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General contractors face many day-to-day challenges. From cash flow problems to labor shortages, low-quality subcontractors to sudden changes in scope of work, general contractors are vulnerable to a wide variety of added costs that can creep into their already-tight profit margins. That’s why pricing your services right from the start is so important, and if you’re looking for comprehensive general contractor pricing guides, you’ve come to the right place. Here’s how to price your general contracting services for 2023.
What should a general contractor charge?
While there’s no specific rule outlining how much a general contractor should charge for their services, on average, a general contractor’s fee is somewhere between 10 and 20% of the total cost of a job. In the case of general contractors whose services are in high demand, that figure can be even higher. Whether you charge a flat fee or not, you should still calculate it as a percentage to ensure you’re making a reasonable profit for the work you’re doing.
Here are some of the general considerations you should prioritize as you craft a bid for your general contractor services:
- Project type and size: Every project is different, which means the rates you charge will often vary from project to project. Of course, some projects are more material, labor, and cost-intensive than others, and your rates should reflect the costs, workload, and intensity you expect from a project.
- Location: The area where you furnish your services plays a big part in how you price them. You should determine the average cost of a contractor in your city and then calculate the cost of materials in your area.
- Experience: Experienced, in-demand contractors typically charge a higher markup for their services. If you’re established and have developed a network of business contacts—including a broad pool of subcontractors and laborers—consider charging more for your services than the local average.
Profitable pricing models for general contractors
Many contractors have their own system for pricing that allows them to stay competitive while still making a great profit. While pricing details vary from contractor to contractor, general pricing strategies follow some tried-and-true methods.
Time and materials
Time and materials (or T&M) contracts are ideal for projects that may not have a well-defined scope, but they’re also an ideal pricing method for small-scale projects that follow a strict timeline. These contracts entitle the contractor to receive reimbursements for the costs of materials, along with payments for labor, whether daily or by the hour.
General contractors must include aggregate costs into a T&M contract, but they should be itemized as direct, indirect, markup, or overhead costs. While it can be time-consuming to monitor the cost of materials, there are many benefits to this pricing model. Not only is your business covered in case of changes in work scope or unexpected delays—which almost always happen—but they enable hassle-free negotiations as you and your client settle on an hourly rate.
A fixed price, also called a flat rate or lump sum model, provides the client with a clear-cut price they’ll pay for general contractor services from the start. You’ll furnish a quote with a fixed fee for all construction services within the scope of work.
This pricing method makes sense to your clients, but it can be difficult to estimate the true cost of a project. Most contractors employ this method only for projects that have a well-defined scope, since the contractor bears all the risk.
If you suspect a project’s actual costs may turn out to be much less than you anticipated earlier, a cost-plus or cost-reimbursement price model might be the best option for your general contracting business. The client agrees to pay the general contractor for total project costs, plus an agreed-upon amount for profit, which is usually calculated as a percentage of the total project cost.
Contractors should provide proof of all direct and indirect costs when using this pricing model. This model is favorable for contractors since the client bears all the risk—but that also means that the client is often more heavily involved in the project’s administration.
If your services are in high demand—or if there’s some uncertainty about the scope of work of a project at the start—consider a unit pricing model for your general contractor services. Of all the general contractor pricing guides, this model is one of the most advantageous for the contractor, since the client bears the maximum risk. By charging for independent tasks, contractors ensure they’re paid fairly for their services, but the exact cost of the project isn’t known until completion.
The unit pricing model splits entire projects into several individual units. By itemizing the estimates as the project continues, contractors enjoy better flexibility when it comes to managing differences between actual and planned work. Plus, contractors have some wiggle room, since inaccuracies that often occur during initial bids can be amended at any point of the project.
Getting down to the details
It’s not enough for contractors to follow a rigid pricing model and expect to see a healthy profit for their work. By looking closely at the details of a project and considering any additional items or labor you’ll have to cover, you’ll craft a winning estimate that accounts for variables like:
- Operational costs: There are several operational and project support costs that a general contractor must shoulder. It’s important to build costs like legal fees, rent and utilities, permits and land acquisition, taxes and insurance, and even the cost of job site offices into your estimate.
- Subcontractor costs: Most general contractors don’t go it alone—they work with a team of trusted subcontractors to take on specific aspects of a project. Ensure you’re outsourcing work to the people with the best rates by comparing quotes. Often, general contractors find it’s better to find a subcontractor who provides a clear estimate rather than accept a cost-plus bid.
- Cleanup: Construction projects of all sizes and scope generate tons of waste. Even the construction of an average-sized home can create several tons of waste materials and trash. Rough cleaning and final cleaning are often covered by the general contractor, so make sure you’re building those costs into your estimate.
Find the pricing solution that works for you
It can be challenging for general contractors—even those who’ve been in the business for decades—to accurately price their services. There are so many factors at play, which means pricing can always be hit or miss. Calculating an appropriate price not only saves you headaches as you complete projects, but it also raises your profit margin. It also keeps your clients happy, giving them peace of mind that they’re not being overcharged for the work you’re doing.
A word about best practices when charging for estimates
A general contractor’s time is valuable, and crafting a well-researched, thoughtful estimate can be time consuming. As a general contractor, you should be paid for your time—even if your services aren’t retained in the end.
It’s not uncommon for general contractors to charge up to $1,000 for an estimate, depending on their reputation and the scope of your project. While some contractors offer free estimates on smaller jobs like kitchen or bathroom renovations, most charge for estimates on larger projects.
For example, a pre-construction planning consultation for a residential home can cost up to $1,000. You can sweeten the deal for your customers and make them more inclined to invest in an estimate by offering to apply the consultation costs toward the overall project costs should they choose to retain your services.
When it’s time to get paid for your services, turn to NorthOne
Without a competitive yet fair pricing strategy, contractors can under- or overcharge clients, neither of which is good. Fairly pricing projects helps you make a profit while still providing value to your clients—the kind of value that leads to happy customers, repeat business, and positive word of mouth.
Pricing projects using the general contractor pricing guides described above is just the start of making a profit for your services. You also need to choose the right banking partner who can make it seamless and easy to receive payment from your clients. NorthOne is the ideal banking partner for your general contractor business. Our business banking solutions are tailored to the needs of your operation, streamlining one of the hardest parts of running a business: keeping track of your finances. Contact our helpful team today to learn more.Apply for an Account