pricing guide for contractors

Knowing what a job costs you is only half the equation. The other half is deciding what to charge. These are different problems. Cost estimation tells you the floor — below this number you lose money. Pricing strategy tells you where above that floor to set your quote.

cost-plus pricing

The most common approach. Add up your materials, labour, subcontractors, and overheads. Then add a markup — typically 15-25% for most trades.

Cost-plus is transparent and easy to calculate. The risk is that your cost estimate is wrong — which is where most contractors get burned. If that £5,650 is based on optimistic numbers, your 20% markup gets eaten by overruns and you end up working for your day rate with no profit.

Fix: run your costs through a Monte Carlo simulation first. Get the P80 cost, then apply your markup to that. Now your markup is actual profit, not an overrun buffer disguised as profit.

value-based pricing

Price based on what the work is worth to the customer, not what it costs you. A new kitchen that adds £30,000 to a property value is worth more than the £12,000 it costs to install. Customers in expensive areas expect to pay more and are often happy to if the work is good.

Value-based pricing works best when you have a strong reputation, good reviews, and a portfolio. If you are competing on price alone, this approach is hard to pull off. But if customers come to you because of your quality, you should be charging for it.

competitive pricing

Pricing based on what everyone else charges. Check what other contractors in your area quote for similar work and position yourself accordingly. This is fine as a sanity check. It is dangerous as your primary strategy.

The problem: you do not know what the other contractor's costs are, what their overheads look like, or whether they are actually making money. Matching someone else's quote could mean matching their losses.

which approach to use

In practice, most successful contractors use a blend:

• Start with cost-plus to find your floor. Use realistic cost estimates with proper uncertainty ratings, not best-case numbers.
• Check against competitive rates in your area. If you are way above or below market, understand why.
• Adjust upward using value-based thinking when the job warrants it — complex work, tight timelines, premium finishes, your specialist expertise.

Whatever strategy you use, the foundation is knowing your true costs. If your estimate is wrong, your pricing strategy does not matter. Get the estimate right first. Then decide your margin.