If you’ve been under-pricing your services to win jobs, you’re actually undervaluing your work and setting yourself up for burnout. It’s time to fix that pricing formula once and for all. The truth is, you don’t have to be the cheapest option to be successful—you just need a strategic pricing formula that reflects the value you bring to the table.

Let’s walk through a bulletproof pricing formula that will ensure you earn what you deserve—without losing clients or projects.

Step 1: Calculate Your Base Costs

First, you need to understand exactly what it costs to do the work. Don’t just focus on materials and labor; you need to factor in all of your business expenses. Here's how to break it down:

Formula for Base Costs:

Materials Costs + Labor Costs + Overhead Costs = Base Costs

  1. Materials Costs: Add up all the costs for supplies—wood, paint, fixtures, etc.
  2. Labor Costs: This includes your team’s wages, payroll taxes, and any benefits.
  3. Overhead Costs: Think about business expenses like insurance, licenses, tools, office space, and utilities. Divide your monthly overhead by the number of projects you expect to handle to get an accurate estimate.

Step 2: Add a Profit Margin

Now that you’ve calculated your base costs, you need to add a profit margin. Many contractors fall into the trap of under-pricing their services to compete, but that’s how you end up working harder and getting paid less. The profit margin ensures you’re not just covering your costs but also making a fair profit.

Formula for Profit Margin:

Base Costs x Desired Profit Margin = Profit

  • Example: If your base costs are $10,000 and you want a 20% profit margin, you’ll add $2,000 to the final price.

Tip: Typical profit margins for contractors range from 15%-30% depending on the type of work, industry demand, and expertise.

Step 3: Factor in Risk and Contingencies

Every project carries a degree of risk. From unexpected complications to price increases, you need to be prepared. That's why a contingency fund is essential.

Formula for Risk/Contingency:

Base Costs + Profit + Risk/Contingency Fund (5%-10%) = Final Price

Example:
If your base costs and profit come to $12,000 and you add a 10% contingency ($1,200), your final price would be $13,200.

Step 4: Add a Value-Based Premium

Your value goes beyond just materials and labor. The experience, reputation, and quality you bring to the table are worth charging for. This is your value-based premium.

Formula for Value Premium:

Final Price + Value-Based Premium = Total Price

Example: If your clients trust you for a high-quality finish or a fast turnaround, add a premium for that. If you feel your premium is worth $1,500, your total price becomes $14,700.

Step 5: Adjust Based on Market Conditions

Pricing should be dynamic, not static. The market is always shifting—whether it's high demand for custom work or inflation causing material prices to rise. You need to adjust your prices based on the market and your project’s demands.

Formula for Market Adjustment:

Total Price + Market Adjustment = Final Adjusted Price

Example: If demand is high, consider increasing your price by 5%-10%. If your final price is $14,700, a 5% market adjustment would bring it to $15,435.

Conclusion: The Bulletproof Formula for Pricing

Now you have a clear, bulletproof pricing formula that ensures you’re covering all your costs, earning a fair profit, and factoring in any potential risks. By calculating base costs, adding a profit margin, factoring in contingencies, charging for your value, and adjusting for market conditions, you can confidently price your work and earn what you deserve.

Stop under-pricing and start pricing like a professional. When you follow this formula, you’ll not only keep your business profitable, but you’ll also build a reputation for being a fair and high-quality contractor.