How to price a job: set your hourly rate and markup with confidence
Work out an hourly rate that covers overhead and profit, add a materials markup, and turn both into a price your clients accept.
Published · By the Invoice Mint team
The short answer
To price a job, first set an hourly rate: add the income you want to the yearly cost of running your business, divide by the hours you can realistically bill (usually 1,000 to 1,500 a year, not 2,080), then add a profit margin. Multiply that rate by the estimated hours, add materials at cost plus a markup, add a contingency for unknowns, and check the total against what the job is worth to the client.
Ask ten tradespeople how they set their prices and most will say some version of “what everyone else charges”. That is a reasonable starting point and a terrible finishing one, because the business down the road has different costs, different hours and maybe a different idea of profit. The only price you can defend is one you worked out from your own numbers.
The good news: you only have to do the maths properly once. After that, every quote is your rate times your hours, plus materials.
Step 1: What does it cost to run your business?
Overhead is everything you pay whether or not you are on a job this week. List it for a full year:
- Vehicle payments, fuel, insurance and maintenance.
- Tools and equipment, including replacements and repairs.
- Liability insurance, licences, permits and trade memberships.
- Phone, software and subscriptions.
- Accounting and legal fees.
- Advertising, your website and any lead services.
- Rent or storage, if you have a shop or yard.
Most solo operators underestimate this by a third. Pull last year’s bank statements and add up the real numbers rather than working from memory.
Step 2: How much do you need to earn?
This is your pay, before personal tax — the salary you would want from an employer for the same work. Remember that self-employed people pay costs an employer would otherwise cover: health and retirement savings, unpaid holidays and sick days, and in some countries both halves of payroll contributions (both sides of CPP in Canada, self-employment tax in the US).
Step 3: How many hours can you actually bill?
A full-time year is about 2,080 hours. You will not bill anywhere near that. Driving between jobs, picking up materials, quoting work you do not win, doing paperwork, holidays, sick days and weather all come out of it. Most solo tradespeople bill somewhere between 1,000 and 1,500 hours a year.
Step 4: What is your hourly rate?
Add your overhead and the income you want, divide by billable hours, then add a profit margin. Profit is not your pay; it is what lets the business buy a new truck, survive a slow winter or hire help.
| Item | Amount |
|---|---|
| Income you want (before personal tax) | $70,000 |
| Yearly overhead | $25,000 |
| Total to cover | $95,000 |
| Billable hours per year | 1,200 |
| Break-even rate ($95,000 ÷ 1,200) | $79.17 / hour |
| Plus 15% profit | $91.05 / hour |
| Rounded rate | $92 / hour |
Your numbers will differ, but the shape will not. If your current rate is well below your break-even rate, you are paying to work — every job feels busy and the bank balance never moves.
Step 5: How much should you mark up materials?
Materials are not a pass-through. You spend time choosing them, collecting them, carrying the cost until you are paid and dealing with returns and defects. Charging a markup on materials is standard practice. Just be clear about the difference between markup and margin, because they are not the same number.
| Markup on cost | Price on $100 cost | Margin on price |
|---|---|---|
| 10% | $110 | 9.1% |
| 20% | $120 | 16.7% |
| 25% | $125 | 20% |
| 33% | $133 | 25% |
| 50% | $150 | 33.3% |
| 100% | $200 | 50% |
If you want a 20 percent margin, you need a 25 percent markup. To find the price for any target margin, divide the cost by one minus the margin: $100 ÷ 0.8 = $125.
Step 6: How do you price the job?
To price a job, estimate the hours, multiply by your hourly rate, add materials at cost plus your markup, add anything rented or subcontracted, add a 5 to 15 percent contingency for unknowns, then add tax. For example, 14 hours at $92 plus $800 of marked-up materials and a 10 percent contingency comes to $2,296.80 before tax.
With a rate and a markup, a quote becomes arithmetic:
- Estimate the hours, including setup, cleanup and travel.
- Multiply the hours by your hourly rate.
- Add materials at cost plus your markup.
- Add anything you rent or subcontract, also marked up.
- Add a contingency for unknowns — 5 to 15 percent is common for renovation work where you cannot see behind the walls.
- Add tax, and round to a clean figure.
For example: 14 hours at $92 is $1,288. Materials of $640 at a 25 percent markup are $800. A 10 percent contingency on the $2,088 subtotal adds $208.80, for $2,296.80 before tax — which you might quote as $2,300.
Hourly or fixed price?
Clients usually prefer a fixed price, and it rewards you for being efficient: finish faster than estimated and the difference is yours. Use one when you can see and measure the whole job. When you cannot — an intermittent leak, an old electrical fault, a car that “makes a noise sometimes” — quote time and materials, with your hourly rate and an estimated range, and say what would change it.
How do you check your price against the market?
Now look at what others charge. If you are far above the going rate, check whether your overhead or hours are realistic — or whether you offer something that justifies it, like a warranty, faster availability or a specialty. If you are far below, raise your price. Underpricing does not win better clients; it wins the ones shopping for the lowest number.
- Review your rate every year, and whenever your costs jump.
- Track estimated hours against actual hours on every job, so your next estimate is better.
- Put your common services in your invoicing app with prices, so every quote starts from your real numbers rather than from memory.
Common questions
How do I calculate my hourly rate as a contractor?
Add the yearly income you want to your yearly business costs, then divide by the hours you can actually bill in a year. Most solo trades bill 1,000 to 1,500 hours once travel, quoting, admin and slow weeks are counted. Add 10 to 20 percent on top for profit.
What is the difference between markup and margin?
Markup is a percentage of your cost; margin is a percentage of the selling price. A 25 percent markup on $100 of materials gives a $125 price, which is a 20 percent margin. To hit a target margin, divide your cost by one minus the margin.
Should I charge by the hour or a fixed price?
Charge a fixed price when you can define the scope clearly, and by the hour (time and materials) when you cannot, such as repairs where the problem is hidden. Either way, work the price out from your hourly rate so you know what you are earning.
