How to Price a Job as a Contractor: A Comprehensive Guide for Tradesmen and Women in the UK

Rhino Trade Insurance 23 August 2024

Pricing a job accurately is one of the most crucial aspects of being a successful contractor. Whether you’re a seasoned tradesperson or just starting, getting your pricing right ensures you stay competitive while maintaining profitability.

This guide will walk you through the essential steps to price a job effectively, providing examples from various trades to illustrate the process.

Understanding the Basics of Job Pricing

Before diving into the specifics, it’s important to understand the key components that makeup job pricing:

Your labour Costs: This includes your hourly rate and the number of hours you anticipate the job will take.
Material Costs: The cost of all materials required to complete the job.
Overheads: These are the ongoing business expenses not directly tied to a specific work, such as insurance, vehicle upkeep, and office supplies.
Profit Margin: The amount you add on top of your costs to ensure your trade business makes a profit.

Step-by-Step Guide to Pricing a Job

Calculate Your Labour Costs

The first step in pricing a job is to determine your labour costs. This involves deciding on your hourly rate and estimating how long the job will take.

Example: Pricing a Plumbing Job

Let’s say you’re a plumber asked to fix a leaking tap. You decide your hourly rate is £50, and you estimate the job will take 2 hours.

Labour Cost = Hourly Rate x Time Labour Cost = £50 x 2 Labour Cost = £100. Easy.

Estimate Material Costs

Next, you need to calculate the cost of the materials required for the job. Always consider both the primary materials and any added supplies.

Example: Pricing an Electrical Job

Imagine you’re an electrician hired to install new lighting in a kitchen. You’ll need to account for the cost of the lights, wiring, switches, and other necessary supplies.

Materials Cost:

Lights: £100
Wiring: £30
Switches: £20
Miscellaneous: £10

Total Material Cost = £160

Factor in Overheads

Your overheads are the indirect costs of running your business. These should be spread across all your jobs to ensure they are covered. Estimate your monthly overheads and divide them by the average number of jobs you complete each month.

Example: Calculating Overheads

Assume your monthly overheads are £1,000 and you typically complete 10 jobs per month.

Monthly Overheads = £1,000 Average Jobs Per Month = 10
Overheads Per Job = Monthly Overheads / Average Jobs Per Month
Overheads Per Job = £1,000 / 10 Overheads Per Job = £100

Add Your Profit Margin

Adding a profit margin ensures your business remains viable and grows. A typical profit margin might range from 10% to 30%, depending on the complexity and risk of the job.

Example: Adding Profit Margin

Continuing with our plumbing example, let’s add a 20% profit margin to the labour and material costs.

Total Costs (Labour + Materials + Overheads) = £100 (Labour) + £160 (Materials) + £100 (Overheads) Total Costs = £360
Profit Margin = 20% of Total Costs Profit Margin = 0.20 x £360 Profit Margin = £72
Total Price = Total Costs + Profit Margin Total Price = £360 + £72 Total Price = £432

Pricing Different Trade Jobs: Examples

You’re a carpenter asked to build custom shelves in a living room.

Labour Costs: You estimate it will take 8 hours to complete, and your hourly rate is £40. Labour Cost = 8 hours x £40/hour = £320

Material Costs: You’ll need wood, nails, varnish, and brackets. Materials Cost:

Wood: £150
Nails and brackets: £20
Varnish: £30
Total Materials Cost = £200

Overheads: Using our previous example, the overhead per job is £100.

Profit Margin: You decide on a 25% profit margin.

Total Costs (Labour + Materials + Overheads) = £320 + £200 + £100 = £620 Profit Margin = 25% of £620 = £155
Total Price = £620 + £155 = £775

Example 2: Pricing a Painting and Decorating Job

You’re hired to paint a medium-sized room.

Labour Costs: You estimate it will take 5 hours, and your hourly rate is £35. Labour Cost = 5 hours x £35/hour = £175

Material Costs: You’ll need paint, brushes, rollers, and masking tape. Materials Cost:

Paint: £50
Brushes and rollers: £20
Masking tape: £10
Total Materials Cost = £80

Overheads: As calculated, £100 per job.

Profit Margin: You set a 15% profit margin.

Total Costs (Labour + Materials + Overheads) = £175 + £80 + £100 = £355 Profit Margin = 15% of £355 = £53.25
Total Price = £355 + £53.25 = £408.25

Additional Tips for Accurate Job Pricing

Get Detailed Specifications: Always get a clear and detailed brief from the client. Ambiguity can lead to underestimation.

Visit the Site: Whenever possible, visit the site to assess the job's requirements accurately.

Consider Contingencies: Allow for unexpected issues by including a contingency amount in your estimate.

Keep Up with Market Rates: Regularly review market rates for labour and materials to ensure your prices remain competitive.

Use Software Tools: Utilise job management and estimation software to streamline your pricing process.

Communicate Clearly: Ensure your clients understand your quote, including what is and isn’t included in the price.

Let Us Help With Your Trade Insurance

Pricing a job accurately is essential for the success and sustainability of your trade business. By carefully calculating work costs, materials, overheads, and profit margins, you can create fair and competitive quotes that meet your client’s needs while ensuring your trade business remains profitable.

By following the outlined steps and examples in our guide, you can develop a reliable pricing strategy that can be adjusted and refined as you gain more experience and understanding of your trade and market conditions. Remember, the goal is to balance competitiveness with profitability, ensuring that your pricing reflects the quality and value of the work you provide.

And with that, why not check out how Rhino Trade Insurance can help with your insurance policy. Tradesmen and women all over the UK are choosing Rhino Trade Insurance for our comprehensive and tailored cover, competitive rates, and exceptional customer service. Protect your business with policies designed specifically for your trade now by getting a quote online or by calling us on 0116 243 7904 to ensure you're covered for all eventualities.