Running your business
How to price trade jobs for profit: markup vs margin explained
What is a charge-out rate?
Your charge-out rate is what you bill per hour of labour. It must cover far more than the wage. Add up everything the business spends in a year: wages and super, insurance, vehicles, fuel, phone, software, tools, accounting, advertising and rent. Divide by the hours you can actually bill, not the hours you work.
Most tradies can bill far fewer hours than they work, once you take out travel, quoting, pick-ups, admin and time off. If you divide by the hours you work instead of the hours you bill, your rate will be too low.
What's the difference between markup and margin?
Markup is the percentage added to cost. Margin is the percentage of the sale price that is profit. They're not the same number.
- Cost $1,000, 25% markup: price $1,250. Margin is $250 of $1,250, which is 20%.
- Cost $1,000, 50% markup: price $1,500. Margin is 33%.
If you want a 25% margin, you need a 33% markup. Mixing these up is one of the most common reasons tradies earn less than they think.
Should you mark up materials?
Yes. You spend time choosing, ordering, collecting and warranting materials, and you carry the risk if something's wrong. A materials markup is normal and expected.
How do you know if a job made money?
Compare what you quoted with what the job actually cost: hours from timesheets, materials from receipts and bills, and any subcontractors. Job costing in your software does this automatically. Review it monthly and you'll quickly see which job types to price higher, and which to stop doing.
Signs your prices are too low
- You win almost every quote you send.
- You're busy all the time but the bank balance doesn't grow.
- You can't afford to replace a vehicle or take a holiday.