Pricing Guide
By Phazahn Odom | Founder of Phixmo | Former bookkeeper for residential GCs | Former NFL tight end, Pittsburgh Steelers
Most contractors price jobs by feel. They add up materials and labor, tack on a number that feels right, and send the bid. The problem is that "feels right" is usually wrong, and the most common pricing mistake (confusing markup and margin) quietly costs contractors thousands of dollars per job.
After years of doing the books for residential GCs, this is the pricing guide I wish every contractor had on day one. It covers what goes into a price, the markup vs margin math, and how to price so you actually make the profit you think you're making.
A correct price has four components. Most contractors only account for two.
The materials, labor, subcontractors, and equipment that go directly into the job. This is what most contractors calculate. It's necessary but not sufficient.
The cost of running your business that isn't tied to a specific job: insurance, vehicle costs, office expenses, software, your time spent estimating and managing, marketing, accounting. These costs exist whether or not you land any single job, but they have to be covered by the jobs you do land.
What's left after direct costs and overhead. This is your reward for the risk and effort of running the business. It's not optional, and it's not the same as your salary.
A buffer for the surprises that show up on most jobs. Hidden damage, scope changes, estimate misses.
The contractors who struggle are usually the ones who price based on direct costs plus a rough markup, without properly accounting for overhead and profit. They stay busy but never seem to get ahead.
This is the single most important and most misunderstood concept in construction pricing. Getting it wrong costs you real money.
The percentage you add to your costs. If a job costs you $10,000 and you add 20% markup, you charge $12,000.
The percentage of the final price that is profit. On that $12,000 job with $10,000 in costs, your $2,000 profit is 16.7% of the price. So a 20% markup produces only a 16.7% margin.
They are not the same number, and that gap is where contractors lose money.
The trap. A contractor wants a 20% profit margin, so they add 20% markup. But 20% markup only gives them a 16.7% margin. They think they're making 20% and they're actually making 16.7%. On a $100,000 job, that's $3,300 less profit than they planned.
The math is simple once you know it, and knowing it protects your profit. To get a specific margin, your markup needs to be higher than the margin.
The formula: Markup = Margin / (1 - Margin). For a 20% margin: 0.20 / (1 - 0.20) = 0.20 / 0.80 = 25% markup.
The takeaway: if you want to make a 20% profit margin, you need to mark up your costs by 25%, not 20%. Contractors who mark up by their target margin percentage are systematically underpricing every job.
There's no universal number, but here are the principles.
Calculate your annual overhead (insurance, vehicles, software, your management time, marketing, accounting, etc.) and figure out what percentage of your revenue it represents. Your pricing has to cover this on top of direct costs.
For residential GCs, net profit margins of 10 to 20% are typical after covering overhead. Custom and high-end work can support higher margins; competitive commodity work often runs lower.
Once you know your target margin, use the conversion above to set your markup. Don't mark up by your margin percentage, that underprices you.
If you do high-quality work, communicate well, and run a professional operation, you can command higher prices than a contractor competing purely on being cheapest. Don't race to the bottom.
New contractors especially tend to bid low because they're afraid of losing the job. But winning jobs at prices that don't cover overhead and profit keeps you busy and broke. It's better to lose some bids and make money on the ones you win.
You can't price the next job well if you don't know how the last one actually went.
Pricing is a feedback loop. You estimate a job, do the work, and the actual results tell you whether your pricing was right. If you don't track actual costs against your estimates ( job costing), you never close the loop. You keep making the same pricing mistakes because you never see them.
Contractors who track job costs learn their real numbers: how long framing actually takes, how much their material estimates miss by, where their overhead really lands. That knowledge makes their next estimate more accurate, which makes their pricing more profitable.
Contractors who don't track job costs are guessing every time. They might be making money or losing it on any given job and they won't know until the books are reconciled, if ever.
Accurate pricing and accurate job costing go together. This is why I built job costing into the core of Phixmo. Track what every job actually costs against what you estimated, learn your real numbers, and price the next job with confidence.
Here's a clean way to price a residential job.
Materials, labor, subs, equipment. Be thorough and include everything.
Typically 5 to 10% of direct costs, higher for projects with more unknowns (bathrooms, additions, older homes).
Decide your target margin, convert it to the right markup using the formula, and apply it to your direct costs plus contingency. This markup covers your overhead and profit.
Compare to what similar jobs go for in your area. If you're way off, understand why before adjusting.
As the job runs, track actual costs against your estimate. Use what you learn to price better next time.
Markup is the percentage you add to your costs. Margin is the percentage of the final price that's profit. They're different numbers. A 25% markup produces only a 20% margin. Confusing them causes contractors to underprice.
For residential GCs, 10 to 20% net margin after overhead is typical. Higher-end and custom work can support more; competitive commodity work often runs lower. The key is targeting a real margin and pricing to achieve it.
Two main reasons: confusing markup with margin (which systematically underprices), and bidding low out of fear of losing the job. Both keep contractors busy but unprofitable.
Track actual job costs against your estimates. If you consistently make your target margin, your pricing is working. If actuals come in over budget, either your pricing or your estimating needs adjustment. You can't know without job costing.
Both matter. Your price must cover costs, overhead, and profit (the floor). But if you do high-quality work and run a professional operation, you can price above the cheapest competitor because homeowners pay for trust and quality. Don't just race to the bottom on price.