Your business
You only need to work these two out once. They stay true until your costs change.
This job
Enter what the job costs you. Not what you plan to charge.
Your walk-away price
$0
Take a dollar less than this and you are working below the floor you set.
Break-even
Price you want
Profit per labour hour
The read
Markup is not margin
This is the mistake that quietly empties a busy contractor's account, and almost everyone in the trade has made it at least once.
Markup is what you add to your cost. Margin is what you keep out of the price. They are never the same number.
A job costs you $10,000. You add 20% — "twenty per cent, that's my margin." You charge $12,000 and make $2,000. But $2,000 out of $12,000 is 16.7%, not 20%. You just handed back a third of the profit you thought you were making. To actually keep 20% of the price, you have to add 25% to your cost.
| Add this markup to cost | You keep this margin |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 33.3% | 25.0% |
| 42.9% | 30.0% |
| 53.8% | 35.0% |
| 66.7% | 40.0% |
Common questions
What counts as overhead?
Everything you pay for whether or not you are on a job. Insurance, your truck and fuel to and from the yard, your phone, software subscriptions, the accountant, advertising, licence renewals, the rent on the storage unit — and the hours you spend estimating, invoicing, chasing payment and driving out to look at work you do not win. That last one is the one people leave out, and it is often the largest.
Why are my billable hours so much lower than the hours I work?
Because quoting, driving, buying materials, invoicing and chasing money are all hours you do not bill. A contractor working a full year might put in 2,000 hours and bill 1,300 of them. If you divide your overhead by the hours you work instead of the hours you bill, you will under-recover on every job you take. Guess low here rather than high.
Why is my labour cost higher than the wage I pay?
The wage is not the cost. Payroll taxes, workers' compensation, liability insurance and vehicle costs all ride on top of it. For most small crews the true cost is the wage multiplied by somewhere between 1.25 and 1.45. If you pay $28 an hour, enter something closer to $35 to $40.
What is the difference between break-even and the walk-away price?
Break-even is the price at which you made exactly nothing — you covered your costs and your overhead and went home with zero for the risk. The walk-away price is break-even plus the minimum margin you decided you were willing to work for. Break-even is a fact about the job. The walk-away price is a decision about your business. Make it before you meet the customer, write it on the folder, and do not move.
Should I show the customer these numbers?
No. Your costs, your rates, your overhead and your margin are yours. A customer gets a scope of work and a price. If they ask for a breakdown, give them categories — labour, materials, permits — not your cost per hour. The moment they can see your material cost they will start pricing your lumber at the big-box store on their phone.
Where does this go wrong?
Three places, in order of how often. Overhead guessed too low, usually by forgetting unpaid hours. Billable hours guessed too high, because it feels like you work all the time. And margin confused with markup, which quietly costs you a third of your profit on every job. This page fixes all three, and it is free, and there is nothing to sign up for.