Most general contractors price jobs by adding a percentage to estimated costs and hoping they got the numbers right. When they lose money, they blame “unforeseen conditions” or “difficult subs.”
The truth? Most GCs lose money because their pricing methodology is broken from the start.
This guide will show you how to price general contracting work systematically—whether you’re bidding residential remodels, custom homes, or commercial projects.
Understanding GC Economics
General contractors face a unique pricing challenge: most of your costs are other people’s work. You’re pricing based on estimates from subs, with limited control over execution.
Typical cost breakdown for a GC project:
- Subcontractor costs: 60-75%
- Materials (GC-supplied): 5-15%
- Direct labor (if any): 5-15%
- Project management: 5-10%
- Overhead allocation: 8-15%
Your margin comes from efficient management, smart sub relationships, and accurate estimating—not from marking up labor or materials.
Markup vs. Margin: Get This Right
This trips up more GCs than any other concept.
Markup is what you add to costs. Margin is your profit as a percentage of the selling price.
| Markup on Cost | Gross Margin |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 35% | 25.9% |
| 40% | 28.6% |
| 50% | 33.3% |
Example: You have $100,000 in costs.
- 20% markup = $120,000 price (16.7% margin)
- 25% markup = $125,000 price (20% margin)
If you tell a client you mark up 20% but think you’re making 20% margin, you’re losing 3.3% on every project.
The Complete Pricing Formula for GCs
Here’s how to build a proper project price:
Project Price = (Hard Costs + Soft Costs + Contingency + Overhead Allocation) × (1 + Profit Margin)
Let’s break down each component.
Hard Costs
Direct costs for the specific project:
| Category | What It Includes |
|---|---|
| Subcontractors | All sub bids with your markup |
| GC-supplied materials | Lumber, concrete, finish materials |
| Equipment rental | Scaffolding, lifts, specialty tools |
| Permits & fees | Building permits, impact fees, inspections |
| Direct labor | Your field supervisors, laborers |
Soft Costs
Project-related costs that aren’t physical construction:
| Category | Typical Range |
|---|---|
| Plans & engineering | 2-5% of hard costs |
| Project management | 5-10% of hard costs |
| Insurance (project-specific) | 1-3% of hard costs |
| Trash removal | $500-2,000/month |
| Temporary utilities | $200-800/month |
| Site security | Varies by project |
Contingency
Residential remodels: 10-15% contingency New construction: 5-10% contingency Commercial: 5-8% contingency
Remodels need higher contingency because you discover problems after demo. New construction is more predictable.
Pro tip: Only release unused contingency into profit if you’re confident no surprises remain. Too many GCs spend contingency on scope creep instead of protecting margin.
Overhead Allocation
Your monthly overhead needs to be distributed across projects. Calculate it like this:
Step 1: Total monthly overhead
- Office rent: $2,000
- Admin staff: $5,000
- Insurance (general): $1,500
- Vehicles: $2,000
- Software/tech: $500
- Marketing: $1,000
- Professional services: $500
- Owner salary: $10,000
- Total: $22,500/month
Step 2: Jobs in progress
If you typically run 3-4 projects simultaneously, each project should absorb $5,600-7,500/month in overhead.
Step 3: Project duration
A 6-month project needs to carry $33,600-45,000 in overhead to cover its share.
Pricing Subcontractor Work
Most GCs mark up subs 10-20%. But flat percentage markup is lazy and leaves money on the table.
Variable Markup Strategy
| Sub Type | Suggested Markup | Why |
|---|---|---|
| Excavation/site work | 10-12% | High dollar, low complexity |
| Foundation/concrete | 10-15% | Specialized, predictable |
| Framing | 15-20% | High coordination required |
| Mechanical (HVAC/plumbing/electrical) | 15-20% | Schedule-critical, callbacks |
| Roofing | 10-15% | Turnkey, low coordination |
| Drywall/paint | 15-20% | Quality control intensive |
| Flooring | 12-15% | Schedule flexibility |
| Specialty trades | 15-25% | Higher coordination, risk |
Your markup should reflect:
- Coordination effort required
- Quality control involvement
- Callback/warranty risk
- Payment term differences
Managing Sub Bids
Get at least 3 bids for major trades. But don’t automatically take the lowest:
Evaluate subs on:
- Price competitiveness
- Track record with you
- Current workload (busy subs miss dates)
- Warranty/callback history
- Communication quality
A sub who’s 10% higher but never misses dates and doesn’t require handholding is often the better value.
Change Order Pricing
Change orders are where GCs make or lose their margin. Don’t leave money on the table.
Standard Change Order Markup
| Change Type | Markup Range |
|---|---|
| Owner-requested additions | 25-35% |
| Design changes mid-project | 30-40% |
| Unforeseen conditions (owner responsibility) | 25-30% |
| Unforeseen conditions (your risk) | Cost only |
Change order pricing formula:
Change Order Price =
(Additional Material + Additional Labor + Sub Change Orders)
× (1 + Your Markup)
+ Overhead Impact (if schedule extends)
Protecting Your Change Order Rights
- Document everything in writing before proceeding
- Get signatures on change orders before starting work
- Track time and materials meticulously for T&M changes
- Calculate schedule impact and include extended overhead
Project Type Pricing Benchmarks
Residential Remodels
| Project Size | Typical Markup | Target Margin |
|---|---|---|
| Under $50K | 25-35% | 20-26% |
| $50K-150K | 20-30% | 17-23% |
| $150K-500K | 18-25% | 15-20% |
| $500K+ | 15-22% | 13-18% |
Smaller projects need higher margins because overhead is similar regardless of size.
Custom Homes
| Price Range | Typical Markup | Target Margin |
|---|---|---|
| $500K-1M | 15-20% | 13-17% |
| $1M-2M | 12-18% | 11-15% |
| $2M+ | 10-15% | 9-13% |
High-end custom work often has lower margins but longer relationships and referral potential.
Commercial Projects
| Project Type | Typical Markup | Target Margin |
|---|---|---|
| Tenant improvements | 12-18% | 11-15% |
| Ground-up commercial | 10-15% | 9-13% |
| Design-build | 15-22% | 13-18% |
| Hard bid | 8-12% | 7-11% |
Commercial margins are tighter, but volume is higher and payments are (usually) more reliable.
Bid Strategy
Competitive Bid Projects
When you’re one of 5+ bidders:
- Know your number before seeing competitors
- Bid to your cost, not theirs
- Don’t buy the job by cutting margin below 10%
- Identify bid games (rigged specs, preferred contractors)
- Walk away from races to the bottom
If you’re winning more than 30% of hard bids, you’re probably too cheap.
Negotiated Work
When you’re the preferred contractor:
- Build relationship value into your margin
- Offer transparency on cost structure
- Use cost-plus or GMP for complex projects
- Create recurring value through maintenance relationships
Negotiated work should carry 3-5% higher margins than bid work—you’ve earned it.
Common Pricing Mistakes
Mistake 1: Bidding Tight, Then Hoping for Change Orders
This is a recipe for adversarial relationships and litigation. Price the job correctly from the start.
Mistake 2: Not Tracking Job Costs in Real Time
If you only know your margin when the project closes, you’ve lost the ability to course-correct. Track costs weekly.
Mistake 3: Treating All Projects the Same
A kitchen remodel and a commercial buildout have completely different risk profiles. Adjust contingency and margin accordingly.
Mistake 4: Ignoring Opportunity Cost
If taking a low-margin project means turning down a better opportunity, you’ve lost more than you realize.
Mistake 5: Underpricing Difficult Clients
Some clients require 2x the management time. Either price accordingly or decline the work.
What Your Numbers Should Show
Healthy GC companies typically see:
| Metric | Residential | Commercial |
|---|---|---|
| Gross margin | 18-28% | 12-20% |
| Net profit (after overhead) | 8-15% | 5-12% |
| Overhead as % of revenue | 10-15% | 8-12% |
| Change order revenue | 5-15% of contract | 3-10% of contract |
| Bid hit rate | 25-35% | 20-30% |
If your net profit is below 8% consistently, you’re either underpricing or over-spending on overhead.
Job Costing Is Non-Negotiable
Track every project against budget:
- Weekly cost updates - Committed costs vs. budget
- Percent complete vs. percent billed - Catch underbillings
- Schedule tracking - Time overruns kill margin
- Change order log - Ensure nothing falls through cracks
- Post-project analysis - Learn what went wrong/right
The best GCs know their margin within 1-2% at any point in the project.
Getting Help
If calculating job costs and managing margins feels overwhelming, you’re not alone. GCs are great at building—financial management is a different skill.
Consider:
- Our profit margin calculator helps you model project scenarios
- A fractional COO can set up job costing systems and project controls
- Monthly financial reviews catch margin erosion before it compounds
The difference between a struggling GC and a thriving one is often pricing discipline and financial visibility. Get this right, and you can stop hoping projects are profitable and start knowing.
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