How do I make my quotes profitable?
Plenty of busy businesses are working hard for very little, because their quotes don’t cover their real costs. If you’re always flat out but the money doesn’t match, your pricing is the first place to look.
Start with your real hourly cost
Most people underestimate what an hour of labour actually costs. For each worker, including yourself, add up:
- Wages (and pay yourself a realistic wage, not whatever’s left over)
- Super at 12%
- Workers compensation and other insurance
- Leave: annual leave, sick leave and public holidays, which you pay for but can’t bill
- Payroll tax if your total wages are over the NSW threshold
- Vehicle, phone, tools and training for that person
Then divide by the hours they can actually bill in a year, not the hours they’re paid for. After leave, public holidays, travel, quoting, picking up materials, rework and quiet days, a full-time worker might bill 1,300 to 1,500 hours a year, not 1,976.
An example
| Per year | |
|---|---|
| Wages | $75,000 |
| Super (12%) | $9,000 |
| Workers comp and insurance | $4,000 |
| Vehicle, phone, tools | $14,000 |
| Total cost | $102,000 |
| Billable hours | 1,400 |
| Cost per billable hour | about $73 |
That’s before overheads and profit. A $70-an-hour rate on this worker loses money on every hour.
Add your overheads
Rent, accounting, software, advertising, admin wages, insurance and finance costs all have to be recovered from the work you do. Estimate your annual overheads, divide by total billable hours across the business, and add that to the hourly cost.
Then add profit
Profit isn’t what’s left over; it’s a cost of running a business, paying for risk, growth and the days things go wrong. Decide on a target margin and build it in.
Markup versus margin
This one catches a lot of people.
- Markup is profit as a percentage of cost.
- Margin is profit as a percentage of the selling price.
| Markup on cost | Gives a margin of |
|---|---|
| 25% | 20% |
| 33% | 25% |
| 50% | 33% |
| 100% | 50% |
If you want a 25% margin on materials and add 25% to the cost, you’ll only get 20%. On a large job, that gap is real money.
Price the risk
- Allow for contingencies on work where the unknowns are real, such as renovations or anything behind a wall.
- Spell out what’s included and excluded, so the inevitable extras become paid variations.
- Charge for variations in writing, before doing the work.
- Put an expiry date on quotes, especially where material prices move.
- Take deposits and progress payments on bigger jobs, so you’re not funding the customer. See profitable but cash poor?
Check every job afterwards
Compare quoted against actual hours and materials on each job. Over a few months, patterns appear: job types you consistently underquote, customers who always cost more than expected, and work that’s quietly your most profitable. Adjust your rates and quoting templates accordingly.
Tracking this is part of the job profitability and KPI work in our On Track and Growth packages. See also the KPIs that actually matter and signs tradies have outgrown their setup.