We thought building a quoting tool would be the easy part. Drag some line items into a template, add a price, send. Done, right?
Wrong. The quoting problem in the trades is a pricing problem. And the pricing problem is an overhead problem. And the overhead problem is something most contractors have never actually sat down and calculated.
We ended up building something more like a pricing engine than a fancy PDF generator.
The biggest mistake we see
Most small contractors price by intuition. Someone asks for a quote, you eyeball the job, think about what the last one cost, throw in a little more, and send a number. It feels like skill. For a while it is.
After a couple of years, it's usually why you're working sixty hours a week and still barely making ends meet.
The issue: you need to account for three things when setting your rate, not just one. Your labor. Your overhead. Your profit. If only labor is on your mind while you're quoting, you're paying for the other two yourself.
Overhead is the hidden variable
Ask a contractor about overhead and they think rent and insurance. The real list is much longer:
- Vehicle costs: payment, gas, insurance, maintenance, tires
- Phone, software, marketing, accounting, card processing fees
- General liability and workers' comp
- Office space, even if it's a corner of the garage
- Permits, dump fees, supplies that don't go on a single job
- Non-billable time: estimates, follow-up, paperwork, drive time
- Taxes, the self-employment kind that bite at year end
Add it all up over the year and divide by actual billable hours. That's your overhead cost per billable hour. Most one- and two-truck shops have a higher figure than the owners imagine. It's not uncommon for a contractor's overhead rate to exceed their labor rate.
This is the number we had to make visible in ToolbagCRM. If you can't see your true cost of doing business, every quote is a guess.
The markup math
Once you have your true hourly cost (labor plus overhead), add a real profit margin. Not whatever's left over. A margin that any viable business would build in.
Three numbers:
- Direct cost: what the job actually costs in labor and materials
- Burdened cost: direct cost plus your share of overhead for those hours
- Sell price: burdened cost plus the profit you want to make
Run this once and most contractors discover they need to be charging substantially more than they are. That isn't greed. It's reality.
The fear is always: will they say no? Sometimes. Usually they don't, because they never intended to shop your real costs against a competitor. They wanted a fair price from someone they trusted.
Flat-rate vs time-and-materials
Hourly rates make sense for emergency calls and small jobs where nobody knows how bad the situation is yet.
For anything bigger, flat-rate. A homeowner staring at a $4,200 quote isn't thrilled, but at least they know what they're committing to. Quote them $160 an hour plus parts and they're running math in their head the whole job, second-guessing every minute you're on the clock.
With flat-rate, the faster you work, the more you make. But flat-rate only works if you've done the math right. If you flat-rate a $4,800 job at $4,200, you're paying your customer to work.
Speed beats price
Here's the one that surprised us most in the data: the contractor who quotes within the hour wins more jobs than the one who quotes the lowest. A lot of customers call the first ones and never bother getting other quotes.
When you send a typed Word doc the following day, you're losing work to the person who sends a photo-laden estimate and a "sign here" link before supper.
We built ToolbagCRM's quoting flow around this. Price book set once, line items dropped onto a quote in under a minute from the field, customer approves and pays the deposit from their phone. The job shows up on the calendar. Actual hours and materials get tracked against the estimate.
One flat monthly rate for the whole team. The software doesn't get more expensive just because you hired more staff.
Originally published at toolbagcrm.com
Top comments (1)
The speed finding matches what I saw freelancing. I used to lose jobs to people who quoted higher than me, and it took me embarrassingly long to work out it was because they replied the same afternoon and I replied on Thursday. The customer had already mentally hired them.
Curious how you got at that in the data — are you comparing quote response time against win rate across ToolbagCRM users, or was it more from talking to contractors? The overhead-per-billable-hour number being higher than the labor rate is the kind of thing I bet most people don't believe until the tool shows them their own figure.