Start from full cost
Full cost is direct cost plus an allocated share of the overhead that keeps the business running: the office, the software, the insurance, the vehicles, the people who do not bill hours. A price that only covers direct cost feels profitable per job and loses money per year.
Markup versus margin
Markup is added to cost. Margin is measured against price. If your target is a 30% gross margin, the markup required is roughly 43%, not 30%. Businesses that use the two interchangeably systematically undercharge, and the error scales with volume.
Pricing the risk you actually carry
- Fixed-price work on unverified conditions carries more risk than time-and-materials.
- Long lead times expose you to material price movement.
- New work types carry productivity risk until you have data.
- Customers with slow payment history carry cash-flow cost.
What a discount really costs
A discount comes entirely out of profit, not out of revenue proportionally. On a job with a 20% margin, a 10% discount removes half the profit. Knowing that number before the conversation is what turns discounting from a reflex into a decision.
Competitor pricing is information, not a method
Knowing the market range tells you how your price will be received. It does not tell you whether you can deliver at that price. If your cost structure cannot support the market rate, the answer is to change the cost structure or the work you take — not to price below cost and make it up in volume.