General contractor pricing guide
If you’re a general contractor, you know that your job never ends. Being tasked with overseeing every aspect of a construction project and responsible for its successful completion is no small challenge.
Having the ability to price a wide range of construction jobs is a skill that every general contractor needs, but it takes time to develop. Luckily, consulting general contractor pricing guides can help.
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.
You can take what you learn from this guide and customize it with your business standards to create a general contractor pricing guide that will serve your business’s specific needs.
Once you’re done, you’ll have the knowledge to price all of your general contractor jobs quickly and efficiently.
How general contractors estimate jobs
A major part of a general contractor’s job is figuring out how much to charge for contract work. Drawing from our experience, this is especially challenging when customers want an exact price right away.
Customers always have questions about construction project costs, and these questions never seem to stop, even when you get started on the job.
As a general contractor, you know that it takes time, experience, and knowledge to give your customer the right answers. The best way to do that is by providing an accurate cost estimate so that you both agree on a fair price before diving into the project.
Our findings show that providing a general contractor price sheet ensures customer satisfaction, resulting in 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 customer must pay your actual costs incurred plus a fixed percent for profit.
As per our expertise, adding this option to your initial price sheet may avoid having to give complicated explanations to your customers, so that you can get straight to discussing the work that needs to be done.
What do general contractors do?
First, you have to understand your job as a general contractor. Every customer will have different needs, and it is up to you to set your boundaries and outline what your business does. General contractors are tasked to supply crucial elements to a construction project, such as:
- Material.
- Labor.
- Equipment.
It is possible that as a general contractor that you might provide these services yourself if you have your own or are affiliated with a construction company. If you aren’t, then you are responsible for hiring subcontractors and supervising them to ensure that they complete the job. Even if you do have a construction business, depending on the needs of the job, you may need to subcontract other aspects beyond your scope, such as:
Developing good relationships with different subcontractors is a huge factor in determining your success as a general contractor. You want to have 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 will make it easier to create estimates in the future. Now, based on our firsthand experience, when it comes to actually estimating the price of a job, there are several techniques that you can use. Two of those techniques are:
- Stick estimating.
- Unit price estimating.
Let’s discuss which one may work best for your business.
Method #1: Estimating by stick
Stick estimating involves counting every piece of material and determining every hour of labor. This technique will give you the most accurate estimate. That being said, after conducting experiments with it, for some projects estimating by the stick can be very time-consuming, and therefore inefficient. It can also lead to oversights and other problems if you don’t account for possible obstacles. Many contractors use this method when they first get started, then eventually move onto estimating by unit price. Based on our observations, for others, 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 various 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 require most of the same material or in buildings where most of 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 past similar projects to estimate the total cost of the current project. These past projects should be no more than a year old to have the most up-to-date costs. Be aware that although this method is efficient and a good way to attain a ballpark figure, as per our expertise, it’s not the most reliably accurate way of estimating project job costs. If not estimated right, you may end up with an actual cost that greatly differs from the 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 subcontractors’ labor rates. Now that you know the different ways general contractors estimate jobs, let’s move on to what you should include in an estimate.
What to include in your general contractor’s estimate
Before you work your customer’s estimate, make sure you first do the following:
- Provide a consultation: You should visit the worksite and take measurements before beginning to create your estimate. 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 needs to be done, speak to your reliable subcontractors to discuss what you need from them and come to an agreement on prices.
Once you’ve done a walkthrough of your potential worksite 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’s the information that you should include in your estimate:
- Your business name and contact information.
- A detailed description of the project, including what work will be done and materials used.
- Clean up details and costs.
- List of subcontractors that will be used.
- Total cost and terms of payment.
- Work schedule (start and completion dates).
To help your customer better understand your total cost, break it down into categories. At a minimum, these categories should include:
- Cost of labor.
- Material costs.
- Additional costs.
When you’ve detailed all of the costs of completing the project, don’t forget to markup a percentage for profit. After all, this is how you get paid for the work you’ve done on the project.
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. Figuring out how to price remodeling jobs is an active process that requires you to determine:
- Labor costs.
- Material costs.
- Overhead and profit.
Once you’ve outlined the scope of work, the best place to start is to look at what you’ve charged for similar past projects. This leads you to a preliminary estimate that you can adjust based on the job at hand.
Don’t forget to also account for market trends and competitor rates to ensure that the estimate you arrive at is up to date.
Average general contractor rates
General contractors do not charge an hourly rate. Our research indicates that general contractors charge about 10 – 20% of a project’s total construction costs. A big general contractor company can charge upwards of 25% of a project’s costs. Your main point of reference for your markup is what your subcontractor will 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 can provide you with insights that will help you factor these costs into your markup.
General contractor pricing guide FAQ
Here are some additional questions about average pricing rates for general contractors:
- 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 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 of material costs, subcontractor labor, and 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.
What should the general contractor % markup be?
Our findings show that general contractors charge about 10 – 20% of a project’s total construction costs, depending on the size of the project.
This markup can be influenced by:
- Overhead expenses.
- Insurance and liabilities.
- Sales taxes.
Based on our firsthand experience, the more overhead your business has, the higher the markup you should charge to cover your expenses and make a profit.
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 remain 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.
Make sure you keep up with the market rate for your estimate and your markup. Regularly updating your general contractor pricing guide will help you track pricing trends.
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 your fee is based on a markup of the total cost of the project.
Our findings show that creating an accurate estimate will ensure that you and your customer start off on the same page. Better yet, this demonstrates trust and transparency to your customer, 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 that you can consult to create your estimates.
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
