RHACOVA

Pricing and margin

How to Think About Target Margin by Type of Work

RHACOVA does not publish a correct margin. It gives you a way to decide which work deserves a higher one and why.

The short answer

There is no correct margin to publish, and RHACOVA will not invent one. What exists is a framework: the margin a type of work should carry rises with its risk, its supervision load, its cash exposure, its rework and warranty likelihood, and the share of the price that is your own labor rather than pass-through material. Your floor is set by break-even; everything above it is a judgement you should be able to defend.

Definitions

Target margin
The margin you intend to price at for a given type of work.
Minimum margin
The margin below which you decline the job. It exists so the decision is made calmly, not during a negotiation.
Risk premium
The additional margin a type of work carries because its outcome is less predictable — not because the customer can pay more.

What should move the number up

  • Estimating uncertainty. Unknown conditions, demolition, older buildings, anything you cannot see before you start.
  • Supervision intensity. Work that needs you on site consumes the scarcest capacity in the company.
  • Cash exposure. Long jobs, large material purchases up front, slow-paying customers or retainage — see cash flow vs profit.
  • Rework and warranty likelihood. Work that generates callbacks carries cost with no revenue — rework and warranty costs.
  • Mobilization overhead. Many small jobs spread setup and travel over less revenue than one large one.

And one thing that should not move it: what you imagine a competitor charges. You cannot see their overhead, their burden or their results.

The arithmetic behind a target

Price = cost ÷ (1 − target margin)

Minimum margin ≥ the margin at which the job still covers its share of overhead

Worked example: what the spread is worth

The same $10,000.00 of cost, priced at two different targets:

  • At 15.00% — price $11,764.71, profit $1,764.71
  • At 28.00% — price $13,888.89, profit $3,888.89

Thirteen margin points on one job is a large amount of money, which is exactly why the target should be a decision per type of work rather than a habit applied to everything. Neither row is recommended here — they are the arithmetic, not advice.

Let your own closed jobs correct the target

A target margin is a prediction until a finished job tests it. The reliable way to tune it is to compare estimated and actual cost by type of work over several jobs and see where the estimate is systematically optimistic — see estimate vs actual and how to close out a job. A target adjusted from your own results is defensible; one copied from an internet average is not.

Common mistakes

  • Applying one company-wide margin to service calls, remodels and new construction alike.
  • Setting a target as markup and believing it is margin — see markup vs margin.
  • Adopting a percentage from an industry article with no idea what overhead it assumed.
  • Having a target but no minimum, so the target erodes one discount at a time.

Quick answers

What margin should a contractor charge?
There is no universal figure, and any published average would ignore your overhead, risk and utilization. The defensible approach is to price from your own break-even and risk, then verify with estimate-versus-actual results.
Should material-heavy work carry the same margin as labor-heavy work?
Rarely. They tie up different amounts of cash, carry different rework risk and consume different amounts of supervision — all of which are reasons to price them differently.

Run the numbers

Selling price, profit, markup percentage and margin percentage from any one of cost plus markup, cost plus target margin, or cost plus a price you already quoted.

Open the Markup & Margin Calculator

Free, no account, and the answer stays on the page.

Set a minimum you will not cross

Your Numbers stores your target and minimum margin, and Profit Guard checks every proposal against the minimum instead of trusting memory.

Open Your Numbers

How RHACOVA defines these terms

Every calculator, estimate and job in RHACOVA uses one set of financial definitions, and they are written down rather than implied. Read the RHACOVA methodology for the full list of definitions this article relies on.

Keep reading