Busy Doesn’t Always Mean Profitable: Pricing and Job Costing for Tradies

Your phone is ringing, the diary is full and the team is flat out. Yet when the bills are paid, there is less left over than you expected. For a trade or construction business, being busy and being profitable are two different measures. The gap often starts with the quote.

A sustainable price needs to recover the cost of delivering the job, contribute to the costs of running the business and leave a return for the risk you take. Here are six practical ways to check whether your work is doing that.

1. Cost the whole job, including your own time

Materials and hours on site are only the beginning. Include time for collecting supplies, travel between jobs, setup, cleanup, supervision and any expected return visits. Allow for subcontractors, equipment hire, delivery charges and waste disposal where they apply.

Cost your own time as well. A job can appear profitable when the owner’s labour is treated as free. For pricing purposes, use a realistic cost for the work you perform, even if the way you pay yourself differs from an employee’s wages.

Employee labour also costs more than the base hourly wage. Build a labour cost that reflects the employment costs and paid non-productive time your business actually incurs. Avoid counting the same cost in both your labour rate and your overhead allowance.

2. Make every quote contribute to overheads

Insurance, software, vehicle costs, administration and accounting still need to be paid when no one is on site. Review these overheads over a full year and spread them across a realistic level of chargeable work.

For example, if annual overheads are $60,000 and the business expects 2,000 chargeable labour hours across its team, it needs to recover $30 per chargeable hour for overheads alone. That allowance is before direct labour costs and profit. The figures are illustrative: use your own costs and capacity.

Do not divide overheads by every hour the team is paid for. Leave, quoting, training and gaps between jobs reduce the hours available to recover those costs. If overheads are already recovered through another part of your pricing model, do not add them again.

3. Know the difference between markup and margin

Markup is the amount added to cost, expressed as a percentage of cost. Margin is the profit at that level, expressed as a percentage of the selling price. They are not interchangeable.

Using figures excluding GST, a job costing $1,000 and priced at $1,250 has a $250 surplus. That is a 25% markup, but only a 20% margin: $250 divided by $1,250.

To achieve a 25% margin on a $1,000 cost base, the price is $1,000 divided by 0.75, or $1,333.33 before GST. The general calculation is: selling price = cost divided by (1 minus target margin). Express the margin as a decimal, such as 0.25.

Be clear about what your cost base contains. If it includes only direct job costs, the margin still has to cover overheads. If it includes a reasonable allocation of overheads, the remaining amount is closer to an operating profit allowance. Neither calculation automatically represents after-tax profit.

4. Record changes before they become lost profit

Small extras add up: another visit, a different fitting, extra preparation or a change in materials. Record what changed, the added time and materials, and the agreed price adjustment. Confirm scope and price with the customer before carrying out extra work wherever practical, following your contract requirements.

Keep the original quote separate from approved changes so you can see whether the original work was profitable and whether the extras paid their way.

5. Compare the quote with the actual result

After each job, compare quoted and actual labour hours, materials, subcontractors and other direct costs. Then compare the expected job margin with the result. Use the same cost definitions on both sides so the comparison is meaningful.

Look for patterns. Are labour hours repeatedly underestimated? Are delivery charges missing? Do certain jobs produce more callbacks? Are discounts reducing the margin more than expected? Use those findings to improve the next quote.

A short review of your last five completed jobs can reveal more than simply checking whether total sales increased.

6. Check when the cash arrives

Profit and cash flow need separate attention. A profitable job can still put pressure on the bank balance if materials and wages are paid well before the customer pays you.

Map expected receipts against supplier and payroll payments, invoice promptly at the agreed milestones and follow up overdue amounts. Consider whether your payment arrangements fit the size and duration of the work, subject to the rules and contract terms that apply to your trade.

Your next step: review five jobs before quoting the next one

For each of your last five completed jobs, write down the selling price, actual direct costs, labour hours and the amount left to cover overheads and profit. Compare these with your quote. Choose one recurring shortfall and fix it in your next estimate.

The aim is to understand which work rewards your effort and price it with confidence. A full diary is valuable when the work supports a healthy business.

Build a stronger business with Allomes Accounting

Allomes Accounting helps business owners across Newcastle, Lake Macquarie and Maitland understand their costs, review pricing and plan cash flow. If you are winning work but not seeing the return you expected, contact Bryce on 0401 439 139 or email bryce@allomes.com.au to discuss your numbers.

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