How to price a project: cost, overhead and the margin that is actually left
Price is not a guess, nor what your competitor charges. It is direct cost plus overhead plus the margin you decide to earn. The math that separates those who grow from those who only bill.
Price is not a guess, and it is not copying what your competitor charges. Price is direct cost plus overhead plus the margin you decide to earn. Getting this math wrong is what separates the company that grows from the one that bills a lot and has nothing left at the end of the month.
Markup and margin are not the same thing
This is the mistake that costs the most money. Markup is what you add on top of cost. Margin is what is left inside the final price. They are not equal:
| Markup | Percentage added on top of cost. A US$100 cost with a 20% markup becomes a US$120 price. |
| Margin | Percentage of profit within the price. In the same case, the US$20 out of US$120 is a 16.7% margin, not 20%. |
In other words, a 20% markup is not a 20% margin. Those who confuse the two work believing they earn more than they do. We went deeper into this in the article 50% markup is not 50% profit.
The anatomy of a price
| Direct cost | Labor, materials, subcontractors and equipment for that specific project. |
| Overhead | The cost of keeping the company running: office, insurance, vehicle, administration and license. |
| Margin | The profit left after everything is paid. It is what finances the next phase of the business. |
Overhead: the cost of existing
Overhead is what the company spends even when no project is running. Today it takes 10% to 15% of revenue for a well-run contractor. If you do not build overhead into the price, it comes out of your profit. We explain it in full here.
How much to mark up in 2026
There is no magic number, but there are market reference ranges today:
| Item | Reference range |
|---|---|
| General contractor markup | 20% to 30% on cost. 15% no longer covers the cost of operating. |
| Labor | Mark up 25% or more, to cover burden, taxes and supervision. |
| Materials | 7.5% to 10% for standard items, reaching 20% to 35% for specialty items. |
| Target net margin | 8% to 12% on residential construction, 10% to 18% on remodeling. |
Pricing by your competitor's price is betting that they did the math right. They almost never did. If you copy the price of someone who is in the red, you go into the red with them.
The step almost everyone skips
Calculating the real cost of labor. A US$30-per-hour helper does not cost US$30. With payroll taxes, workers' comp and non-productive time, it gets close to US$50. Those who estimate using the raw hourly rate lose money on every project. We detailed this math here.
The right price is not the highest or the lowest. It is the one that covers all costs and still leaves the margin you decided to earn. That decision is yours, not the market's.
Discover your business phase
The Business Score organizes your answers and gives you an initial reading: indicated phase, signs observed and the main point of attention.
Founder of FourRise Consulting. Business owner with direct experience in the construction sector in the United States and creator of the F.O.U.R. Method.