A remodeler should charge the job’s direct cost divided by one minus the target gross margin, where that margin covers both company overhead and net profit. If your overhead runs 20% of revenue and you want 10% net profit, you need a 30% gross margin, which means marking up your job costs by about 43%, not the 20% many contractors use.
Price = Direct job cost ÷ (1 − (Overhead % + Net profit %))
This guide walks through the three steps: find your overhead percentage, set a target margin and convert it to markup, and price a real job. It includes a markup vs. margin table you can use as a quick calculator.
Step 1: Find your overhead percentage
Overhead is everything it costs to run the company that you can’t charge to a single job. Divide last year’s overhead by last year’s revenue to get your overhead percentage.
| Overhead item (annual) | Example |
|---|---|
| Office or shop rent | $24,000 |
| Owner’s salary for non-field work | $90,000 |
| Office manager | $52,000 |
| Trucks, fuel, and maintenance | $30,000 |
| General liability and auto insurance | $22,000 |
| Software and phones | $8,000 |
| Marketing | $8,000 |
| Accounting and legal | $6,000 |
| Total overhead | $240,000 |
With $1,200,000 in revenue, this company’s overhead is 20% of revenue. Every job has to carry its share of that 20% before it earns any profit.
What does not belong in overhead
Costs that come with a specific job are direct costs, not overhead: crew wages, materials, subs, permits, and dumpsters. Payroll taxes and workers’ comp for field crews belong in your loaded labor rate on each job, not in overhead. If you count a cost in both places, you price it twice; if you count it in neither, you lose it.
Step 2: Set your target margin and convert it to markup
Your gross margin has to cover overhead plus the net profit you want to keep. With 20% overhead and a 10% net profit goal, your target gross margin is 30%.
Margin is measured on the price; markup is measured on the cost. To convert between them:
Markup = Margin ÷ (1 − Margin)
Margin = Markup ÷ (1 + Markup)
Markup vs. margin calculator
Find your target margin in the first column. The second column is the markup to apply to your job costs. The last two show what that means on $10,000 of cost.
| Target gross margin | Markup on cost | Price on $10,000 cost | Gross profit |
|---|---|---|---|
| 15% | 17.6% | $11,765 | $1,765 |
| 20% | 25.0% | $12,500 | $2,500 |
| 25% | 33.3% | $13,333 | $3,333 |
| 30% | 42.9% | $14,286 | $4,286 |
| 35% | 53.8% | $15,385 | $5,385 |
| 40% | 66.7% | $16,667 | $6,667 |
| 45% | 81.8% | $18,182 | $8,182 |
Read it the other way too: a 25% markup only earns a 20% margin. If your overhead alone is 20%, a 25% markup leaves nothing for profit.
Step 3: Price the job
Add up the job’s direct costs from your estimate, then divide by one minus your target margin. For a kitchen with $45,000 in direct costs and a 30% target margin:
Price = $45,000 ÷ (1 − 0.30) = $64,286
What the old “10 and 10” rule leaves on the table
Many contractors still add 10% for overhead and 10% for profit. Applied one after the other, that is a 21% markup. Here is the same kitchen priced both ways for a company with 20% overhead:
| Line | “10 and 10” (21% markup) | 30% target margin (42.9% markup) |
|---|---|---|
| Direct job cost | $45,000 | $45,000 |
| Price to the homeowner | $54,450 | $64,286 |
| Gross profit | $9,450 | $19,286 |
| Gross margin | 17.4% | 30.0% |
| Overhead share (20% of price) | $10,890 | $12,857 |
| Net profit | -$1,440 | $6,429 |
Under “10 and 10,” this company loses money on a job that looks profitable on the estimate. The rule only works for a business whose overhead is truly about 10% of revenue, which is rare for a remodeler with an office, trucks, and insurance.
If the market won’t pay your price
Cutting your markup is the last lever, not the first. Look at lowering overhead, choosing jobs with a better margin profile, or doing more revenue with the same overhead. Then price from your real numbers.
What margins remodelers actually run
The average remodeler runs about a 30% gross margin and keeps about 6% as net profit. In the National Association of Home Builders’ latest Remodelers’ Cost of Doing Business Study, covering fiscal year 2024:
| Measure (share of revenue) | Average remodeler, 2024 |
|---|---|
| Gross profit margin | 29.9% |
| Operating expenses, including owner’s compensation | 23.6% |
| Net profit margin | 6.3% |
That 6.3% net margin was the highest NAHB has reported for remodelers since 1996. Gross margins were tighter in 2021, at a record-low 24.9%.
What this means for your pricing
- A 30% gross margin is roughly the industry average, not an aggressive number.
- Operating expenses ate most of the average remodeler’s gross margin. To net 10%, you either need a gross margin above average or overhead well below 23.6%.
- If your markup is around 21% to 25%, your gross margin is around 17% to 20%, well under what the average remodeler needs just to cover overhead.
Pricing mistakes that quietly cut your margin
- Pricing labor at the bare wage. Use a loaded rate that includes payroll taxes, workers’ comp, insurance, and paid time off. Our labor burden guide shows how to calculate it.
- Leaving out the small stuff. Dumpsters, permits, cleanup days, deliveries, and your own project management time belong in the job cost.
- Discounting to win the job. On the $64,286 kitchen above, a 5% discount is $3,214, half of the job’s $6,429 net profit.
- Pricing change orders below your normal markup. Changes cost more to manage, not less. Use the same markup or higher.
- Copying a competitor’s price. You don’t know their overhead or whether they are making money.
- Using last year’s overhead. Recalculate your overhead percentage every year, and after any big change such as a new hire, a new truck, or a new office.
- Never checking the result. Compare each finished job’s actual margin with the margin you priced it at. That is the only way to know your pricing works. Our job costing guide shows how.
Where software helps
Good pricing needs two things: a proposal built from your real costs, and a record of what each job actually cost so you can check the margin afterward.
MotionOps covers both for contractors whose jobs run for days or weeks:
- Proposal builder with e-signatures, so the price you calculated is the price the homeowner signs
- Change orders priced and signed on the job
- Time, materials, and expenses tracked by job, the actual costs you compare against your estimate
- Job profitability for every project, so you see which jobs hit your target margin
Try MotionOps free for 14 days and price your next proposal from your own numbers.
FAQ
What is a typical general contractor markup?
There is no single number, because markup has to cover your own overhead. The traditional “10 and 10” works out to a 21% markup. The average remodeler’s gross margin of about 30% (NAHB, 2024) corresponds to a markup of about 43% on job costs.
What is the difference between markup and margin?
Markup is profit as a percentage of cost. Margin is profit as a percentage of price. A $10,000 cost sold for $12,500 has a 25% markup and a 20% margin.
Is a 20% markup enough for a remodeler?
Usually not. A 20% markup gives a 16.7% gross margin. If your overhead is more than that share of revenue, every job loses money even when it runs on budget.
Should I mark up subcontractor costs?
Many remodelers do, because managing, scheduling, and guaranteeing a sub’s work takes your time and carries your risk. Whatever markup you use on each cost category, check that the whole job still hits your target margin.
How do I calculate overhead and profit for a job?
Add your overhead percentage and your net profit goal to get a target gross margin, then divide the job’s direct costs by one minus that margin. With 20% overhead and 10% profit, divide costs by 0.70.
Should I charge more for small jobs?
Yes. Small jobs carry the same setup, travel, and paperwork as big ones. Many remodelers set a minimum job price so small jobs still cover their share of overhead.
