Most contractors who struggle financially aren’t struggling because of their trade skills. They’re struggling because of the way they’re pricing their work.
After working with hundreds of construction business owners, the same pattern keeps coming up. A contractor with 20 or even 30 years of experience, fully booked, great reputation, respected in their community, and still stressed about making payroll. Still not paying themselves what they’re worth. Still wondering where the money went.
The answer is almost always the same. The markup is too low and they don’t fully understand why.
Most contractors get tripped up by this and it’s not their fault because nobody teaches it in trade school.
Markup is what you add on top of your costs. Margin is what you actually keep. They are not the same number.
Say a job costs you $10,000 in labor and materials. You add an 18% markup and charge the client $11,800. That $1,800 feels like profit but it isn’t. Not yet. That money still has to cover your insurance, truck payments, fuel, software, marketing, accounting, and every other overhead expense the business carries. What’s left after all of that is your actual profit.
For most construction companies, overhead runs between 10% and 25% of revenue. If your overhead is 20% and your markup is 18%, you are paying to work. Every job you take is costing you money.
Most contractors who underprice their work know on some level that the numbers are off. But they don’t fix it because of what they tell themselves. My competitors are cheaper. I don’t want to lose the job. I just want to be fair.
Those beliefs feel reasonable. But when you charge less than your business actually costs to run, you’re not being fair to your clients. You’re avoiding an honest conversation with yourself about whether the business is sustainable at those rates.
The contractors who raise their prices to where they actually need to be still get jobs. They get the right jobs. Clients who value quality, show up prepared, and don’t push back on every line item. Their profit doesn’t inch up slightly. It jumps. Some go from barely breaking even to clearing over $100,000 in profit in a single year with the same crew, the same quality of work, and the same market.
Start by calculating your real overhead. Pull your bank and credit card statements from the last 12 months. Add up everything that wasn’t tied directly to a specific job. Divide that number by your total revenue. That percentage is your overhead rate and it’s probably higher than you think.
From there, set a target profit of at least 10 to 15%. Then work backwards to figure out the markup you actually need. For most contractors that number lands somewhere between 40% and 60%, sometimes higher depending on the business.
The last piece is learning to talk about value rather than just cost. Pricing becomes an issue when the value isn’t clear. When clients understand what they’re actually getting, reliability, expertise, accountability, a job done right the first time, the right ones will pay for it.
Thirty years of hard work deserves a real profit. Fix the pricing and the rest follows.
Ready to find out exactly where your margins are leaking?
Book a free strategy call with Beyond Books Solutions at beyondbookssolutions.com.
