Podcast Lays Out Contractor Pricing Formula
A contracting CFO on the “Blue Collar CEO” podcast advised that if you’re not hitting at least 3.2x your hourly wage in billable rates, you're likely underpricing. For overhead, the show outlined a simple formula: add up fixed monthly expenses, divide by billable hours, and add that number to your hourly labor rate.
The "Blue Collar CEO" podcast, hosted by digital marketing expert Ryan Redding, frequently features industry professionals who share insights on building more profitable and sustainable home service businesses. The show covers various trades, offering actionable tips on marketing and business growth for contractors. A key financial benchmark for electrical contractors is the net profit margin, with a healthy range considered to be between 10% and 20%. However, many electrical businesses operate at under 10% net profit, and some as low as 2% to 3%, which is a vulnerable position given the risks of the trade. To achieve a 17% to 20% net profit, a gross profit margin of 65% to 67% across all services is often recommended. Overhead for an electrical contractor typically accounts for 13% to 25% of total sales. These indirect costs include expenses not tied to a specific job, such as rent, utilities, insurance, administrative staff salaries, and vehicle maintenance. A common method to account for this is to divide total monthly overhead by the number of billable hours to find an hourly overhead cost to add to labor rates. Material markup is a significant component of pricing and covers more than just the item's cost; it includes the time for sourcing, transport, and stocking inventory, as well as covering the risk of warranty replacements. While there's no single standard, markups can range from 25% to 100% on smaller items like connectors and outlets, and 15% to 35% on more expensive equipment like panels and breakers. Some contractors adjust the markup percentage based on the job size, with smaller jobs receiving a higher percentage markup on materials.
