Getting Started
How to Price Your Services as a Contractor
Most contractors set their prices by looking at what competitors charge and picking a number in the middle. That approach guarantees you will be wrong — because you do not know their costs, their margins, or whether they are actually profitable. Pricing starts with your numbers, not theirs.
Why most contractors undercharge
Undercharging is the default for new contractors because they calculate their rate based on what they want to earn per hour — without accounting for the hours they do not bill. Driving to jobs, writing estimates, buying materials, doing bookkeeping, and handling customer calls are all unpaid hours that dilute your effective rate.
A contractor who charges $50/hour but only bills 25 hours out of a 45-hour work week is earning an effective rate of $28/hour before expenses. After insurance, fuel, tools, and vehicle costs, the take-home can be less than an employee in the same trade.
The fix is not working more hours. It is pricing to account for the full cost of running the business.
How to calculate your true cost per hour
Start with your annual overhead — the costs you pay whether or not you are on a job:
| Category | Typical range | Notes |
|---|---|---|
| Insurance | $2,000-$6,000/year | General liability + vehicle + workers comp if applicable |
| Vehicle costs | $4,000-$10,000/year | Payment, fuel, maintenance, insurance |
| Tools and equipment | $500-$3,000/year | Replacement and new purchases |
| Phone and software | $600-$2,000/year | Phone, bookkeeping, CRM, scheduling |
| Licensing and fees | $200-$1,500/year | Trade license renewals, permits, certifications |
| Self-employment tax | 15.3% of net income | This alone adds ~$7,500 on $50K net income |
Add your overhead costs together and divide by your billable hours per year. If you work 48 weeks and bill 25 hours per week, that is 1,200 billable hours. $15,000 in overhead divided by 1,200 hours = $12.50/hour just to cover costs before you pay yourself anything.
Formula: (Annual overhead + Target income) / Billable hours per year = Minimum hourly rate. Then add your material markup on top.
Hourly vs. per-job pricing
| Factor | Hourly | Per-job |
|---|---|---|
| Best for | Unpredictable scope, T&M work | Repeatable services, defined scope |
| Customer perception | Clock-watching anxiety | Clear expectations, no surprises |
| Your upside | Protected on slow jobs | Rewarded for efficiency |
| Risk | Caps your income at hours worked | Scope creep eats margin if not managed |
Most experienced contractors move to per-job pricing for standard services. It removes the ceiling on what you can earn per hour and gives customers the price certainty they prefer. Use hourly only for diagnostic work or jobs where the scope genuinely cannot be estimated.
How to raise your prices
- -New customers first. Raise prices for new inquiries immediately. There is no negotiation because they have no baseline.
- -Existing customers with notice. Give 30 days notice. Frame it as a market adjustment, not an apology. "Starting [date], our rates for [service] will be [new price]."
- -Annual minimum. Raise prices at least once per year. Your costs increase annually — insurance, fuel, materials. If your prices stay flat, your margin shrinks every year.
- -Watch the close rate. If you raise prices 10% and your close rate drops only 5%, you are making more money on fewer jobs. That is a win.
Key takeaways
Calculate your true cost per hour
Include overhead, unbillable time, and self-employment tax — not just what you want to earn.
Move to per-job pricing
Once you can estimate job duration, per-job pricing rewards efficiency and gives customers certainty.
Raise prices annually
Your costs rise every year. If your prices do not, your margin shrinks by default.
Target 35-50% gross margin
Below that range, one bad job or slow week puts you in the red. Healthy margins create breathing room.
What I have learned about contractor pricing
The contractors who struggle with pricing almost always have the same story: they started at a rate that felt reasonable, never did the math on their actual costs, and three years later they are working harder than ever with nothing to show for it. The rate felt fine because they compared it to an employee wage — but they are not employees. They are paying for insurance, fuel, tools, taxes, and every unbillable hour out of that rate.
The ones who break through do one thing: they calculate their real numbers and price from those. It feels uncomfortable at first. But the customers who stay are better customers, the margins are healthier, and the business actually sustains itself.
Pricing is not about being expensive. It is about being honest with your costs and confident in your value.
-- Richard