When you bid a job, your pay stops being your hourly rate and becomes whatever is left after materials, labor and overhead. Price it right and you earn more than the clock would pay. Price it by guessing and a 20% markup is only a 16.7% margin, which often doesn't cover overhead. To cover the NAHB remodeler average of 23.6% overhead and keep a 10% profit, you need a 50.6% markup on job cost.
Markup vs. margin
Markup is profit divided by cost. Margin is profit divided by price. They're not the same number, and mixing them up is the most common pricing mistake.
| Markup on cost | Margin on price |
|---|---|
| 20% | 16.7% |
| 33.3% | 25% |
| 50.6% | 33.6% |
| 100% | 50% |
The formula: markup you need = target margin ÷ (1 − target margin).
A real bid, line by line
Say a job needs $4,000 in materials and 40 hours of labor that costs $45 an hour, including payroll taxes. You want to cover 23.6% overhead and keep 10% profit.
| Line | Amount |
|---|---|
| Materials | $4,000 |
| Labor (40 hours × $45) | $1,800 |
| Direct job cost | $5,800 |
| Overhead covered (23.6% of price) | $2,061 |
| Profit (10% of price) | $873 |
| Bid price | $8,735 |
If you do the labor yourself, you keep the $1,800 labor line plus the $873 profit for those 40 hours. The same 40 hours at the Nashville union journeyman rate of $36.82 pays $1,473, with no overhead to cover. That union rate is wage only; the pension and health benefits add roughly $15 an hour, and as a contractor you pay your own self-employment tax and health insurance out of your share.
What happens when the job runs over
This is where bid work bites. In the example, if the job's direct cost runs 15% over, about $870 of extra materials or hours, the profit is gone. At 20% over, you lose about $290 on the job. That's why written contracts, clear scopes and change orders matter as much as skill.
Price your own job
Overhead is the number most new contractors underestimate. Add up a year of truck payments, fuel, insurance, licenses, tools, phone, software and the hours you spend estimating and invoicing, then divide by the revenue you expect.
Next steps
- Check whether the job size needs a license in your state: contractor license requirements.
- See where bidding fits on the ladder from hourly to owning projects.
Questions
What is the difference between markup and margin?
Markup is profit divided by cost; margin is profit divided by price. A 20% markup on $10,000 of job cost is a $2,000 profit, which is a 16.7% margin on the $12,000 price.
What markup should a contractor use?
Enough to cover overhead and profit. To cover the NAHB remodeler average of 23.6% overhead plus a 10% profit, you need a 50.6% markup on direct job cost.
How much overhead does a contractor have?
NAHB's latest remodeler study puts operating expenses at 23.6% of revenue, with 6.3% left as net profit. Your own overhead depends on your truck, insurance, tools and office costs.
How much can a job run over before I lose money?
In a bid priced to cover 23.6% overhead and 10% profit, about 15% over on direct costs wipes out the profit; at a 6.3% profit, about 9% does.