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How to Price a Job as a Contractor

Tips and Tools
Jan 24, 2022
6 min read

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A contractor’s estimate should be a ballpark number for the cost of a project. An official project quote must be more precise—and, barring unforeseen circumstances, should not change significantly once sent to your client. So, you’ll want to find the competitive pricing sweet spot that will keep your business thriving in a volatile renovation market.

Below, we cover the steps to develop a watertight project quote that can withstand market fluctuations, special requests, and hidden costs. 

1. Fully outline the scope of work

Even home renovation projects with similar requirements for labour and materials can differ depending on the scope of the work. Special requests, time constraints, and job site requirements can have a major impact on your renovation quote. The  factors discussed below will add up quickly in your renovation quote.

Location 

Costs for a given type of project may vary by region. Pricing for similar projects in your area can provide guidance for developing your quote. In addition, your fee should account for travel time between your home or office and the job site. 

Time constraints   

When the client is asking you to complete a project within a limited time frame, it is reasonable to raise costs accordingly. Account for overtime hours when preparing your quote.  

Labour and materials

In most cases, labour and material costs will comprise the largest part of a renovation quote. We go over this crucial price component in detail below. 

Risk factors

Before finalizing your project quote, determine whether there is any existing damage at the job site. Plan for potential safety hazards and check for accessibility issues. Investigating risk factors while pricing a job in construction not only ensures that you name a fair price to your client, but it also allows you to manage liabilities and develop contingency plans before you even begin your work. 

Special requests   

Factor in costs for special requests from your client, such as working at specific times or obtaining materials from the supplier of their choice. Ask the homeowner about any unusual features in their home that may require extra attention. They should also clarify whether they will require daily cleanup versus standard waste management and debris clearance at the end of the job.  

2. Observe market trends and conditions

Fluctuations in construction costs impact how you will price a job. Your clients may be unaware of factors affecting the price of materials and look to you to explain renovation market trends. Clear communication is essential for maintaining trust and profit margins in an era of shortages and disruptions in the supply chain. 

Cost of lumber

Lumber costs had a major impact on the renovation market in 2021. Your clients may wish to avoid high lumber prices by exploring alternative materials. However, for cabinetry, deck construction, or flooring installation, homeowners will often make room in their budget for wood.

How do you quote a carpentry job with any accuracy when next week’s lumber prices could increase? Be up front with the homeowners about the possibility of price fluctuations. You can build their trust by suggesting a partial payment increase based on current lumber prices should the market suddenly spike. 

Drywall shortage

Due to supply shortages, the price of drywall is rising. As with lumber, you can include contingency plans and payment solutions for a sudden increase in the cost of drywall with your renovation quote. 

3. Calculate material and labour costs

The largest determinants of a renovation quote are the materials and labour required to complete a given project. The global market trends described above can impact these prices, but local fluctuations are important to track as well. 

Materials

First, determine who will purchase the materials. The homeowner may wish to source their own antique cabinetry or marble countertops. In that case, be sure to bill for the additional materials and tools required to accommodate their requests. With current supply chain issues, materials costs may fluctuate—build trust with homeowners by discussing contingency plans for a sudden spike in the cost of appliances or lumber.

Labour

The cost of labour isn’t just about the hourly rate. When calculating the full price of employing your workers and subcontractors, include workers’ compensation fees, benefits, bonuses, insurance, and incidental costs like vehicle and phone use. If the additional expenses are difficult to assess and predict at the outset, a 20 per cent markup on the total hourly rate for you, your employees, and subcontractors is a reliable way to account for total labour costs. 

4. Refer to past projects 

If you have worked on a similar project in the past, let the homeowner know. Describe the cost breakdown and see if they agree with previous rates. An extensive portfolio of past projects, complete with pricing and notes on taxes and additional fees, will simplify the quote development process for future projects. 

5. Review competitor rates 

Use your competitors’ rates as a guide for your pricing without matching their quotes precisely. They can give you an idea of the materials and labour costs for different types of projects in your area and offer insight into overhead costs. Ultimately, your own price breakdown is the most important factor in determining the project cost. 

6. Consider taxes 

As a self-employed contractor, you will be responsible for federal and provincial taxes on your income at the end of the year. Construction permit fees may also apply. You may wish to raise your prices accordingly.

7. Estimate profit margin       

Your markup should allow you and your company to make a profit on your work. According to contractor blog JobFlex, a good way to calculate your profit margin is to divide your markup by the estimated total project cost, including overhead and the markup itself.

Example of calculating construction profit margin

Let’s say you’re quoting a remodel job with a cost estimate of $1,600. With past experience, you know your overhead costs will run about 10 per cent of the project price. With a 20 per cent markup, your profit margin should look like this:

Profit margin = 20% markup ÷ (Hard project costs of $1,600 + 10% overhead + 20% markup)
                         = 320 ÷ (1600 + 160 + 320)
                         = 15.3% profit margin

Is this profit margin adequate compensation for your time and expertise? If not, adjust your markup percentage and your costs until you reach a more satisfactory number.

8. Choose a method for quote delivery  

One of the easiest and most secure ways to send a quote to your client is through email. Rather than writing the quote in the body of an email, attach your quote as a PDF. This format will allow you and your client to track changes and establish a channel of written communication for money-related questions. 

How to quote a renovation job accurately

There is no quick and easy method for pricing a job in construction. The process for developing a home renovation quote requires careful review of previous work, a deep understanding of the renovation market, and understanding the unique job site requirements and potential hidden costs. 

An official quote is difficult to change once it’s submitted. You may face a difficult conversation with the homeowner if you overlooked key price factors when developing your quote. This makes it even more important to do your math and take every price factor into account before delivering your quote. 

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