More new contractors go out of business from underpricing than from a lack of work. That sounds backwards, but it is true. You can be busy every single week and still be quietly losing money on every job, because the number you quoted never covered everything the job actually cost you.
The good news is that pricing correctly is not complicated once you know the formula. The problem is that almost nobody explains it to new contractors clearly, so most people default to the simplest, most dangerous method they can think of: add up materials, add up the hours times an hourly rate, and quote that. It feels reasonable. It is also how good contractors quietly go broke.
Want the setup path before pricing mistakes pile up? Build your free Contractor Lane roadmap before you spend money.
The math most new contractors get wrong
Materials plus labor is not a price, it is a cost. If you only charge for materials and the hours you spend swinging a hammer, you have covered the job itself and nothing else. You have not covered the truck, the insurance, the phone bill, the slow week between jobs, or the profit that is supposed to be the entire reason you started a business instead of staying an employee. Quoting materials plus time might feel fair to the customer, but it is the single most common reason new contractors work constantly and still cannot get ahead.
Overhead is real and it does not pause between jobs. Overhead is everything you pay to keep the business running whether or not you are actively working: your bond premium, your liability insurance, your vehicle, tools, phone, software, marketing, and your own time spent quoting jobs you do not win. Every completed job has to carry its share of that cost, or the business is being quietly subsidized by your own unpaid time.
Markup is profit, and it is not optional. Markup is the percentage added on top of your true costs so the business actually makes money, not just breaks even. This is different from margin, and confusing the two is a common trap that leads to underpricing even when a contractor thinks they added a healthy cushion. Markup exists so you can reinvest in the business, cover the bad months, and eventually pay yourself like the owner you are, not just the laborer.
The real formula. A sound price accounts for materials, labor, your share of overhead, and markup for profit, in that order, every single time. Skip any one of those four and the number you hand a customer is not a price, it is a guess that happens to look official on paper.
Every trade and every job is different. A kitchen remodel, a roof replacement, and a fence install do not carry overhead the same way, and material costs swing constantly. There is no single number that works for every job, which is exactly why so many new contractors freeze up or default to lowballing just to win the bid.
Material price swings need to be priced in, not absorbed. Lumber, metal, and specialty materials can move significantly between the day you quote a job and the day you actually buy the materials. A price that only works if costs stay exactly flat is a fragile price. Building in a reasonable cushion for this, rather than hoping costs hold steady, protects you from a job that looked profitable on the day you quoted it turning into a loss by the time you finish it.
Know your numbers before the customer asks for a discount. Homeowners often ask for a lower price, and a contractor who does not know their real costs has no way to know whether saying yes is a reasonable compromise or a straight loss. When you know exactly what a job costs you at every level, materials, labor, overhead, and margin, you can respond to a discount request with confidence instead of guessing whether you can still afford to say yes.
Why most people underprice, and why it stalls them
The pattern is predictable. A new contractor wins a job by quoting low, does the work, gets paid, and it feels like a win because money came in. Then the next job comes in at the same underpriced rate, because that is what "seemed normal" the first time. A few months in, the business is technically busy and functionally broke, and the contractor has no idea why, because on paper the money is moving.
The other common trap is the opposite mistake: guessing high out of fear of underpricing, losing bids to competitors, and assuming the trade itself does not pay well. Both problems come from the same root cause, which is not knowing your real numbers well enough to price with confidence instead of a shrug.
Underpricing is especially dangerous for new contractors because it compounds. A low price on job one sets a customer's expectation for job two. It sets a tone in a neighborhood if word spreads about your rates. And it makes it harder to raise prices later without feeling like you are suddenly overcharging people who got used to a bargain. Getting the formula right from your very first quote is far easier than trying to correct course after a year of underpriced work.
This is exactly why we built a free tool for this. Build your free Contractor Lane roadmap and run your next job through the roadmap builder before you send the quote, not after.
Where Contractor Lane comes in
Contractor Lane is the front door for starting a contracting business in Washington, and pricing correctly is one of the most important skills we help new contractors build before they burn out chasing volume at a loss. We do not hand you a generic formula and walk away. The free roadmap builder helps you get the startup order right before you spend money, and the paid roadmap is where deeper pricing and first-job guidance belongs.
Pair that with the free roadmap builder so your business setup, registration, bond, insurance, Google, website, payments, and first-customer steps happen in the right order. We catch new contractors at the very start, before the accounting apps and lead-sellers show up trying to sell you software for a business that has not finished its foundation yet. When you want deeper, ongoing help dialing in your numbers trade by trade, the paid roadmap is built for exactly that.
Ready to launch?
Pricing a contracting job is not materials and time. It is materials, labor, overhead, and markup, every time, on every job. Get that formula wrong and you can be the busiest contractor in your city and still lose money. Build your free Contractor Lane roadmap before you spend money on tools, software, or paid leads.
Build your free Contractor Lane roadmap today and quote your next job with confidence.
General educational information for people starting a business in Washington. Requirements and fees change. Contractor Lane is not a law firm or tax advisor.