The 7 Most Common Pricing Mistakes Contractors Make (and How to Fix Them)

Pricing jobs is one of the hardest parts of running a contracting business—and getting it wrong can sink your company.

If you’ve ever looked back at a project and realized you basically worked for free, you’re not alone. Contractors everywhere struggle with pricing, not because they’re bad at their craft, but because they were never taught how to price work with clarity and confidence.

I’ve seen it firsthand. Pricing mistakes eat into profit, keep owners awake at night, and turn good crews into frustrated crews when the company is always scrambling for cash. What makes this different is we’re going to call out the problems directly and give you real-world fixes—not vague theory.

This article is for contractors who want to stop guessing, stop undercharging, and finally build predictable profit into every job. By the end, you’ll know the seven biggest pricing mistakes contractors make, how to avoid them, and what to do instead.

Why Do Contractors Struggle With Pricing Jobs Accurately?

Contractors don’t fail because they can’t build. They fail because they can’t price.

Pricing mistakes usually come from three places:

1. Lack of financial clarity – not knowing your costs in detail.
2. Fear of losing the job – underbidding just to win work.
3. Copying competitors – assuming others know their numbers (they often don’t).

If you’ve ever wondered, “Why is pricing so confusing?” it’s because most of us never had formal training in finance. We learned construction, not accounting.

Mistake #1: Not Knowing True Construction Costs (and How It Destroys Profit)

One of the most damaging mistakes is not knowing your real costs. That means not tracking what it actually takes—labour, materials, equipment, insurance, fuel, admin—to complete a job.

If you don’t know your costs, you’re gambling with every quote.

The fix: Build a company budget that reflects every expense, not just materials. Track your numbers, update them annually, and know your hourly cost of doing business.

Mistake #2: Relying on Gut Feel Instead of a Proven Estimating System

Too many contractors walk into a site, look around, and throw out a number based on “what feels right.” It works until it doesn’t—when the job runs long, the materials spike, or the crew burns more hours than expected.

A system creates consistency. It protects you from underbidding and gives clients confidence that your numbers aren’t pulled from thin air.

The fix: Base your estimates on production rates, real job costing data, and repeatable formulas. If you don’t have the data yet, start tracking today.

Mistake #3: Forgetting Overhead in Contractor Estimates

Overhead is the silent killer of profit. Things like rent, admin wages, software, trucks, and insurance don’t show up on a materials invoice—but they’re real costs that must be recovered.

When overhead isn’t baked into every estimate, “profitable” jobs bleed cash behind the scenes.

The fix: Pick the overhead recovery method that matches your business model:

• Single Overhead Recovery Rate (SORR): Add overhead as a percentage of total sales. Simple, but can distort pricing when job mixes vary.
• Labour-Based Recovery (LBR): Spread overhead across billable field hours. Best for labour-heavy companies where overhead scales with crew size.
• Multiple Overhead Recovery (MOR): Allocate overhead separately to labour, equipment, and materials. More complex, but most accurate for equipment-heavy businesses.

Pros and Cons at a glance:

• SORR: Easy to calculate, but risky for diverse work.
• LBR: Balanced for most contractors, aligns overhead with hours worked.
• MOR: Most precise, but requires solid data discipline.

The key is to choose one method, apply it consistently, and revisit it annually as your business changes.

Mistake #4: Confusing Markup vs. Margin vs. Net Profit in Construction Pricing

This is where even “experts” get sloppy. Markup, gross margin, and net profit are not the same thing.

• Markup – How much you increase your cost to set a selling price. Example: If something costs $10,000 and you mark it up 50%, your price is $15,000.
• Gross Margin – The percentage of sales left after covering direct costs (labour, materials, subs). In the example above, $15,000 – $10,000 = $5,000 gross profit, or a 33% margin.
• Net Profit – What’s left after all expenses: overhead, insurance, trucks, admin, marketing, etc. Gross feeds net, but they are not the same.

Here’s the trap: a 20% markup is not a 20% margin. And gross margin ≠ net profit. That’s why jobs that “look profitable” on paper end up breaking even.

The fix:

1. Decide your net profit target.
2. Back into the gross margin you need to achieve it.
3. Calculate the markup that produces that margin.

💡 Quick converter:

• 30% margin = 42.9% markup
• 40% margin = 66.7% markup
• 50% margin = 100% markup

And remember: markup may vary by cost type. Labour often carries a higher target margin than pass-through materials.

Mistake #5: Ignoring Change Orders and Scope Creep in Construction Projects

You’ve been there: the client asks for “just a little extra,” and before you know it, the crew has burned a full day with no extra pay.

Scope creep is one of the most common ways profit disappears.

The fix: Create a zero-work-without-signature policy. Here’s the two-step script we use:

1. “That’s outside the current scope. I’ll price it today and send a one-page change order.”
2. “Once you e-sign, we’ll schedule it without delaying the main project.”

Every change order should include: scope, cost, added time, and revised payment schedule. And it should carry the same (or higher) margin as the base work.

Mistake #6: Basing Contractor Prices on Competitors (and Why It’s a Huge Mistake)

This is one of the most dangerous traps in contracting. Many contractors simply ask, “What’s everyone else charging?” and then copy it.

But here’s the reality: most competitors don’t know their numbers. They may be underbidding just to keep crews busy. Copying them means copying their failure.

The fix: Price based on your costs, not theirs. When clients push back with, “But XYZ is cheaper,” use this checklist to reframe the conversation:

• Is the scope identical, line by line?
• Same materials and specifications?
• Same warranty and service commitment?
• Same schedule and permit responsibility?
• Same insurance, safety standards, and qualified crews?

If the answer to any of these is no, the prices aren’t comparable.

Mistake #7: Skipping Job Costing Reviews (and Losing Profit in the Process)

Even contractors who price jobs carefully often skip the last step: reviewing the actual numbers after the job.

Without job costing, you’ll never know if your estimates are accurate. You’ll repeat the same mistakes and never improve.

The fix: Track hours, materials, and overhead on every job. Compare actuals against your estimates. Identify where you were right, where you slipped, and adjust your pricing system accordingly.

Post-mortem checklist (ask these after every job):

• Did the crew hit the estimated hours by task?
• Where did materials or subs differ from budget?
• Was overhead recovery accurate for the actual hours?
• Were there change orders left unbilled?
• What one adjustment should we make in our estimating template for next time?

Each post-job review is a chance to sharpen your pricing system. Over time, this is how you turn pricing into a true competitive advantage.

How to Fix Contractor Pricing Mistakes and Build a Profitable Estimating Strategy

Here’s the roadmap to do it right:

1. Build a detailed budget – know your true costs.
2. Pick an overhead recovery system – and apply it consistently.
3. Set margin targets by cost type – stop treating labour and materials the same.
4. Use a change order policy – never work for free.
5. Track job costing and update your system – let your past projects sharpen your future pricing.

This isn’t theory. It’s what separates contractors who barely scrape by from those who build sustainable, profitable businesses.

Final Thoughts: Solving Contractor Pricing Problems and Building Predictable Profit

Pricing doesn’t have to feel like a guessing game. By avoiding these seven mistakes, you’ll stop undercharging, protect your profit, and finally build a business that pays you what you’re worth.

If you’re ready to stop losing sleep over whether your jobs are priced right, the next step is simple: schedule a call with our team. We’ll walk you through how to build a pricing system that works—based on your numbers, not guesses.