Most first quotes are low because they are built the way an employee thinks: the old hourly rate plus a bit. Build it the way a one-person company has to: your costs, the days you cannot bill, the overhead, then profit as its own line. Then write the quote so it protects you, because a vague one loses you money twice, once on the price and again on the argument at the end. Here is the rate, the margin, the document, and what to say when the customer has a cheaper number.
How new contractors set prices, and why it loses money
The pattern is nearly universal. Look at what you were paid on the books. Add something for being the boss now. Maybe copy what you think the guy down the road charges. Send it.
What that number ignores: the employer's share of your payroll tax and comp that now has your name on it, the truck, the tools, the insurance, the license and bond, the phone, the software, the weeks you will not bill, and the hours on every job that nobody pays for. A tradesperson who was on $33 an hour and now bills $45 has taken a pay cut and does not know it yet. And a bid that matches a competitor is a bid built on numbers you cannot see: their costs, their overhead and their mistakes. A lower bid is often a contractor who forgot something and may not be in business next year. The mistakes that sink new contractors puts "pricing off materials and labor only" at the top of the list for a reason.
The rate, built one step at a time
This is the worked example from How to price your work so you actually make money, and it is the spine of every quote you will ever write:
| Step | Per hour | What it is |
|---|---|---|
| Employee wage | $33 | What landed in your pocket per hour worked |
| Plus the employer's share | $41 | Payroll taxes, workers' comp, the half your boss paid |
| Spread over billable hours only | $57 | You are paid for 187 days, not 261, so the same money has fewer hours to come out of |
| Plus overhead | $80 | Truck, fuel, tools, insurance, phone, software, licensing |
| Plus 15% profit | $94 | Profit is the business's, not your wage |
$33 to about $94 is 2.8 times, and not one line is greed. Every one is something an employer was quietly paying that is now yours. Change the overhead or the billable days and the multiple moves, which is exactly why you build your own number rather than borrowing one. What Should I Actually Charge? does the back-solve from your real costs, and the Pricing a Job: Cost Checklist is every cost that belongs in it, including the ones people leave out and then absorb.
Two things to notice. The billable-days line is the one new contractors skip, and it is worth more than a quarter of the rate: 52 weeks minus vacation, sick days, training and the weather leaves roughly 187 billable days, and you will not bill eight hours on every one of them once travel, quotes and supply runs come out. And the profit line is not "whatever is left if the job goes well". It is a separate line you add on purpose, because it is what replaces the truck, absorbs the surprise and lets the business grow.
Four things every price covers, then profit
Cost-plus is the reliable method and it is not complicated. Every price has to cover your labor, the payroll burden on that labor (your own, even when the "crew" is you), the materials, and a share of your overhead. Then profit on top, and a common target is 15 to 20 percent net, meaning what is left after every cost including your own wage is paid.
Watch the markup-versus-margin trap, because it quietly loses money on every job. A 20 percent markup on cost is not a 20 percent margin on price: mark $1,000 of cost up by 20 percent and you sell at $1,200, and $200 is only 16.7 percent of that price. If you meant to keep a fifth of the sale, you needed to mark up by 25 percent. Decide which one you are talking about before you type the number.
Materials, sales tax and waste
Materials go into the quote at what they cost you, and in most states that includes the sales tax you paid at the supply house, because you are treated as the end user of your materials and the customer never sees a tax line. In the states that treat contractors as retailers you buy tax-free with a resale certificate and collect from the customer instead. Get the model wrong and the state assesses the uncollected tax on you. Do I charge my customer sales tax on a construction job? is the rule; confirm your state before the first price goes out.
Count before you price. A takeoff is quantities, not dollars: read the scale, work through the plans in a fixed order so you never double-count, sort every item as a count, a length, an area or a volume, and add waste, roughly 10 percent for simple square work and 15 percent or more for diagonal, patterned or cut-heavy layouts. Then apply prices. How to do a material takeoff from a set of plans and the Takeoff From Plans: Checklist cover it, and the Material Quantity Sanity Check catches the order that is a third too big. Your own last ten jobs, costed afterward, are a better pricing basis than any national database (Estimating and invoicing software).
Should this quote be free?
A quick ballpark, yes; it is a marketing cost you pay to win a simple job. Real work, no: a detailed design, a measured takeoff that takes hours, a diagnostic visit, a long drive. That is skilled labor the customer would otherwise take for free and shop to a cheaper contractor, and the fix is a diagnostic or estimate fee, told to them before the visit and credited toward the job if they go ahead. The fee is rarely the problem; the surprise is. Should I charge for estimates? has the line for each trade.
What the quote has to say to protect you
A good estimate does two jobs at once: it makes the job easy to say yes to, and it pins down exactly what you will and will not do for the price. Most disputes and most lost jobs trace back to a vague one. Every quote carries:
- Your business and license details, the customer and the job address.
- A specific scope, in quantities, locations and counts rather than "electrical work", tied to dated drawings where there are any. Scope of work and exclusions.
- An exclusions list, the single most protective line you write. Who pulls permits, whether demo and haul-off are in, patching and painting, concealed conditions, work by other trades. If you do not list it, the customer assumes it is included and you carry the burden of proving otherwise. What Is NOT Included: Exclusions List attaches to every quote.
- Allowances for anything the customer has not chosen yet, like fixtures or tile: a stated dollar budget, so the rest of the price is firm and the undecided part is flagged.
- Options. A good-better-best set lets the customer choose instead of haggle.
- A deposit and a payment schedule tied to real milestones, not calendar dates, so a payment lands at each stage and you are never financing the whole job. Several states cap the deposit on residential work and some require escrow, so check yours. Deposits and progress billing.
- A timeline, an expiration date and a signature line. Material prices move; the number should not be open forever.
Then two rules that turn the quote into money. First, get it signed before you start: for residential work many states legally require a written contract once the job is over a small dollar amount, and a verbal deal is close to impossible to enforce anyway. If you sign it at the customer's home for $25 or more, they get three business days to cancel for a full refund under the FTC's Cooling-Off Rule and you must hand them the notice, so do not order custom materials inside that window. Second, every change to the scope gets a change order, signed before the extra work begins, with a stated overhead-and-profit percentage locked into the original contract so there is nothing to argue about. The Change Order Form generates one in a minute.
How to write an estimate that wins the job and protects you is the full version, The contract that protects you is what the state may require in it, the Estimate Cover Letter is the page on top that gives them a reason to choose you, and the Quote Health Check catches the gaps before the customer does.
When they have a cheaper quote
It will happen on the first job or the second. The wrong answer is to match it.
- Do not price off numbers you cannot see. You do not know what the other quote left out. A lower bid is often a contractor who forgot payroll burden, overhead or profit, and sometimes one who is not licensed or insured at all.
- Explain what is in yours, in the customer's language. Licensed for this work, with general liability of $1,000,000 per occurrence, a written scope so they know exactly what they are getting, an exclusions list so there are no surprises, a warranty in writing. Tell them how to check a license on the state's own system (How to check a contractor's license is written for them). An unlicensed contractor is the homeowner's problem too: no lien rights, no enforceable contract, and in some states no recourse when the work fails.
- Offer to remove scope, never to cut the price. If the budget is the budget, take out the shed or the extra circuit. The rate stays, because the rate is what the business runs on.
- Be willing to walk. The customer who only cares that you are cheap is the customer who will argue about every extra and pay late. Winning fewer jobs at a fair price builds a base you can raise prices from; winning cheap jobs builds a base you cannot escape.
And when a quote goes quiet, it is usually silence rather than price. The Quote Follow-Up Sequence is three short messages for exactly that.
Raising it later is harder than starting right
Cutting your price to win early work trains you to lose money, attracts the customers who only care that you are cheap, and sets a rate you will fight to climb back off. A five-star review from a fairly priced job counts exactly the same as one from a job you lost money on, and it comes with a customer who will refer you rather than shop you. Start at the number the stack says, and the raise in year two is a percentage, not an apology. Your first jobs and your first 90 days on your own is the same rule applied to the calendar.
Where to go next in this section
- The money reality: what you will actually take home (15.6), where each dollar of the quote ends up.
- Setting up properly before the first job (15.7), for the contract, the license and the sales-tax model behind this quote.
- How to get your first customers when nobody knows you (15.5), the people you will be sending it to.
- When things go wrong on your first jobs (15.14), which is what the exclusions list is for.
- Your first year on your own: what actually happens (15.4).
- Before you quote a job that needs a permit or crosses a license threshold, the Do I Need a Building Permit? and Contractor License Checker tools, and the Contract Value and License Threshold Record.
Common questions
How much should I charge per hour as a new contractor?
There is no national hourly rate for any trade, and copying one off a forum is how new contractors go broke. Build it from your own numbers: the wage you need, the employer's share of payroll tax and comp that is now yours, spread over the roughly 187 days a year you can actually bill, plus your overhead, plus profit as its own line. This site's worked example takes a $33-an-hour employee wage to about $94 an hour billed, and every step is a cost an employer used to carry. Put your own costs through the same stack.
What profit margin should a new contractor add?
A common target is 15 to 20 percent net profit, meaning what is left after every cost including your own wage is paid, added as a deliberate line rather than whatever happens to be left over. Know margin from markup before you set it: a 20 percent markup on cost is only a 16.7 percent margin on the price, so if you want to keep a fifth of the sale you mark up by 25 percent. If your number only covers your wage and overhead you are not competitive, you are slowly going broke.
Should I match a competitor's cheaper quote?
No. A lower bid is built on numbers you cannot see, and it is often a contractor who forgot payroll burden, overhead or profit, or who is not licensed or insured. Explain what is in your price in the customer's language, licensed, insured, a written scope, an exclusions list and a warranty, and offer to remove scope rather than cut the rate if the budget is fixed. Be willing to walk. Cheap jobs attract the customers who argue about extras and pay late, and set a rate you will struggle to climb off.
How much deposit can I ask for on a first job?
Enough to cover the materials and setup you pay for before the first progress payment, and no more than your state's legal cap. Many states cap residential deposits at a dollar figure or a percentage of the contract, whichever is lower, and some require the money to be held in escrow, so check yours before you ask. Tie the rest of the payments to visible milestones rather than dates, keep the final payment small, and never spend a deposit on custom materials inside the customer's three-day cancellation window.
Should I charge for the estimate itself?
Charge nothing for a quick ballpark, and charge for real work: a detailed design, a measured takeoff that takes hours, a diagnostic visit to find a fault, or a long drive. For HVAC, electrical and plumbing a diagnostic or service-call fee is standard and fair, usually credited toward the repair if the customer goes ahead. Tell them about the fee before the visit. The fee is rarely what loses the job; the surprise is.
The honest bit
- The $33 to $94 stack is this site's worked example, with its assumptions (187 billable days, 15 percent profit, a stated overhead) written down. It shows the method. It is not a rate for your trade or your area.
- Deposit caps, written-contract requirements and the sales-tax model are all set by your state. Check Working in Your State before the first quote.
- The $25 in-home threshold and three-business-day window under the FTC's Cooling-Off Rule are 2026 federal figures. Verify at ftc.gov.
- This is general guidance, not legal, tax or pricing advice.
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