Winning the job is one thing. Winning it at a price that actually leaves you a profit is another entirely. And here's the uncomfortable part: most margin problems don't happen on site, they're baked in the moment you send the quote. Price it wrong and no amount of hard graft will claw it back.
Underpricing is the single biggest profit killer in construction, and it usually comes from one of two places: not knowing your true costs, or being afraid to lose the job. Here's how to price properly so the profit is there before you start.
Price from the cost up, not down from a number
Plenty of contractors price by feel: they picture what the customer might accept and work backwards. That's how you end up winning work that loses money. The reliable way is to build the price up from what the job will actually cost you, then add what you need on top.
- Direct costsLabour at its true cost (not just the hourly rate), materials at current prices with a bit of headroom, plant hire, subcontractors, and any site-specific costs like access, welfare and waste.
- Overhead recoveryYour office, vehicles, insurance, software and your own time cost money before you touch a job. Every quote has to carry a fair share of those fixed costs, or the business as a whole loses even when each job "looks" fine.
- MarginYour profit, added on top, the reward for the risk and effort of doing the work. This is not optional padding; it's the point of being in business.
- A contingency for the unknownsThe riskier or more uncertain the job, the more you build in for the things you can't see yet. Fixed-price work with vague scope needs more headroom than a straightforward job you've done a hundred times.
The margin-vs-markup trap
This one quietly costs contractors thousands, because markup and margin are not the same thing. Adding a percentage to your cost (markup) gives you a smaller percentage of the final price (margin).
Why "I add 20%" doesn't give you 20%
| Job cost | £10,000 |
| Add 20% markup | £12,000 |
| Profit as a share of the price (margin) | 16.7% |
| To actually get 20% margin, price at | £12,500 |
To hit a target margin, divide your cost by (1 − margin): £10,000 ÷ 0.8 = £12,500. Get this wrong on every job and you're a few points light on all of it.
Quote in a way that protects your margin
A good price on a vague quote still loses money. Spell out exactly what's included and, just as importantly, what isn't. Price the obvious variations up front, put it all in writing, and make clear that extras will be charged. Most margin doesn't vanish through one big mistake; it leaks through "can you just also…" work that was never scoped or billed. A tight quote is your first line of defence.
Fixed price or day rate?
Whoever fixes the price carries the risk. On a fixed-price job, if it takes longer or costs more than you estimated, that's your problem, great when you've priced it well and it runs smoothly, painful when it doesn't. On a day rate or cost-plus basis, the customer carries the risk of overruns, which suits genuinely uncertain work. Match the approach to how much you can actually predict: the less you know, the less you want to be the one holding a fixed price.
Close the loop: compare your estimate to what really happened
Pricing gets sharper every time you check your estimate against the actual cost once the job's done. Consistently over on labour? Your rates need a look. Materials creeping up? Build it in next time. This feedback loop is exactly what good job costing gives you. See our guide to knowing which jobs actually make money →
Not sure your prices stack up?
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Schedule a CallThis article is general guidance for building contractors, not advice for your specific situation. Always review your own circumstances with your accountant before acting.
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