Winning a job is not the same as earning a profit. For independent contractors, three numbers tell different stories: the amount you charge, the amount the job costs, and the amount left after those costs.
1. Markup and gross margin are not the same
Markup compares added profit to cost. Gross margin compares gross profit to the selling price. Mixing them up can make a quote look more profitable than it is.
| Example | Amount |
|---|---|
| Estimated job cost | $100.00 |
| 25% markup on cost | $25.00 |
| Selling price | $125.00 |
| Gross profit | $25.00 |
| Gross margin | 20% |
To achieve a 25% gross margin on the same $100 job cost, the target selling price is $100 ÷ (1 − 0.25) = $133.33 (rounded). Gross margin is calculated as (selling price − job cost) ÷ selling price.
2. Build the quote from your own costs
Generic industry averages are rarely precise enough for an individual job. Before sending a quote, make a working estimate of:
- Materials and current supplier prices, including expected waste
- Labor hours, pay rates, and subcontractor costs
- Equipment hire, travel, permits, and job-specific expenses
- An explicit overhead allowance and desired margin
- What is included, excluded, and subject to a written change order
3. Track approved changes separately
Unrecorded scope changes can turn a reasonable quote into a weak result. Log each requested change, its estimated impact, the customer's approval, and the updated job total. Don't silently treat unapproved work as collectible revenue.
4. Compare estimated costs with actual costs
After the work is complete, compare the estimate against actual material invoices, labor hours, and other job expenses. Record what was billed and paid. Use the difference to improve the next quote, rather than assuming that a healthy-looking invoice means a healthy margin.
5. A quick pre-quote checklist
- Have I used current costs for this specific job?
- Have I separated markup from target gross margin?
- Have I included realistic labor time and job overhead assumptions?
- Are the scope, exclusions, and change-order process clear?
- Can I compare the final job result to the original estimate?
Working on plumbing quotes? See the OTMELIO Plumbing Profit Control System, built around a plumbing price book and job-costing workflow.
Educational illustration only. Figures are hypothetical, exclude taxes and may not cover all overhead. OTMELIO provides planning tools, not professional tax or accounting advice. Excel-compatible software is required for the downloadable workbook; see the marketplace listing for exact contents and terms.