How to price trade work without guessing

The number you need is your cost per billable hour. Not your wage. Not what the other guy down the road charges. What it costs your business to put you on a job for sixty minutes, with the van outside and the insurance paid and the phone answered.

Almost nobody in the trades knows that number. They pick a rate that sounds defensible, adjust it when a customer winces, and wonder why five years of solid work produced no savings.

Work the number out. It takes an afternoon, and it changes how you quote for the rest of your career.

Start with billable hours, because that's where the lie lives

A year has about 2,080 working hours if you work forty a week and never stop. You won't. Take out vacation, sick days, a week of dead time around the holidays, and you're closer to 1,880.

Then take out everything you do that nobody pays you for. Driving between jobs. The supply house run. Quoting work you don't win. Invoicing. Chasing the invoice you sent three weeks ago. Servicing the van. Sitting on hold with a manufacturer's technical line.

For a one-person operation, the realistic billable share is often somewhere around 55 to 65 per cent. Call it 60. That's roughly 1,130 billable hours a year, not 2,080.

Everything your business costs has to be recovered across those 1,130 hours. Price against 2,080 and you've built a business that loses money quietly, all year, in a way that never shows up as a bad day.

Track it for a month if you don't believe the estimate. Write down start and stop times on every job for four weeks. The gap between hours worked and hours billed is usually worse than people guess.

Add up the overhead honestly

Overhead is everything you'd still pay if you did no work next month. Sit down and list it:

• Vehicle payment, fuel, maintenance, tires
• Liability insurance, tool insurance, vehicle insurance, workers' comp if you have anyone
• Licenses, registrations, continuing education
• Tools and replacement of tools
• Phone, invoicing software, accounting software
• Accountant or bookkeeper
• Advertising, website, truck lettering
• Bad debt, because some of it won't get paid
• A warranty and callback allowance, because some of it will come back

That last one matters more than people allow for. If you spend a day a month going back to fix something, that's twelve unpaid days a year. Price for it or absorb it.

Do the arithmetic

Illustrative numbers, so you can see the shape. Your own will differ, and a bookkeeper or accountant should check them against your real accounts before you set a rate.

Say overhead comes to $30,000 a year. Across 1,130 billable hours, that's about $27 an hour before you've earned a cent.

Now your pay. Decide what you want to earn, then add the employer-side taxes, self-employment tax, and any benefits you're funding yourself. If you want $70,000 in your hand, the fully loaded cost to the business might be $85,000 or more. Across 1,130 hours, that's roughly $75 an hour.

Overhead plus labor: about $102 an hour. That's break-even. At that rate you're paid, the bills are covered, and the business itself has made nothing.

Profit is separate from your wage. It's what funds the second van, the slow February, the tax bill that arrives bigger than expected. Add 15 to 20 per cent on top and you're at $117 to $122 an hour. Round to $120 and that's your labor rate.

The number will feel high the first time you see it. It isn't. It's what you've been charging minus the parts you forgot.

Materials, and the markup trap

Materials get marked up. Not out of greed — you carry the cost, you make the run, you warrant the part, and you eat it when it arrives cracked.

Learn the difference between markup and margin, because it catches people every time. A 20 per cent markup on a $100 part gives you a $120 price and $20 of gross profit. That's a 16.7 per cent margin, not 20. If you need a 30 per cent margin, you need roughly a 43 per cent markup. Get this backwards across a year of parts-heavy jobs and the hole is real.

Fixed price or time and materials

Both work. They fail differently.

Fixed price wins more jobs. Customers like knowing the number. You carry all the risk of the unknown — the rotten joist, the pipe that isn't where the drawings said, the previous guy's creative wiring. On repeatable work you've done fifty times, fixed price is strictly better, because you get faster and keep the gain.

Time and materials protects you on anything you can't see into. Renovations, diagnostics, old buildings. The cost is that customers hate open-ended numbers and some will assume you're slow on purpose. Give a written range and a promise to call before you exceed it, and most of that resistance disappears.

Whichever you use, set a minimum charge. An hour of your time plus the drive plus the paperwork is never worth forty dollars, and a rate card that admits this saves you from your own politeness.

Write the quote so the argument happens before the work

A quote that says "bathroom — $4,800" invites a negotiation. A quote that lists scope, exclusions, what happens if something unexpected turns up, the deposit, the payment terms and the warranty gives the customer something to read instead of something to haggle with.

Name the exclusions explicitly. Making good on plaster. Disposal. Permits. Anything behind a wall you haven't opened. A variation clause that says changes get priced in writing before they're done is the single cheapest piece of protection you'll ever add.

Then check yourself against reality

Record estimated hours and actual hours on every job. Every one. At the end of a quarter you'll see exactly which kinds of work you underprice, and it's rarely the ones you'd guess. Most people are fine on the big jobs and bleeding on the small ones, because the fixed cost of showing up gets buried.

That record is also what gives you the nerve to quote properly. It's much easier to say $4,800 when you've got twelve past jobs showing it takes four days.

Raising the rate

You'll lose some customers. Run the math before you panic about it.

Raise your rate 15 per cent and lose 10 per cent of your volume. Revenue goes to 0.90 × 1.15, about 1.035 — slightly up. And you're doing 10 per cent less work to get it, across the same overhead. You've got a spare afternoon a week and more profit.

Give existing customers notice. Put it in writing, a month ahead, no apology and no long explanation. Price rises are ordinary. Treating one like a confession invites a negotiation you didn't need to have.

What actually kills trade businesses

Not a lack of work. The ones I've watched go under were busy right up to the end. They were quoting off a number they'd absorbed from a competitor years ago, funding the gap with the deposit from the next job, and calling that cash flow.

Being cheapest is the easiest position to win and the hardest to survive. Anyone can undercut you tomorrow, and the customers who chose you on price will leave the same day they do.

You're not asking for the price. You're telling them what the work costs.