Table of Contents

• Introduction
• Overhead Recovery Method
• Time And Materials Pricing Strategy
• Material Markup Policy
• Gross Profit Target Setting
• Frequently Asked Questions
• Conclusion

Introduction

You win jobs, work hard, and still wonder where the profit went. This guide explains what to charge, why it protects your business, and how to apply the numbers on real jobs. We will cover the math that separates winning bids from unpaid overtime, show practical examples from kitchens and bathrooms, and deliver tools you can use today. You will leave with clear steps to quote confidently, keep costs straight, and avoid those Friday afternoon pricing regrets that eat your weekend.

Overhead Recovery Method

Let’s start with the fixed costs you pay whether you have one job or ten: vehicle insurance, phones, accounting, software, rent, salaries, and your own pay. If you do not recover these through each job, margin disappears even when your crews are efficient. The simplest way many small teams use is to calculate a yearly overhead total, then spread it across expected billable hours to get a per-hour burden.

Step-by-step approach:

1. List annual indirect costs: rent, utilities, admin wages, tools, vans, software, marketing, warranty callbacks.
2. Add owner’s salary and benefits. Your pay belongs in overhead, not in profit.
3. Estimate realistic billable labor hours for the year. Remove holidays, sick days, training, travel, and admin time. Most two-person crews manage around 1,450–1,600 billable hours per person in a good year.
4. Divide overhead by billable hours to get a burden per hour. Example: 120,000 overhead ÷ 3,000 hours = 40 per billable hour.
5. Add this burden to your base wage cost, then layer your profit on top when you price work.

Common mistakes to avoid:

• Using 2,080 hours per person. Real field hours are lower.
• Forgetting owner pay. If you leave yourself out, profit targets turn into your wages.
• Splitting overhead by revenue percentage when your mix of labor and materials swings job to job. Hour-based recovery is more stable for small remodelers.

Quick example:

• Technician wage cost (fully loaded with payroll taxes) = 28 per hour
• Overhead burden = 40 per hour
• True cost before profit = 68 per hour
• If you want 20% margin, your sell rate needs to be 85 per hour (because 68 ÷ 0.80 = 85). Price below that and you are paying to work.

Pro move: Track overhead quarterly and adjust your burden if fuel, rent, or admin load changes. Underestimating by 5 per hour over 1,500 hours is 7,500 lost profit.

At about this stage, most contractors hit the spreadsheet wall. This is where Donizo helps in the real world: quotes include your labor burden behind the scenes, material rates by region, and correct VAT for France, Italy, and Spain. You speak your scope, Donizo prices cleanly, and your margin math stays intact.

Time And Materials Pricing Strategy

There are jobs where you cannot pin down the scope because everything depends on what is behind that wall or what the HOA will finally approve. The T&M approach is built for this uncertainty, but only if you control the rules and documentation.

Use it when:

• Hidden conditions are likely (old wiring, rotten subfloors, unknown pipe runs).
• The client needs fast-start emergency works before a complete design.
• Third-party decisions will change the plan (architect details, building management access).

Non-negotiable controls:

• Signed work order with hourly labor rates, travel rules, and material handling fees.
• Daily field log with labor hours and material tickets.
• Client sign-off cadence: daily or every 2–3 days for transparency.
• Not-to-exceed cap with a review trigger at 80% of the limit.

Here is a concise checklist you can show clients to build trust and avoid disputes:

Pricing details that protect you:

• Charge material handling: a small percentage or a flat fee per trip covers procurement time.
• Travel and parking: spell out zones or a per-visit fee. Urban jobs can eat hours just finding a spot.
• Minimum call-out: half-day minimum stops micro-visits killing your week.

Note for EU residential work: itemize VAT separately on invoices and never mix taxes into your rates. The tax does not make you money. Keep your labor rate above cost plus overhead, then apply the correct VAT at billing.

Material Markup Policy

Clients price-check materials on their phones. That is fine if you set expectations early and explain what your supply chain actually includes: sourcing, quality control, returns, storage risk, and warranty support. A written policy removes emotion from these conversations.

Guidelines by category:

Practical tips:

• Quote installed items, not supply-only, when you are responsible for finish quality. You control the brand and batch, you control the outcome.
• For client-supplied items, add a line called Handling and Integration and spell out exclusions: delays, damage in transit, incompatibility.
• On special-order products, collect deposits aligned with supplier terms and delivery windows.

Communication script you can use:

• We are happy to install items you love. When we supply, you get one point of warranty and our team manages replacements. When you supply, we add a small handling line and we are not responsible for manufacturer defects.

A policy like this reduces margin-killing back-and-forth. Put it in your proposal in plain language and have clients initial it.

Gross Profit Target Setting

Revenue is vanity. Labor utilization and GP are what keep your business calm. Start with the net income you want, then build backward to a project-level target.

Simple framework:

1. Decide your annual net target after paying yourself a market-rate salary.
2. Add overhead to get required gross profit dollars for the year.
3. Divide by expected revenue to get a GP percentage goal.
4. Price each job to hit or beat that percentage, then check actuals weekly.

Example for a two-person remodeling team:

• Owner salary: 60,000
• Overhead (including salary): 180,000
• Desired net after salary: 40,000
• Required gross profit dollars: 180,000 + 40,000 = 220,000
• Expected revenue: 700,000
• Target GP percent: 220,000 ÷ 700,000 ≈ 31.4%

Applying it to a bathroom job:

• Estimated direct costs: 12,000 labor + 6,500 materials = 18,500
• To hit ~31% GP, selling price should be cost ÷ (1 − GP%) = 18,500 ÷ 0.69 ≈ 26,812
• Round to 26,800–27,200 depending on risk, access, and client decision speed.

Markup vs margin quick reference:

Two field habits move the needle:

• Record actual labor hours by task. Even a photo of the whiteboard at day end, saved to the job, is enough to spot slippage.
• Benchmark similar scopes. If every shower rebuild takes 3.5 days with two techs, plan 56 hours, not 40.

Data note: Eurostat’s construction cost indices showed moderate increases through 2024 across much of the EU, with materials easing and labor rising. That mix punishes flat pricing. Build targets from your current costs, not last year’s memory.

CTA — When you want the math handled for you: Donizo rolls your labor burden, regional material pricing, and the right VAT into clean proposals, then tracks actuals so you learn faster job by job.

Frequently Asked Questions

What is the fastest way to explain margin to a client?

Margin is the profit portion of the selling price after paying direct costs. If a job sells for 10,000 and costs are 7,000, your margin is 3,000 or 30% of the sell price. It is not a secret surcharge; it is what keeps you in business to honor warranties and pay your team.

How do I handle clients who want to buy all materials themselves?

Allow it with guardrails. Add a handling line for coordination, exclude responsibility for manufacturer defects or shipping delays, and require items be on site before scheduling. Offer a supply-and-install option with one-point warranty for clients who value convenience.

Is T&M fair for homeowners?

Yes, if rules are clear. Put rates and handling fees in writing, share daily logs, set a not-to-exceed cap with an early warning, and require quick approvals for unexpected conditions. Transparency prevents surprises and keeps trust intact.

What markup should I use on special-order items?

Use a higher uplift than standard stock because coordination time, lead time risk, and damage-in-transit exposure are all on you. Pair the uplift with deposits that mirror supplier terms so you are not financing the job.

How often should I recalc my overhead burden?

Quarterly is ideal for small teams. Fuel, rents, and admin costs move during the year. Small changes accumulate; a 3–5 per hour miss over hundreds of hours quietly erodes profit.

Conclusion

You do not need a finance degree to price work that pays you well. Build a clean overhead burden, choose the right approach when scope is uncertain, set a simple materials policy, and price from a GP target instead of hopeful markup. Track hours by task, compare plan versus actual weekly, and adjust rates before small misses become big ones. If you want the admin handled while you focus on site work, use Donizo: speak a scope to create a professional proposal, apply correct VAT for France, Italy, or Spain, track progress and approvals, and see exactly who owes what. That is how you protect your margin and get your evenings back.