Most builders are brilliant on the tools and uncomfortable with their numbers. They quote on gut feel, price off memory, and wonder why a flat-out year still leaves the bank account looking thin. Pricing well isn’t a personality trait or a gift — it’s a method. Here’s the plain version of that method, the one an apprenticeship should teach and never does.
The formula: cost, overhead recovery, margin
A profitable price is built from three parts, not one. Price = the direct cost of doing the work + a fair share of your overheads + a margin on top. Direct cost is labour and materials on the job. Overhead recovery is the slice of running-the-business cost that this job has to carry. Margin is the profit you keep after both.
Miss any one of the three and the price is wrong before you’ve quoted it. Most builders nail the first part — they can price materials and hours in their sleep — and quietly skip the other two. That’s the whole problem in one sentence.
Why “materials plus a bit on top” loses money
“Materials plus a bit” feels like pricing, but it only covers the costs you can see. The bit on top has to stretch over every cost you can’t see on the job sheet — your rent, vehicles, insurance, software, phone, and the hours you spend running the business instead of building. It never stretches far enough.
Those hidden costs get paid whether you win the next job or not. If they aren’t deliberately built into each quote, they come out of the only place left: your margin. A builder using this method can run flat out for a year, deliver beautiful work, and finish with almost nothing to show, because every job silently donated a bit of profit to cover costs that were never priced in.
The cost base most builders under-count
The floor under every price is the true cost of an hour — and it’s higher than the wage. A charge-out rate has to start with what one hour of your team actually costs you: the wage plus superannuation, leave loading and every on-cost that rides along with employing someone. Charge below that and you’re paying for the privilege of working.
Then there’s the trap that quietly kills margin: paid hours are not billable hours. You pay someone for a 38-hour week, so it feels like you can bill 38 hours. You can’t. Strip out public holidays, annual leave, sick days and RDOs. Then strip out the productive time that never lands on a client’s job — toolbox meetings, training, travel between sites, clean-up, loading the trailer. What’s left is a lot lower than what you pay for, and all your costs have to be recovered across those fewer hours. That isn’t being greedy. That’s finally charging what the work costs.
Two more costs almost everyone forgets:
- Your own time. The hours you spend quoting, ordering, chasing trades and managing clients are real and they’re expensive. If your rate doesn’t recover them, the business is paying you nothing to run it.
- Warranty and rework. Every builder gets callbacks and the odd job that goes sideways. Price as if none of that happens and the first defect eats the margin on the whole job.
Overheads then get recovered on purpose, one of three honest ways: baked into the hourly rate (annual overheads ÷ productive hours), added as a markup on top of direct costs, or a hybrid that allocates a share of monthly overhead to each active job and adds a markup on top. There’s no single right answer. The wrong answer is not doing it at all and hoping the markup magically covers everything.
Markup vs margin — the one that matters
Markup and margin are not the same number, and confusing them is one of the most expensive mistakes in building. Markup is what you add on top of cost. Margin is your profit as a share of the final price. A 20% markup does not give you a 20% margin — it gives you less.
Here’s the maths, with clean illustrative numbers (yours will differ):
- Direct cost of a job: $10,000.
- Add a 20% markup: sell price $12,000. Profit is $2,000.
- But as a margin, $2,000 ÷ $12,000 = 16.7% — not 20%.
To actually earn a 20% margin, you divide the cost by (1 − 0.20): $10,000 ÷ 0.8 = $12,500. That’s a 25% markup to land a 20% margin. Quote a “20%” and bank 16.7% on every job for a year and the gap is enormous. Margin is the number that pays your mortgage, so price to the margin and back-solve the markup — never the other way around.
A worked example (illustrative — use your own numbers)
Numbers make it concrete. The figures below are an illustration to show the method, not benchmarks or a promise — plug in your own true costs and target margin. Say a small deck-and-pergola job:
- Labour: 120 billable hours at a true cost of $75/hr (wage + on-costs, not your charge-out rate) = $9,000.
- Materials, delivered: $11,000.
- Direct cost = $20,000.
- Overhead recovery for a job this size: $3,000 (this job’s share of running the business).
- Cost base = $23,000.
- Target margin 20%, so divide by 0.8: $28,750.
Add GST for a residential client and the headline price is quoted GST-inclusive. Remember the GST you collect isn’t your money — it just visits your account on the way to the ATO, so set it aside as each payment lands and your BAS never blindsides your cash flow. The point of the exercise isn’t the exact figures — it’s that every line is deliberate. Change the margin, the hours or the overhead and you can see what it does to the price, instead of guessing.
The tool: a price list you can quote from fast
Method only pays off if it’s fast enough to use on every job. A maintained price list — your real rates for labour, common materials and standard assemblies — turns a two-day quote into a one-hour quote and keeps every price built on your true costs, not a rushed guess. It’s the difference between pricing being a decision and pricing being a gamble.
This is exactly what Future Builder builds with its estimating members. The Perfect Estimate course walks the full method with Kyle Zanetto, Quality Controlled and estimator Haydn Simmons go deeper on locking a quote down, and Keys to the Kingdom hands you the templates and price-list tools to quote from in an hour. Pair the pricing method with the eight numbers every residential builder should know and the guessing largely stops.
Know your break-even hour before you quote, not after the job’s done. That single shift — from feel to numbers — is the difference between a busy builder and a profitable one.
