Key takeaways
- Markup and margin are different numbers, and confusing them quietly underprices every job.
- Your true hourly cost includes paid but unbillable time, trucks, tools, insurance and the office, not just wages.
- Price every job to recover its direct cost plus a share of overhead plus the profit you have decided you need.
- Track delivered margin against quoted margin on every job so the pricing model learns.
Trades owners in BC are usually excellent at the work and have learned pricing by watching what competitors charge and what customers accept. That gets a company to a few trucks. It rarely gets it past that point, because growth adds overhead faster than it adds billable hours, and prices set by habit do not keep up.
We help HVAC, plumbing, electrical, roofing and renovation companies rebuild pricing from the cost side up. The method below is the one we use. It takes an afternoon with last year's numbers and a job list.
Markup is not margin
Markup is the amount you add to cost. Margin is the share of the selling price that is left after cost. If a job costs you six hundred dollars in labour and materials and you sell it for one thousand, your markup is four hundred on six hundred and your margin is four hundred on one thousand. The same job, two very different percentages.
Many owners quote a markup percentage while believing it is their margin. When they later see the gross margin on the income statement, it is lower than they expected and nobody can explain why. Decide which number you manage and use it consistently in estimating software, job reviews and the weekly pack.
Work out what an hour really costs
Start with everything you pay a field employee for a year, including wages, vacation pay, statutory holidays, employer payroll costs, benefits and training. Then count the hours in the year that you can actually bill a customer, after holidays, sick days, travel, shop time, callbacks and quoting. Divide the first number by the second. That is the loaded labour cost per billable hour, and it is always higher than the wage.
Then add the costs that exist because that technician exists. The truck, fuel, insurance, tools, phone, uniforms and software. Spread them across the same billable hours. Ask your bookkeeper or CPA for last year's actuals by category so you are working from real numbers, not memory.
Recover overhead on every job
Overhead is the cost of the office, the owner's time that is not on the tools, the dispatcher, marketing, rent, accounting and everything else that does not attach to a single job. Add it up for the year, divide by the billable hours or the direct cost you expect to sell, and that gives you an overhead recovery rate.
Every job then carries direct labour at the loaded rate, materials at cost, equipment, permits and subcontractors, plus its share of overhead. If a job does not recover its overhead, the next job has to pay for it, and in a busy season that is how a company fills its calendar and still loses money.
Decide the profit, then set the price
Profit is not what is left over. It is a line in the price. Decide the margin the company needs to fund trucks, slow months, your own pay as owner and a return on the risk you carry, then price each job so that direct cost plus overhead plus that profit equals the selling price. Different kinds of work can carry different margins. Service calls, maintenance plans, installations and large projects each have their own risk and their own competitive pressure.
Write the target margin by job type into your estimating template so it is applied automatically and changed deliberately, never improvised at the kitchen table at nine at night.
Close the loop on every job
Pricing only improves if you measure what actually happened. For each completed job, compare quoted hours and materials to actual hours and materials, and quoted margin to delivered margin. Review the biggest misses with the estimator and the lead on the job. Over a season you learn which job types are consistently underquoted, which crews run over and which customers add scope without paying for it.
This review is also the foundation for a trades business that wants to sell one day. Buyers and lenders pay for a company that knows its margin by job type and can prove it.
Common pricing mistakes in trades companies
- Charging the wage rate plus a markup instead of the loaded cost per billable hour
- Treating the owner's hours on tools as free
- Pricing materials at the supplier invoice without handling, waste and warranty exposure
- Letting the busiest season set prices for the whole year
- Discounting to win work in a slow month without checking whether the job still recovers overhead