Job cost is what the work consumes. Markup is the percentage added to cost. Gross margin is the percentage of the selling price left after direct job costs. A 25% markup does not create a 25% margin: $100 of cost marked up by 25% sells for $125 and produces a 20% gross margin.
What to carry into the work
- Count burdened labour, materials, equipment, subcontractors, and job-specific overhead.
- Choose whether you are targeting markup or margin before using a percentage.
- Check every price against capacity and overhead, not only competitor prices.
- Compare estimated and actual job cost so future quotes improve.
1. Build the real job cost
Direct job cost is more than the wage paid while tools are running. Include employer payroll costs, paid non-billable time allocated to jobs, materials, delivery, disposal, equipment, vehicle cost, subcontractors, permits, and any expense that exists because the job exists.
Keep general overhead visible as well. Software, insurance, bookkeeping, phones, rent, marketing, and unbillable estimating time may not belong to one job, but prices across all jobs must cover them. A price that covers direct cost but contributes too little to overhead can keep a crew busy while the business loses cash.
2. Know the difference between markup and margin
Markup measures profit against cost: (price minus cost) divided by cost. Gross margin measures gross profit against selling price: (price minus cost) divided by price. The words sound interchangeable, but the denominators are different.
To reach a target gross margin, divide cost by one minus the target margin. If a job costs $600 and the target gross margin is 40%, the calculation is $600 ÷ 0.60, producing a $1,000 selling price. Verify the result: $400 gross profit divided by $1,000 revenue equals 40%.
Adding 40% to $600 gives a price of $840. The $240 gross profit is only a 28.6% gross margin—not 40%.
3. Price the billable hour you can actually sell
A technician may be paid for forty hours but produce fewer billable hours after travel, training, quoting, cleanup, callbacks, meetings, and gaps. Divide weekly labour and allocated overhead by realistic billable capacity, not paid hours, to find a usable hourly floor.
Minimum charges or service-call fees can recover the fixed time in small jobs. Driving, parking, diagnosis, invoicing, and payment follow-up still occur when the repair itself takes fifteen minutes.
4. Price uncertainty openly
Unknown conditions should not be hidden inside a mysterious high price. Use a paid diagnostic, an allowance, a clearly defined assumption, or a staged quote. Tell the customer what is known, what is not, and how additional work will be approved.
Contingency is appropriate when a risk is real and bounded. It is not a substitute for understanding the work. Track when contingency is used so repeated surprises become better estimating rules.
5. Close the estimating loop
After the job, compare estimated labour, material, and subcontractor cost with actual results. Record why they differed: scope change, poor productivity assumption, supplier increase, callback, weather, access, or an estimating mistake.
Review patterns by service type, not only by individual job. The goal is not to punish every variance; it is to make the next quote more accurate and identify services that need a different price, process, or minimum charge.
- Estimated versus actual labour hours
- Quoted versus purchased material quantities
- Unbilled changes and callbacks
- Gross profit dollars and gross margin percentage
- One lesson to use on the next similar job
Use the math as a decision tool
No single target margin fits every trade, market, job size, or stage of business. Demand, risk, positioning, warranty, speed, and customer value also affect price. The useful outcome is a consistent calculation you can explain and review.
This guide is operational education, not accounting or tax advice. Confirm payroll burden, tax treatment, and financial targets with a qualified adviser who understands your business and province.