General contractor pricing guide – How much do they charge?

As a general contractor, you know that your job never ends. Being responsible for a construction project’s successful completion is no small challenge. But knowing the answer to, “How do construction contractors get paid?” is key to effective cash flow management.

Being able to price a wide range of jobs is a skill that every general contractor needs, but it takes time to develop. Luckily, consulting a general contractor pricing guide helps.

If you need guidance when it comes to pricing construction jobs, you’ve come to the right place!

In this general contractor pricing guide, you’ll learn:

• How to price contractor jobs.
• Factors to include in your general contractor estimate.
• The typical contractor markup on subcontractors.
• Average contractor rates to give you a starting point.
• Strategies for risk management and mitigation.

You can take what you learn from this guide and apply it to your business standards to create a general contractor pricing guide that serves your business’ specific needs.By the end, you’ll be able to answer, “How do construction contractors get paid?”

How general contractors estimate jobs

A major part of a general contractor’s job is to figure out how much money to charge in construction contracts. Drawing from our experience, this is especially challenging when the property owner wants an exact price upfront.

As a general contractor, you know that it takes time, experience, and knowledge to give your client the right answers. The best way to do that is to provide them with an accurate cost estimate, so that you both agree on a fair price before diving into a project.

After putting it to the test, providing a general contractor price sheet drives client satisfaction to generate repeat customers and more revenue for your business.

A price sheet is also helpful if you opt for the “general contractor cost-plus percentage of cost” route. This pay structure means that your clients must pay your actual costs incurred, plus a fixed fee for profit.

As per our expertise, adding this option to your initial price sheet means you avoid having to give complicated explanations to your client so that you can get straight to discussing the work that needs to be done.

Before coming up with a price sheet, consider incorporating these easy-to-forget factors into your costs:

• Local tax laws and regulations.
• Industry payment standards including state and local payment laws.
• Credit terms and agreements.
• Insurance and liability coverage.
• Your warranty period.
• Change orders and extra work.
• Retainage of subcontractors.

Keep all these elements in mind when you’re fulfilling your contractual obligations. That way, there won’t be any confusion when you ask, “How do construction contractors get paid?”What do general contractors do?

Before you answer, “How do construction contractors get paid?” conclusively, you have to understand your specific job as a general contractor. 

Every client has unique needs, and it’s up to you to set boundaries and outline what your business does and doesn’t do. 

Also, general contractors must supply crucial elements to a construction project, such as:

• Material.
• Labor.
• Equipment.

You might provide these services yourself if you own or are affiliated with a construction company. If not, then you’re responsible for hiring a team of subcontractors and supervising them to ensure that they complete each job. 

Even if you do have a construction business, depending on the needs of a particular job, you may need to subcontract other parties that work beyond your scope, such as with:

• HVAC services.
• Electrical work.
• Plumbing services.

Developing good relationships with different subcontractors is a huge factor in determining your success as a general contractor. You’ll want to keep a list of trusted trade professionals who you know will deliver great results at a reasonable price.

Creating a general contractor pricing guide that includes the contact information for all of the subcontractors you’ve worked with in the past makes it easier to create estimates in the future. 

Based on our first-hand experience, when it comes to estimating the price of a job, there are several techniques that you can use. Two of these types are:

1. Stick estimating.
2. Unit price estimating.

Both methods are appropriate responses to the question of, “How do construction contractors get paid?” Let’s discuss which one will work best for your business.

Method #1: Estimating by stick

Stick estimating involves counting every piece of material and determining every hour of labor involved in a contract. 

This technique gives you the most billing and invoicing accuracy, as you deal with exact numbers. That said, after conducting experiments with it, estimating by stick is time-consuming and inefficient. It also leads to oversights and other problems if you don’t account for possible setbacks. 

Many contractors use this method when they first get started, then eventually move to estimating by unit price. For others, however, the reliability of estimating by the stick fits best with their business processes and calculations.

Method #2: Estimating by unit price

Unit price estimating involves dividing a project into smaller elements to estimate costs. You then assess the cost of each individual element and sum them all up to get the total construction project cost. 

This method of estimating is best used for simple jobs that mostly require the same material, or are in buildings where the room space is occupied by standard-sized, identical units. 

Here are some examples of situations where estimating by unit price is the most efficient method:

• Roofing: cost per square foot.
• Drywall hanging: cost per square foot.
• Commercial office renovation: cost per workstation.

When using this method, you must rely on previous, similar project data to estimate the total cost of the current project. These past projects should be no more than a year old to calculate the most up-to-date costs. Be aware that although this method is efficient and a good way to attain a ballpark figure, it’s not the most accurate way of estimating project job costs.

If you don’t estimate these individual costs right, you’ll end up with an actual cost that greatly differs from your estimated cost. Your general contractor pricing guide is a great place to keep the standard unit costs from past projects. You can also use it for estimating by the stick if you have the price of standard materials and your subcontractors’ labor rates.

Being aware of construction industry best practices in your area is important to keep up with your competitors. Now that you know the different ways general contractors estimate jobs, let’s move on to the second part of the question, “How do construction contractors get paid?” — what you should include in a general contractor estimate.

What to include in your general contractor’s estimate

Before you create your client’s estimate, make sure you first:

• Provide a consultation: You should visit the worksite and take measurements before calculating any costs. This ensures that your estimate is accurate and that you have the right information to approach your subcontractors with.
• Approach your subcontractors: Once you know what work you need to do, speak to your reliable subcontractors to discuss what you need from them, and come to an agreement on prices.

Once you’ve done a walk-through of your potential jobsite and consulted with your subcontractors, you’re ready to create an estimate for your client. 

Consult your general contractor pricing guide for standard information you might already have, such as cost per unit for common materials (e.g., cans of paint) or subcontractor labor rates. Here are the things you should include in your estimate:

• Your business name and contact information.
• A detailed description of the project, including what work you’ll do and the resources you plan to use.
• A list of the subcontractors you need and their rates.
• Total cost and payment terms (e.g., net 30, net 60), including currency and exchange rates (for international projects).
• Trust accounts (if required by law).
• Government contracts and payments (if applicable).
• Work schedule (start and completion dates) with a time-and-materials breakdown.

To help your client better understand the total cost, break it down into categories. At a minimum, these categories should include:

• Cost of labor.
• Material costs and supplier payments.
• Additional costs.

When you’ve detailed all of the costs involved in completing the project, don’t forget to mark up a percentage for profit. After all, this is how you make money for the work you’ve done.

Ensuring transparency in your estimates helps with relationship building with clients and increases the chance that you collect positive customer satisfaction and feedback.

Manual calculations? Forget them. Our invoice generator built in Method produces professional, ready-to-send PDFs that help you get paid faster and stay consistent every step of the way.

How to price remodeling jobs

Our investigation determined that no two remodeling jobs are the same, which is why determining the cost of these jobs takes time and research, whether it’s reading articles or learning from experience. The budgeting and financial planning involved with remodeling jobs is an active process that requires you to determine:

• Labor and material costs from suppliers.
• Tax deductions and benefits.
• Legal and regulatory compliance.
• Pricing strategies and markup.

Once you’ve outlined the scope of the work, the best place to start is to look at what you’ve charged for similar, past projects. This gives you a “starter” estimate that you can adjust based on the job at hand.

Risk mitigation

To mitigate your risk when taking on a project, don’t forget to account for the financial stability and solvency of your client. Some contractors will look at customer payment history and credit checks before taking on larger projects to avoid dodged payments. A detailed overview of the job also helps with your financial forecasting and economic downturn preparedness.

Referrals and repeat business are the safest opportunities to take on.  You can be more confident in these cases, as you’ve worked with the client before or will be working with someone they trust. 

You can also consider a lien, as it gives you a legal guarantee of payment for whatever project you’re working on. In fact, some contractors only work on larger jobs where they can secure their right to payment with a mechanics lien or if your client has access to business credit and financing options. Securing a lien waiver and forming a lien release policy obligate your client to pay you, which is helpful if they try to refuse payment after you’ve fulfilled your legal and contractual agreements.

Payment guarantees (if provided) go a long way to secure your money. Our investigation demonstrated that these are the biggest factors affecting your financial contingency planning:

• Current economic factors (e.g., economic conditions).
• Whether you have secured a deposit, payment bonds and retention bonds (if applicable).
• If you have mechanic’s liens (if applicable).
• If there are contractual dispute resolution clauses and escalation clauses (for price adjustments) in your construction contract.
• Whether you have a process for payment recovery strategies (in case of default) or late payment penalties.
• Setting payment milestones and triggers for the project and conditions for retention or holdback.
• Cross-border payment considerations (for international projects).

Risks associated with subcontractors

Everyone in the construction industry needs to work with subcontractors, but finding ones you can trust is difficult. Through our hands-on experience, should you find a subcontractor with a reputation of good project performance and quality, it’s best not to negotiate their fee as they’re accounting for overhead costs — just as you are.

While it’s impossible to tell how well a subcontractor performs until you work with them, ways you can validate them include:

• Seeing if they carry a certificate or education in their field.
• Creating a performance bond or surety bond.
• Planning a process to release a subcontractor and reimburse the client in the event that you’re unable to properly complete the job.

Client non-payment

Part of answering, “How do construction contractors get paid?” is knowing how to collect payment when a client doesn’t respond to your payment notices.

Dispute resolution (mediation, arbitration, legal action) is an unfortunate, but not uncommon, necessity as a general contractor. Legal action sometimes requires you to settle at a portion of the total cost, so it’s advisable to leave this as a last resort. 

Instead, to ensure your clients pay on time, consider: 

• Other payment security measures (e.g., payment escrow).
• Payment terms negotiation.
• Lien rights and notices. 

For larger jobs, your client may need access to financing and loans.

Having access to legal counsel or advisors is one of the most important steps when it comes to risk mitigation. One option is to retain collection agencies (as a last resort) should a client withhold payment. However, it’s advisable to develop a dispute resolution process before you go this route, as it can: 

• Take a long time.
• Require you to allocate additional funds.
• Create a negative relationship with your customers and community.

Average general contractor rates

Most general contractors do not charge an hourly rate. Instead, our research indicates that general contractors charge about 10 to 20% of a project’s total construction costs. A big, established general contractor company can charge an even greater difference of 25% of a project’s costs.

Your main point of reference for your markup is what your subcontractor chooses to charge you. Depending on their rate, your markup may have to be as high as 40% to make a profit. 

However, these are just average numbers, and drawing from our experience, every business charges differently depending on several factors, such as:

• Overhead costs (staff, operations).
• Insurance.
• Taxes.
• Profit.

Your general contractor pricing guide provides you with insights that help you factor these costs into your markup amount and finally answer, “How do construction contractors get paid?”

How do construction contractors get paid?

You may be here because you’re wondering, “How do construction contractors get paid?” As a construction contractor, you should submit a payment schedule (e.g., progress payments, milestones) that shows a timeline of when you’ll receive payment according to project completion requirements. 

Everyone agrees on this schedule before the start of the project. It involves periodic payments for yourself and any subcontractor payments you owe.

These payments are tied to project milestones or completion stages. For example, you might receive a portion of the total payment after completing the foundation, another portion after finishing the framing, etc. This method mitigates the risk of a lump-sum payment to ensure you receive a steady cash flow while the project progresses.

To help you get paid on time, think about your customer payment preferences (e.g., online payments) to make sending money as easy as possible for them. You should also align your invoice submission method with their preferences (i.e., if they prefer a physical or digital copy). Make sure to write out a list of terms that clearly states how your customer should pay.

How much do general contractors mark up subcontractors?

General contractors commonly add a markup to the costs of subcontractors, which varies significantly depending on: 

• Project complexity.
• Location.
• Your business model.

Typically, this markup ranges from 30 to 45% in order to cover profit margins and your overhead costs, which include: 

• Administrative expenses.
• Insurance.
• Rent and utilities. 

It’s important that you don’t undercut your own markups, as this doesn’t leave room for error if additional challenges pop up.

How much do contractors charge for labor?

Contractors usually charge $150 to $250 per day for labor, depending on the specialization required. For larger projects, it’s beneficial to calculate a total labor cost that factors in the number of workers needed and the estimated time to completion.

The labor cost in construction projects varies based on: 

• The project’s scope.
• Location of the jobsite.
• Your area of expertise. 

Generally, you should charge for labor as a flat fee for the entire project or on an hourly basis.

General contractor pricing guide FAQ

Here are some additional questions about average pricing rates for general contractors:

• What is the payment method for construction?
• What is a general contractor markup?
• What should the general contractor % markup be?
• How do I know if I’m pricing my jobs right?

What is the payment method for construction?

A crucial part of the question, “How do construction contractors get paid?” is to understand acceptable payment methods. Construction contractors accept multiple payment methods (e.g., check, electronic funds transfer). Cash for smaller jobs and credit cards are also accepted. Many banking and financial institutions offer digital payment methods which are often more secure and convenient.

If you’re a QuickBooks user, you can integrate with a third-party platform like Method to add digital signatures to approve your estimates and let your clients pay invoices online, with just a few clicks. This also doubles as a payment tracking software for your payment records and documentation — and you can even automate payment confirmation or receipt with your clients.

What is a general contractor markup?

A general contractor fee is determined by a markup percentage of the total cost of the construction project.

The fee is generally calculated based on a markup on: 

• Material costs. 
• Retainage or retention releases against subcontractor labor.
• Any other extra costs that may arise.

Your markup determines your profit, so make sure that it’s enough to cover your business expenses and then some. All of this factors into the equation when you’re addressing, “How do construction contractors get paid?”

What should the general contractor % markup be?

Our findings show that general contractors charge about 10 to 20% of a project’s final construction costs, depending on the size of the project.

This markup is influenced by:

• Overhead expenses.
• Insurance and liabilities.
• Sales taxes.

Based on our first-hand experience, the more overhead costs your business has, the higher the markup you should charge to cover those expenses and make a profit. Your markup directly impacts your answer to, “How do construction contractors get paid?”

How do I know if I’m pricing my jobs right?

As a general contractor, your main goal is to drive revenue, but you also want to stay competitive.

Through our practical knowledge, here are some tips to make sure that you continue to price your jobs right:

• Regularly check in with the subcontractors in your network to determine whether their rates have changed.
• Stay informed on the cost of materials you commonly use for a typical construction project.
• Keep an eye on your competition and the rates they charge.
• Stay active with construction industry associations.
• Keep positive vendor relationships and negotiations.
• Track your financial performance metrics (e.g., cash flow ratio) regularly.

Make sure you keep up with the market rate for your estimates and your markup. Regularly updating your general contractor pricing documents helps you track pricing trends and keep your financial reporting accurate.

So, how do construction contractors get paid? It’s a balance of costs, revenue, and staying competitive.

Recap: How much a general contractor should charge?

Any trades job that oversees and manages the entire scope of a construction project demands a lot of attention, and general contractors know this better than anyone.

General contractors bear the responsibility of a construction project from beginning to end, which is why it’s fair that pricing is based on a markup of the total cost of the project. Otherwise, how do construction contractors get paid?

Our findings show that creating an accurate estimate ensures that you and your client start off on the same page. Better yet, this demonstrates trust and transparency to your client, giving them a reason to come back.

You may run into obstacles during the project, but you can minimize potential issues by having a general contractor pricing guide you can consult to create your estimates.

Plus, if you’re a QuickBooks or Xero user, Method CRM is a powerful tool for efficiency and staying on top of your finances. Because it integrates with your account, Method makes these processes easy:

• Financial monitoring and auditing.
• Creating financial statements and reports.
• Tax compliance and reporting.
• Payment records retention and storage.
• Calculating payment processing fees and costs.
• Accounting and bookkeeping.

As you complete projects, you will collect more knowledge and experience. You should always add additional information to your general contractor pricing guide to help you create even better estimates as your business grows.

Image credit: Amnaj via AdobeStock