Pricing a job can be a notoriously difficult thing to do. In principle it may sound straightforward - just calculate the cost it will take to deliver the service or the finished product the customer is after. The reality is that it can be much more of a challenge.
To make things easier we’ve spoken to a number of different tradespeople to get their insight on the best way to price a job and some of the top tips to consider when going through this process.
A tradesman will price a job either at a fixed price or by using an hourly or day rate.
A fixed price is a set figure that is decided and agreed upon before the commencement of the job and is paid either in one payment or via weekly instalments. An hourly or day rate refers to the amount of money per hour or per day of work that is charged over the course of a project. The total bill for a project priced hourly will increase over time.
In general, fixed price payments are better for the customer as the cost of a project shouldn’t increase over time meaning if the project takes longer than expected the client isn’t responsible for the expense.
Hourly rates favour the tradesperson as the worker is guaranteed to be paid for their time. If the tradesperson overruns on the project they still get paid.
However, most tradies would still recommend working on a fixed price as using an hourly rate can put increased pressure on the project and encourages the customer to get more involved in the job, which can cause issues.
In this article, we’re going to focus on fixed-price projects, looking at how you should go about calculating your prices and how to make sure you win the right work.
If you’re a tradesperson trying to find out the best way to price your jobs then you will find there is no set method for doing this. To make things easier, we’ve put together a checklist of things to think about and complete when pricing a job.
To calculate the cost of a job, you should take into account the expenses incurred for the following:
We will go into some more detail for each of these points later in this article.
Part of the process of managing your customers and winning yourself the work involves deciding whether to provide a potential customer with an estimate before you create a full quote.
An estimate is a rough professional guess used to give a customer a sense of the cost of a job and is not legally binding. The figure given for an estimate can change.
A quote is an accurate calculation of the cost of a job and cannot be easily changed once accepted by the customer. A quote is legally binding.
Although on the surface this may sound like a straightforward question, amongst the trade community the opinion is split.
The reason for this is that there are significant risks and rewards associated with using an estimate.
Depending on your approach and style using an estimate may cause you more harm than good, however, if used correctly an estimate can be a great way to secure more work and weed out the tricky customers you don’t want to work with.
Let's start with the negatives:
There is essentially one main reason some tradies avoid estimates: price confusion.
The worry is, that by giving a customer an estimated figure, that number gets stuck in the customer's head and when it comes to giving the client a full quote - often priced higher than the estimate - the customer is disappointed and is unable to forget the previous figure.
On the other side of the argument, those tradespeople who do use estimates point to some of the benefits:
So where does this leave you, should you be using estimates? Well, we posed this question to some of our customers. 66% said they didn't create estimates, favouring going straight to a quote, while 34% preferred using an estimate first.
Clearly, there is a split opinion on this. The truth is there is no wrong or right way of doing things.
If you know you have already won the job or can be confident that you're not competing against a list of possible businesses, then you may feel comfortable going straight to the quote.
Equally, it may be that there is more work involved to win over the customer. If this is the case it may be best to provide an estimate first so you don’t lose out.
Although many tradespeople avoid using estimates we would actually recommend using a verbal estimate as part of your quoting process.
If handled correctly, it can be a great way to win more work, keep your customer happy and buy yourself the time to create a top-quality written quote.
Before you accept any job and even think about writing up a quote you should always make sure that you visit the site and speak to the client in person.
This is particularly important for builders and those working in construction as you need to be able to judge the job based on your own assessments.
If you’re just going off a customer's description or images that you've been provided with, you will miss crucial information and small details that only a professional like you could spot.
Make sure you go and visit the site and make your own assessments. Take pictures so you have a record of what the job will entail when you come to price it later.
You should also use the opportunity to speak to the client and get a sense of what kind of person they are. Are they tidy? Are they polite? Do they put you at ease or make you feel uncomfortable? You may be surprised to find that in most cases tidy customers makes for timely payments.
Once you’ve visited the site, don’t hang around writing up the quote. Get the information down and calculate your costs while the project is still fresh in your mind.
Whether or not you decide to open with an estimate, at some point you will need to provide your customers with a quote.
When completing this process, there are a number of things you need to think about to ensure your quote is priced correctly.
Before you provide your customer with the quote, put together a spreadsheet and work out your expenses in detail. Account for everything. There is nothing too small that you should leave off your cost breakdown.
The cost of your materials is your core expense that you need to cover. If this price isn’t calculated correctly then you're going to end up having to cover the cost of expensive materials and risk losing money on the job.
Make sure you check the prices of the materials you need ahead of time and make sure the supplier has those materials available. Double-check that the costs are accurate and enquire to see how the prices are likely to change.
We would always recommend stipulating in your quote that material prices are not fixed and that they may change. At a minimum, you should let the customer know that your quote has an expiry date and that it only stands for a set time.
It is also reasonable and expected that you will add a markup to your materials. This is a small profit that you add to the materials you use.
When it comes to doing this, we recommend keeping your material markup to a minimum.
Customers are more likely to question your prices if your material costs are far higher than your competition. If you feel you are able to charge more for your service add that value to your labour costs as it is in the quality of your handiwork that you set yourself apart.
For a more detailed breakdown of how to price your materials, check out our blog on managing materials where we offer insight into how to manage these costs and how you can easily keep on top of price changes by using the right technology.
Time is money and this should be reflected in the way you price your work. Every part of the job, from the time you take to source your materials, to the time you spend travelling to the job, should go into your price.
Also, remember to account for the time you will lose. For example, if you’re going to work 200 days on a job, you will lose 25 of those days to bad weather - so if the job costs £200 a day you should actually charge £220.
A good guide when it comes to deciding what hourly rate to set is to check what your competitors in the area are using. These rates can vary quite significantly from region to region, so it is important to adjust your prices based on where you are working.
Ask around and find out what other professionals in your industry are charging and base your rates on that. In general, set your prices around the middle of the range, but adjust as you feel is appropriate.
If you’re a plumber or electrician you can get a good sense of these regional differences in earnings by checking out our blogs on salaries for plumbers and salaries for electricians.
This is about clarifying what is and what isn’t included in the job. You need to remember that in most cases your customers are ignorant. Even the most well-meaning customer can make incorrect assumptions about what your work covers.
For example, if someone is hiring your labour to produce a roof structure, let them know that the provision of scaffolding isn’t included and that you're not going to install insulation and you’re not going to add roof coverings, etc.
If the client is under the assumption that these extras are provided and you haven’t included those costs in your quote, then the customer will be unhappy or worse still, you may have to cover the cost.
You have to remember, that when working on a job, it is likely that you will make some mistakes. This is normal and to be expected.
To cover the cost incurred you should always include a margin for error. This should be calculated as a percentage, say about 5% of your total costs.
This also applies to other aspects of the job. There will always be unforeseen expenses that come into play, whether that’s an additional bit of work needed to complete the job or if the project takes longer than expected.
By allowing for these additional expenses you ensure you have a financial buffer that should help protect your profits and avoid a situation where you don’t make any money from a job.
Your overhead includes all the additional expenses that you have to pay just to run your business. These costs aren’t specific to any one job but are constant expenses that you have to account for so that you can stay in business.
Make sure you have accounted for these expenses. Although you shouldn’t expect to cover all these costs in one job, for each project you work on, part of your quote should go towards paying these bills.
You should be making a profit from every job.
Maybe this sounds obvious, but you might be surprised how easily you can lose this margin over the course of a project.
If you haven’t been careful when putting together your quote and haven’t allowed for some of the expenses covered in the above points, then it doesn’t take much for your profits to take a hit.
Depending on your experience, the type of job, the competition in the industry and the customer you are working for, the amount of profit you can expect to make will vary.
If you have been working in the industry for a while and can afford to be picky with the jobs you accept, then you can set a relatively high-profit margin.
If you are new to the industry and are just starting out you may have to accept slightly lower profits. However, never drive your prices unrealistically low. You should always ensure you are making money from your work and make sure your quote is not too tight.
Remember the customer values the work you are doing. Think about what the service you are providing is worth to that customer and price accordingly. As a guide, the value of the job should be in line with the value of the property.
Customers just looking for the cheapest deal are usually not worth working for. With these customers, you may find you end up losing money and fighting over small expenses. This kind of work is not worth your time.
VAT can be a notoriously tricky tax to deal with. It’s not particularly straightforward and may or may not be applicable to your business depending on different situations and what type of business you run.
To clear things up, we’ve broken down the key concept behind VAT and whether or not this tax is applicable to your trade business.
VAT stands for value-added tax. In simple terms, VAT is a tax added to most products and services and is paid for by the customer at the point of sale. Although businesses have to pay VAT initially, this cost is passed on to the customer meaning the business doesn’t end up losing money on VAT. Essentially the business acts as a tax collection service for the government.
VAT is collected in stages down what is called the chain of supply. This means that VAT is charged at each stage of purchase. So every time a product is sold down the chain, starting from the initial manufacturer through to the final consumer, VAT is charged at each stage.
Day to day, you will pay VAT all the time. Many products and goods include a VAT charge, however, this isn’t always displayed to you as the customer.
Businesses also have to pay VAT on the materials and products they buy, however, they can claim this VAT back from the government. When the business then sells these materials and products on, down the chain, they will again have to add VAT, meaning that the tax is passed on to the end customer.
If your business turnover is £85,000 or less, then you do not have to become VAT registered and therefore do not have to pay VAT. If your turnover is greater than £85,000 then you need to register for VAT within 30 days and begin paying.
Even if your business has a turnover that is less than £85,000 you can still register as a VAT business if you choose.
A Sole trader only needs to charge VAT if their business is VAT registered, something that is only necessary to do if their turnover is greater than £85,000. VAT does not need to be charged on labour, only on goods or materials that are passed to the customer. A sole trader that purely offers a service and doesn’t sell any parts or materials doesn’t need to charge VAT.
It is a legal requirement that you show VAT on invoices. This should be displayed as a separate number alongside the final price on any invoice.
However, you do not need to display VAT on quotes and proposals. Some businesses choose to quote excluding VAT as it can lead to queries from customers who may look for ways to avoid the tax.
In 2023, the standard VAT rate is 20% however it can vary slightly on a case-by-case basis. Some goods classed as protective equipment (eg. baby seats) are only charged at 5% VAT. If you are unsure
Once you have created your spreadsheet and carefully calculated all your expenses and profit margins, you are ready to present your quote to the customer.
Remember, a big part of effective pricing and delivering a quote that your customers are happy with is good customer communication. The right approach can make the difference between a quote getting accepted or you losing the job to a competitor.
For a deep dive on this topic, we took some time to explore how to improve your customer communication so that you never miss out. If you’re interested in finding out more about this and how to improve your customer service, give our blog a read.
The quote you provide shouldn’t be an exact replica of the price calculations spreadsheet that you completed when calculating your costs.
Your quote should include the items or services you’re delivering - including material costs, your labour costs and any additional costs you want to visualise. You may also want to include VAT on the quote.
We would discourage showing your customer the full price breakdown you used to calculate your costs as this can lead to customers questioning your methods, and not understanding how the prices relate to each other.
Your quote should be detailed and informative but you don’t need to break down your prices to the same level you would when calculating costs yourself.
Some tradespeople don’t even separate out their material and labour costs but price a job under one figure. This may be something you want to try.
To make this process easy for you, we recommend using quoting software. Payaca is a great way to go.
Payaca offers software that allows you to create digital quotes with all your items and products neatly laid out. You can also add multiple choice and optional extras to your quotes that allow you to upsell on products.
It’s definitely worth a look, check out the free trial.
A big part of quoting that tradies often underestimate is the importance of selling the quote to the customer. When you're competing for a job against multiple businesses it’s easy to get dragged into a price war as you and your competitors' race to the bottom.
Don’t do this.
If you are relying on offering the lowest prices to win the work, then you’re setting yourself up with an unsustainable business model.
The key to delivering a quote that customers accept is about translating the value of what you offer to the customer. Focus on what marks your service out. Break down the different aspects of the job and explain the extra bits that you offer that add value to your service.
If your customers are better able to understand what you offer then it is easier for them to see the value. And if the customer sees the value, then they are going to be more open to accepting your price.
This is where something like Payaca really shows its value as with their software you can really impress the customer with stand-out quotes that make you look professional. These little details that give the impression that you know what you’re doing, really make a difference in helping you win the work.
You need to put yourself in the customer's shoes. They need to understand why you are the best and why your service is worth it. If you’re able to present examples of your previous experience or qualifications in the industry, this can impress the customer.
You may feel that qualifications don’t count for much against experience, but remember, the customer is unlikely to be educated in the industry and a qualification or award is an assurance of quality that they can refer to.
Show them your credentials and give examples of similar work you’ve done, this is all incredibly valuable.
This is a very important part of the quoting process, not so much for winning jobs, but to protect your business.
Always take a deposit before you begin any job. This should be 25% to 50% of the total project cost. You should then break the rest of the job down into staged payments - usually paid weekly.
The reason for this is that if you don’t do this then you leave yourself at the mercy of the customer.
If you have to wait for the full payment at the end of the job, then there’s nothing to stop the customer from refusing to pay once the work is done. It also means that you have to find the money for the initial upfront costs which may mean you need to take out a loan.
By taking a deposit and receiving weekly staged payments you ensure that at each step of the process you are paid and it means that you don’t need to pay for any large upfront costs out of your own pocket.
We would also recommend providing a set of written terms and conditions that your customer can sign. This is a good idea as it helps to cover your back if there are any issues while working on the job.
When it comes to pricing there are so many different aspects of the process to think about. Sadly it’s never quite as straightforward as it might seem. Hopefully the advice included in this article will help you to get a better idea of how to price properly and make sure you don’t end up losing out.
As a final summary remember the following when thinking about how to price your jobs:
When first starting out make sure to tick off these ten tips. If you do, you won’t go far wrong.
We understand that the market is tough out there and sometimes there may be pressure on you to cut costs or accept unappealing work. Where you can always try to take jobs that you are interested in and only work for customers you can build positive relationships with.