷ 0.75 = $52.53 true cost per billable hour.

Now add your overhead.

Step 2: Calculate Your Overhead Per Hour

Overhead includes everything that keeps the lights on but doesn't go directly into the job: office rent or home office, accounting and bookkeeping, software subscriptions (Jobber, QuickBooks, etc.), marketing and advertising, vehicle payments and insurance, your own salary as owner (yes, pay yourself), phone, utilities, and miscellaneous.

Add all of this up for the year and divide by your total billable hours to get your overhead rate per billable hour. Example: $120,000/year in overhead ÷ 2,000 billable hours = $60/hour in overhead. Total cost per billable hour: $52.53 + $60 = $112.53.

Step 3: Add Your Profit Margin

Cost is not your price. You need profit to grow, to reinvest in equipment, to build cash reserves, and to reward yourself for the risk of running a business. A healthy net profit margin for a service contractor is 10–20%.

At a 15% profit margin: Price = Cost ÷ (1 - margin) = $112.53 ÷ 0.85 = $132.39/hr. That's your minimum billable labor rate. Anything below this and you're either losing money or paying yourself less than your technician.

Step 4: Price Materials With Markup

Materials are not a passthrough at cost. You handle purchasing, storage, warranty, and the risk of ordering wrong. A standard materials markup for contractors ranges from 20% to 50% depending on the item. Low-cost commodities like fittings, tape, and wire usually carry 30–50% markup. Higher-cost items like water heaters, units, and panels usually carry 15–25% markup.

Example: a $450 water heater at 25% markup = $562.50 to the customer. That $112.50 covers your time sourcing it, your truck storage, and your warranty risk.

Flat Rate vs. Time & Materials

Time & Materials (T&M): you charge your hourly rate plus parts. Simple, but customers often resist not knowing the final price upfront. Flat Rate: you charge a fixed price per task regardless of how long it takes. This rewards efficiency — if your tech is fast, you make more. It also makes quoting easier and customers feel more comfortable because they know the price before saying yes.

Most successful contractors move toward flat rate pricing as they grow. You can build flat rate books using your calculated hourly cost as the baseline.

Common Pricing Mistakes

Adding markup on top of a rate that's already too low. If your base rate doesn't cover your true costs, a 20% markup on a bad number is still a bad number. Not accounting for slow periods. If you bill 2,000 hours in summer and 800 in winter, your overhead still runs all year. Your pricing needs to carry you through the low months. Giving discounts to win jobs you should walk away from. Price shoppers are rarely your best customers. A customer who beats you down 20% before you've even started the job will find something to dispute on the invoice too. Not raising prices. Your labor cost goes up every year (wages, insurance, fuel). Your prices should too. A 5–7% annual increase is reasonable and most loyal customers accept it.

The Easiest Way to Get This Right

Build a pricing worksheet once and update it annually. The Contractor Spreadsheet Bundle includes a Material Markup Calculator and the formulas to build your flat rate pricing from your actual costs — no guessing required. The Small Business Startup Bundle also includes a Pricing Worksheet and Startup Budget so you can set your first rates from real numbers instead of copying competitors.