How to Price Your Contracting Work (Without Leaving Money on the Table)

Most contractors underprice by 20–40%. Not because they're bad at business — because they were never taught the actual math. They quote based on what they'd be comfortable paying, not what it actually costs to do the job.

This guide gives you the formula. It's not complicated, but it requires you to look at three numbers you've probably been ignoring: your labor burden, your overhead allocation, and the difference between markup and margin.

Why Contractors Underprice (It's Not What You Think)

The most common pricing mistake isn't greed in reverse — it's incomplete accounting. Contractors quote based on the wage line. They forget everything else that costs money to deliver a job.

Here's what actually costs money on every job:

• Direct labor — the technician's hourly wage
• Labor burden — payroll taxes, workers comp, benefits, PTO (adds 40–60% on top of wage)
• Materials — parts, supplies, consumables
• Vehicle cost — fuel, insurance, maintenance, depreciation
• Tools and equipment — purchase, maintenance, calibration
• Overhead — office, phone, software, insurance, licenses, admin time
• Non-billable time — drive time, quotes, callbacks, warranty work

When you quote a job, all seven of those show up. Most contractors price for the first three and hope the rest works out. It doesn't.

Step 1 — Calculate Your True Labor Cost

Start with your technician's hourly wage. Then add burden.

Labor burden components for Tucson contractors:

• FICA (employer side): 7.65% of wages
• Federal unemployment (FUTA): ~0.6% of wages
• Arizona state unemployment (SUTA): typically 2–5% of wages
• Workers comp: 5–15% depending on trade (HVAC and roofing are higher)
• Health insurance contribution: $300–$600/month per employee
• Paid time off (2 weeks = 4% of wages)
• Tool and vehicle allowance: varies

That $39 gap per job, across 8 jobs a day, is $312 in margin you're leaving on the table every single day. Over a year, that's $78,000.

Step 2 — Calculate Your Overhead Rate

Overhead is everything it costs to run your business that isn't directly tied to a specific job. It has to be recovered in every job you price.

List your monthly overhead:

• Office/shop rent (or home office allocation)
• Business insurance (general liability, commercial auto)
• ROC license fees (Arizona: $150–$450/year)
• Software subscriptions (CRM, estimating, accounting, GPS)
• Phone and internet
• Advertising and marketing
• Admin/bookkeeper hours
• Uniforms and branded materials
• Professional services (accountant, attorney)

Add it up. Divide by your monthly billable hours. That's your overhead rate — the amount you need to recover per billable hour to cover your fixed costs.

Most contractors have overhead rates between $15 and $45/hour. If you've never calculated this, the number will likely surprise you.

Step 3 — Your Minimum Billable Rate

Now you have two numbers: your burdened labor rate and your overhead rate. Add them together and you have your minimum break-even rate — the floor below which every job is a loss.

If you're currently billing $65/hr for labor, you're losing $23/hr on every hour you work. The harder you work, the more you lose.

Step 4 — Markup vs Margin (The Most Expensive Confusion in Contracting)

This is where thousands of dollars disappear every year without anyone noticing.

Markup is calculated on cost. Margin is calculated on revenue. They are not interchangeable — and confusing them consistently produces underpricing.

Target margins by business type:

• Service calls / diagnostics: 50–65% gross margin
• Installations (HVAC, plumbing, electrical): 35–50% gross margin
• Maintenance agreements: 60–75% gross margin
• Remodels / large projects: 30–45% gross margin

Step 5 — Seasonal Pricing for Tucson Contractors

Tucson's climate creates a natural pricing opportunity that most contractors either ignore or exploit inconsistently. Summer demand (May–September) drives emergency HVAC calls at 1.5–2x normal volume. Customers are calling with a problem. They need a solution today. Price accordingly.

The seasonal pricing framework:

• Peak season premium (May–September): 15–20% above standard rate for emergency / same-day calls. Clearly communicated up front, not sprung at invoice.
• Off-peak incentive (October–April): 5–10% discount for maintenance, upgrades, and non-emergency replacements scheduled in advance. Drives winter revenue without discounting reactive work.
• Maintenance plan pricing: Annual contracts priced as 12 equal payments smooth your revenue curve and lock customers before they shop competitors in July.

Step 6 — Billable Hour Reality Check

One more number that breaks most pricing calculations: billable efficiency.

If you have a technician on payroll for 8 hours, how many of those hours are actually billable to a customer? For most field service contractors, the honest answer is 5–6 hours. The rest is:

• Drive time between jobs
• Picking up parts
• Waiting for homeowner access
• Admin, paperwork, photos
• Callbacks and warranty work (if you're absorbing these)

If you calculated your overhead rate using 8 hours instead of 6, you're undercharging by 25% before you start. Use your real billable hours — track them for 2 weeks if you don't know the number.

The Pricing Audit Checklist

Before your next quote, run through this list:

• Have I calculated my true burdened labor rate (not just wage)?
• Have I calculated my monthly overhead and hourly overhead rate?
• Am I using actual billable hours, not scheduled hours?
• Do I know my break-even rate per billable hour?
• Am I calculating margin correctly (on revenue, not cost)?
• Am I applying seasonal adjustments for summer emergency work?
• Am I pricing materials at appropriate margin (not cost-plus)?

Most contractors who run this exercise for the first time find they need to raise prices 15–30%. The second thing they find: their customers don't leave. Quality contractors who communicate clearly can almost always charge what they need to charge.