What is the difference between markup and margin?

Markup is the percentage you add to your cost to get the selling price. Margin is your profit as a percentage of the selling price. A 50% markup only gives you a 33% margin. Formula: Margin = Markup / (1 + Markup).

What is a healthy profit margin for contractors?

Most trade contractors should target 35-50% gross margin on labor and 20-30% on materials to achieve 10-15% net profit after overhead. Margins vary by trade, with service work typically higher than new construction.

How do I calculate burdened labor cost?

Burdened labor cost = hourly wage × burden factor (typically 1.25-1.40). The burden factor accounts for payroll taxes (7.65% FICA), workers comp (varies by trade), benefits, PTO, and non-billable time.

Should I use cost-plus or fixed-price contracts?

Fixed-price contracts work best when scope is well-defined. Cost-plus (time and materials) is better for unknown scope or when the client may change requirements. Fixed-price gives you upside if efficient; cost-plus eliminates risk but caps margin.

How often should I review my pricing?

Review pricing quarterly at minimum. Track actual job costs against estimates monthly. Adjust rates immediately when material costs spike or labor market changes. Most contractors wait too long to raise prices after costs increase.

How to Price a Plumbing Job: Complete Markup & Margin Guide

If you’re a plumbing business owner, you’ve probably asked yourself: Am I charging enough?

The answer, for most plumbers, is no.

Not because you’re unaware of industry rates—but because the math most people use is fundamentally broken. They calculate material cost, add labor hours, slap on a markup, and hope for the best.

That approach leaves money on the table and creates razor-thin margins that disappear the moment anything goes wrong.

Here’s how to price plumbing work correctly.

The Two Pricing Models

Plumbing companies typically use one of two models:

Flat Rate Pricing

You charge a set price for each job type, regardless of how long it takes. Customer replaces a water heater? That’s $1,800. Toilet repair? $185.

Pros:

Customers know the price upfront (builds trust)
Faster techs earn better margins
Easier to quote and close jobs
Protects against scope creep

Cons:

Requires accurate job time data
Less flexible for unusual situations
Need to maintain and update price books

Time & Materials (T&M)

You charge hourly labor rates plus cost of materials with markup.

Pros:

Simple to explain
Works for unpredictable jobs
No need for detailed price books

Cons:

Customers don’t know final cost upfront
Penalizes efficiency (fast work = less revenue)
Harder to predict monthly revenue
Creates friction during invoicing

Which is better? Flat rate, for most residential and light commercial plumbers. Your best techs shouldn’t be penalized for working faster. But the key to making flat rate work is building your prices on real cost data.

The Real Cost of Labor (It’s Not Just Wages)

This is where most plumbers get pricing wrong.

If you pay a journeyman $30/hour, your actual cost is closer to $38-42/hour. That difference is called labor burden.

Labor burden includes:

Employer portion of FICA (7.65%)
Federal and state unemployment taxes (~3%)
Workers’ compensation insurance (varies, but often 8-15% for plumbers)
Health insurance contribution
Paid time off (vacation, sick days, holidays)
Training time
Truck time (non-billable drive time)

Here’s the formula:

Burdened Labor Cost = Hourly Wage × (1 + Burden Rate)

For most plumbing companies, burden rate is 25-40% above wages.

Hourly Wage	25% Burden	35% Burden	40% Burden
$25/hr	$31.25	$33.75	$35.00
$30/hr	$37.50	$40.50	$42.00
$35/hr	$43.75	$47.25	$49.00
$40/hr	$50.00	$54.00	$56.00

Use the higher number for estimating. If your workers comp is on the high side (common in plumbing), 40% burden is realistic.

Calculating Your True Overhead Rate

Overhead is everything you pay to run the business that isn’t directly tied to a specific job: rent, insurance, office staff, phones, software, marketing, truck payments, etc.

Most plumbers never properly allocate overhead to jobs—which is why they think they’re making 25% margin when they’re really making 10%.

Step 1: Calculate monthly overhead

Add up all non-job-specific costs:

Rent/mortgage
Utilities
Office staff salaries
Vehicle payments and insurance
General liability insurance
Software subscriptions
Marketing costs
Phone and internet
Professional services (accounting, legal)
Loan payments

Example: $28,000/month in overhead

Step 2: Determine jobs per month

How many billable jobs does your company complete monthly? Not estimates—completed, invoiced jobs.

Example: 85 jobs/month

Step 3: Calculate overhead per job

Overhead per job = Monthly overhead ÷ Jobs per month
Overhead per job = $28,000 ÷ 85 = $329

That means every job needs to contribute at least $329 just to cover your overhead—before you make any profit.

The Complete Pricing Formula

Now we can build a proper price:

Job Price = (Materials + Burdened Labor + Overhead Allocation) × Markup Multiplier

Example: Water Heater Replacement

Cost Component	Calculation	Amount
Materials (tank, fittings, connectors)	Wholesale cost	$650
Labor (3 hours × 2 techs × $40 burdened)	6 × $40	$240
Overhead allocation	Fixed	$329
Total Cost		$1,219
Price at 40% gross margin	$1,219 ÷ 0.60	$2,032

For a 40% gross margin, you’d charge around $2,000-$2,100.

What Markup Should You Use?

The markup you need depends on your target margin. Here’s the conversion:

Target Gross Margin	Markup on Cost
30%	43%
35%	54%
40%	67%
45%	82%
50%	100%

Industry benchmarks:

Service calls (repairs): 50-65% gross margin
Installations: 35-45% gross margin
New construction: 25-35% gross margin

Service work commands higher margins because it’s time-sensitive (emergency calls), requires diagnostic skill, and has less competition than bid work.

Common Pricing Mistakes

1. Pricing Based on Competitors

“The guy down the street charges $150 for drain cleaning, so I charge $155.”

You have no idea if that guy is profitable. Many plumbers are essentially buying jobs—working for barely above cost. Don’t compete on price with people who don’t know their numbers.

2. Not Accounting for Non-Billable Time

Your techs spend time driving, doing paperwork, attending meetings, and training. If you only charge for wrench-on-pipe time, you’re giving away 15-25% of your labor.

Build non-billable time into your rates or your overhead allocation.

3. Flat Markup on Materials

Marking up a $5 fitting the same percentage as a $5,000 water heater doesn’t make sense. Your handling cost is the same.

Better approach:

Small parts (<$25): 100-150% markup
Medium materials ($25-500): 50-75% markup
Large equipment (>$500): 25-40% markup

4. Ignoring Warranty and Callback Costs

If 5% of your jobs require callbacks, that’s real cost. Build it into your pricing.

Effective Price = Base Price × (1 + Callback Rate)

At 5% callbacks, a $1,000 job actually costs you $1,050 to deliver. Price accordingly.

How to Raise Your Prices

If you’ve been undercharging, raising prices feels scary. Here’s how to do it:

Start with new customers. They have no baseline.
Explain the value, not the price. “We include a 2-year warranty” matters more than the dollar amount.
Upgrade your professionalism. Clean trucks, uniformed techs, and clear communication justify premium pricing.
Use flat rate. Customers are more price-sensitive to hourly rates than total job prices.
Test incrementally. Raise prices 10% and track close rates. If close rates stay the same, raise again.

The customers you lose by raising prices are often the ones you didn’t want anyway.

Track Every Job

None of this works if you don’t track actual job costs against estimates.

For every job, record:

Actual labor hours (all techs)
Actual material costs
Any callbacks or warranty work
Final invoiced amount

Compare actual margin to expected margin. Patterns will emerge—certain job types are more profitable, certain techs are more efficient, certain customers are more trouble.

Use this data to refine your pricing quarterly.

What Your Numbers Should Show

If your plumbing company is healthy:

Gross margin on service work: 50-60%
Gross margin on installations: 35-45%
Net profit margin (after all expenses): 12-20%
Labor cost as % of revenue: 25-35%
Revenue per tech per day: $1,500-$2,500 (service), $3,000-$5,000 (install)

If your numbers are significantly below these benchmarks, pricing is likely the issue.

Next Step: Get the Job Costing Template

Knowing the theory is one thing. Tracking it on real jobs is another.

We created a free job costing spreadsheet that does the math for you—input your costs, and it calculates your actual margins.

Download the Job Costing Template →

If you work with other trades or want to compare benchmark margins:

HVAC Profit Margins Guide — Benchmarks and pricing strategies for HVAC contractors
Electrical Contractor Pricing Guide — How electricians should price residential and commercial work
Roofing Contractor Pricing Guide — Storm work, retail, and commercial roofing margins
Landscaping Pricing Guide — Maintenance contracts and installation pricing
General Contractor Pricing Guide — Sub markup, change orders, and bid strategies for GCs

Or if you want help fixing margin problems in your plumbing business, book a free consultation. We work with trade businesses between $500K and $10M who need operational and financial clarity.